What effect will GST have on various sectors of the Indian economy?
India is going to implement goods and services (GST) for 1121 products and services. GST Council finalizes the rates for different goods and services and sets 4 categories of tax slab rate for various items based on 5%, 12%, 18% and 28% falls on under the GST regime and this GST system will be the game changer of Indian economy.
It is expected that one of the major benefits of the new goods and services tax regime would be in the removal of tax obstacles across the country. This will make sure that India is an extensive market with flawless credit. This is also anticipated to improve economies of scale in areas such as effectiveness and manufacture in the context of supply chain.
Doing away with the cascading effects of certain taxes
There are certain taxes that remain embedded in the cost of production of goods and services. They have a cascading effect as well. It is expected that when the GST comes to play this cascading effect would be done away with. This will also reduce the costs of indigenous goods to a significant extent. It is expected that this way the Make in India programme would be promoted better.
Making business easy
It is likely that GST would also significantly make it easier to do business in India. Since manifold taxes are being incorporated into one tax – GST in this case – it will bring down the cost of compliance by a significant extent. It will have a similar effect on transaction costs as well.
Improving the economy
It is also expected to boost economy by creating a tax regime that is stable, predictable, and transparent. This would encourage more investment in India – both foreign and local. This could create a lot of jobs in India, something that will benefit the country really well.
Effect on unorganized sector
Most of the companies in India belong to the unorganized segment and it is expected that the introduction of GST will have a key effect on the same. The unorganized sector would now become a part of the tax net of India and it will thus lose benefits such as not having to pay taxes and levies. Companies that are presently working in sectors that have high levels of unorganized component will stand to gain in terms of greater demand for their products and services. It is expected that sectors such as plywood, ceramic tiles, and batteries will do well.
Effect on sectors with long value chains
It is expected that sectors that have long value chains to the final consumption stage from basic goods would be benefiting. It also needs to be noted in this context that these are sectors where the operations are spread across many stages. Examples of such sectors would be fast moving consumer goods (FMCG), pharmaceuticals, and consumer durables. In fact, it is expected that FMCG companies would be able to save a lot in their logistics costs. It will also be able to save in the domain of distribution costs as well. This will happen because there would no longer be any multiple sales points needed. As it is, these companies pay 24 to 25 per cent in the form of excise duty, entry taxes, and value added tax (VAT). The lower margin of 18 per cent will benefit them immensely. In case of some consumer durables and FMCG products the tax rate has been hiked to 28 per cent.