This Article is From Jun 28, 2017

How GST Will Benefit Consumers, Businesses: Your 10-Point Cheat-Sheet

From the consumer's point of view, the biggest advantage would be in terms of reduction in overall tax burden on goods. For businesses, it means reduction in a multiplicity of taxes and a much simpler tax regime with fewer rates and exemptions.

How GST Will Benefit Consumers, Businesses: Your 10-Point Cheat-Sheet

GST is seen boosting India's GDP growth by 1.5-2 per cent over the long term

From July 1, the country will move to a new indirect tax regime as GST or goods and services tax will subsume nearly a dozen of central and state taxes. From the consumer's point of view, the biggest advantage would be in terms of reduction in overall tax burden on goods. For businesses, it means reduction in a multiplicity of taxes and a much simpler tax regime with fewer rates and exemptions. GST is being hailed as a potential "game-changer" for Indian economy. "GST will definitely change the way in which business operates. To that extent it is a major positive disruption, leading to more transparency and will make doing business easier," said Madan Sabnavis, chief economist with CARE Ratings, adding that in the short-term there could be some implantation challenges. Goods and services, depending on their nature, have been placed under four tax rates of 5 per cent, 12 per cent, 18 per cent and 28 per cent while some are exempt.

Here are 10 things to know:

  1. GST helps to eliminate "tax on tax" or the cascading impact of tax, thus bringing down the overall cost of goods. GST shifts the tax incidence near to the consumer and benefits the industry through better cash flows and better working capital management.

  2. Input tax credit: The mechanism of input credit under GST is one of the most important features of GST. This means that at the time of paying tax on output, manufacturers or service providers, for example, can reduce their tax payable by the amount they have already paid on inputs. For example, if a manufacturer's total tax on output comes to Rs. 5,000 while tax paid on input (purchases) is Rs. 3,000, the manufacturer needs to deposit only Rs 2,000 (Rs. 5,000 - Rs. 3,000) as tax, thus reducing the overall incidence of tax on final product. Average tax burden on companies is likely to come down which is expected to reduce prices and lower prices mean more consumption.

  3. But input credit is available to the recipient (the manufacturer in this case) only if details provided by the supplier in its return matches with those claimed by the recipient. Thus, it encourages suppliers of goods and services to become GST-complaint. So GST helps in checking evasion of taxes.

  4. In the current regime, tax rates vary from state to state. So companies often choose warehouses for their inventory based on tax considerations. Under GST, the country will move to 'One Nation, One Tax' regime, giving companies freedom to set up their own warehouses to optimise cost and improve customer service.

  5. Also, transportation costs could also fall due to reduction in long and winding queues at border check-points and other entry points within and between the states. This will reduce operational costs and will benefit companies. According to a World Bank report, corporates can save up to 40 per cent of their logistic costs incurred at check-posts and toll plazas.

  6. Analysts say that GST will usher in a more stable tax regime. "The real value of GST will be in the area of tax governance, where a system plagued with a plethora of discretionary, ad-hoc taxes will move toward a ruled-based, transparent and stable tax regime," said domestic brokerage Motilal Oswal in a note. Under GST, the Centre and the states will jointly administer and decide the taxes.

  7. GST could also boost exports by making Indian goods competitive in global markets. Exports will be treated as zero rated supplies which means no tax will be payable on exports of goods or services. However, exporters can claim input tax credit.

  8. For manufacturers or service providers, GST will help in ease of doing business. GST will bring in a simpler tax regime with fewer exemptions, reduce multiplicity of taxes, reduce compliance costs - no multiple record keeping for a variety of taxes, usher in simplified and automated procedures for various processes such as registration, returns, refunds and tax payments. All interaction needs to be through the common GSTN portal - so less public interface between the taxpayer and the tax administration.

  9. However, there could be short-term challenges for business. The transition to GST could disrupt the working capital cycle of businesses in the initial phase due to "input credit lock-up" in initial months, according to ratings agency India Ratings. Moreover, service tax rates are likely to increase to 18 per cent as against 15 per cent.

  10. Goods and Services Tax is seen boosting India's GDP or gross domestic product growth by 1.5-2 per cent over the long term. GST will deliver significant benefits by improved taxation efficiency and ease of doing business, and will convert India into one common market, Finance Minister Arun Jaitley has said.



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