Goods and Services Tax (GST) is by far one of the most awaited tax reforms in the country.
The Parliament passed the Central GST Bill, 2017 (CGST Bill), Integrated GST Bill, 2017 (IGST Bill), Union Territory GST Bill, 2017 (UTGST Bill) and the GST (Compensation to the States) Bill 2017. The passage of the Bills marks a big step forward in India’s plans to rollout GST from July 1.
It is perhaps the most important economic reform item on the government’s agenda. This is one reform which affects all aspects of our life.
Since this affects taxation of all Goods and Services, one needs to know how your stocks in your portfolio will react to its implementation. Goods and Services Tax (GST) is an indirect tax reform which aims to remove tax barriers between states and create a single market. Though GST is a tax reform, it is going to impact every sphere of business activity, be it procurement, supplychain, IT, logistics, pricing, margins, working capital, etc. as a number of business decisions taken based on the current tax structure may no longer be relevant in the new GST regime.
GST is essentially a consumption tax and is levied at the final consumption point. The principle used in GST taxation is Destination Principle. GST is applied on goods and services at the place where final/actual consumption happens.
GST is collected on value-added goods and services at each stage of sale or purchase in the supply chain. GST paid on the procurement of goods and services can be set off against that payable on the supply of goods or services. The manufacturer or wholesaler or retailer will pay the applicable GST rate but will claim back through tax credit mechanism.
But being the last person in the supply chain, the end consumer has to bear this tax and so, in many respects, GST is like a last-point retail tax. GST would replace a number of indirect taxes and levies in 29 states, transforming Indian into one market.
The benefits of GST are immense in terms of reducing economic distortions, creating a nationwide single tax market, widening of tax base and eliminating cascading of taxes (tax on tax).
The bill, which aims to simplify the indirect tax regime, will be a ‘gamechanger’ for the country and its implementation will be a big positive for long-term growth, according to analysts. A lot of positions have been built up over the last few days hoping that the passage of the bill would bring cheer to the market.
Sectors like FMCG, auto, cement, light electrical, multiplexes, retail and logistics could be some of the key beneficiaries of India’s biggest tax reform.
For manufacturing companies, it means level playing field for organized and unorganized sectors, and cost optimization in terms of movement and warehousing of goods due to uniform tax rate. Consequently, it would have positive fallout on inflation, curtailing tax avoidance and creating buoyancy in the economy.