GST Impact on Various Business Industries / Sectors in India - Infire Tech & Trends - Technology, Entertainment, Arts and Crafts by Infire Media

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GST Impact on Various Business Industries / Sectors in India

GST Impact on Various Business Industries / Sectors in India

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The long-awaited GST bill that is expected to unify and simplify the Indian tax structure, will be implemented from 1st April, 2017 and most industries are likely to fall under the blanket of its impact. 

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However, the IT sector with services such as software development, mobile app development, website design and more, is one of the major sectors that is likely to be impacted. With the intention of safeguarding the financial independence of the States and the Centre, the government has proposed a dual GST structure, under which State GST as well as Central GST will be applicable for every supply of good. Though at an elementary level this might appear to be basic, the IT sector may have some formidable changes that need to be tuned in to.

One of the facts that the car manufacturers and automobile manufacturers have to keep in mind is that these state incentives are based on the current value added tax (VAT) and CST that they pay. Tomorrow with CST going away, the states will have to make do these commitments of incentives on the basis of whatever they correct under the GST regime. So, that is another important fact that the auto manufacturers have to keep in mind that they will have to go and renegotiate those memorandums of understanding (MoU) that they have with the states.

“It is welcome to see that the education and healthcare sector is out of GST and transportation services is taxed at 5%. However, the telecom services at 18% may touch the raw nerve of the common man, as that is the only significant service that is used by majority of the population in India,” he added.

Locked-up working capital is the problem faced by ecommerce firms as well. They are expected to collect tax at source, while offline retail gets up to six weeks to remit the tax they collect. There is merit to the industry’s claim that its ability to give the tax authorities the most detailed and transparent information on who has sold what and collected what tax would enable the government to both collect tax and avoid discriminating against sellers on e-commerce platforms. IT companies are worried about how to assign multi-location service delivery to particular states, as they are about composite contracts for supply of infrastructure and maintenance not amenable to itemised billing for hardware and service supplies over the period of the contract. Tax on intra-firm supplies across state borders is a horror IT services share with financial services. Integrated GST would appear to be the solution for IT services as well. The states must agree to this.

Presently, the centrally administered service tax is levied at 9 percent in the hotel industry and 6 percent in the food & beverage sector. Besides that, the luxury tax and VAT are state-dependent.
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Hospitality industry has always been a competitive and an ever progressing one. Because of it’s widespread exposure across the world, technology becomes an unavoidable and pivotal factor to maintain it’s reliability and newness. That’s why, when one talks about recently introduced tax reforms, government rules and regulations for this industry; a major part of it is taken by hospitality software.

“So, moving from the single point to 111 could definitely prove to be a challenge in terms of ease of doing business,” Chandrashekhar said in Hyderabad. “The services industry at large was administered under a single authority in the centre under the service tax regime. The simplicity and certainty that it offered needs to be emulated in the GST law that states and centre adopt subsequently,” he added.

Currently, services industry attracts 15 per cent tax, which may shoot up to 18-22 per cent depending on the rate the GST Council agrees on. Consequently, restaurant bills, expenditure on staying at hotels would go up. Similarly, air travel will also turn costlier. Sectors such as commercial vehicles, telecom, print media, cigarettes and jewelry would also be adversely impacted.

"While services comprise a very small share in CPI, they account for almost 50 per cent of the total consumption basket in the economy. Thus, while the impact of GST may not be visible in the official inflation measures, it will certainly pinch consumers, as the share of services has been rising," said the brokerage in a research note.

“The industry has been discussing challenges related to multiple registrations in each state and associated complexities that may arise in the GST regime,” said C.P. Gurnani, Nasscom chairman and chief executive officer and managing director of Tech Mahindra Ltd.

IT experts believe that the GST Bill will bring some ease of doing business and address various challenges in the current indirect tax landscape. At present the total tax on IT software is as high as 21.24 per cent on base rate . In other words, Software is taxed twice as service tax and VAT. By implementation of GST, it will be single tax, which will simplify compliance. Also, while the rate of GST is yet to be decided, industry observers believe the rate will come down to 18 per cent, as it was recommended by a government panel while making their impact calculations.

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