Goods And Services Tax: How It Can Benefit Businesses

Goods And Services Tax: How It Can Benefit Businesses
In India, indirect taxes have driven businesses to model and restructure their systems and supply chain owing to the multiplicity of costs and taxes such as service tax, value added tax etc. We passed a milestone towards consolidated goods and services tax regime, with the Parliament passing the appropriate constitution amendment bill, in what is regarded as the most revolutionary indirect tax reformation since the independence. Now that the Goods and Services Tax (GST) has seen the light of day, the way India goes about business will change radically.

What makes GST an essential tax reform is it simplifies the structure of tax, increases government revenue, the tax compliance is raised and most importantly, there is an integration of states.
Consumption-based tax, that's what GST is. It is obtained from value-added goods and services, at every stage of purchase in the supply chain. As for the last person in the chain, who is the end consumer, has to endure this last-point retail tax.

Objectives Of Goods And Services Tax
Ensure availability of input credit across the supply chain and brings transparency among taxes.
Minimize the cascading effect of all of the other taxes such as service tax, sales tax, and value added tax.
Achieve balance between laws, tax base, and administrative systems across India.
Decreases tax rates to avoid classification issues and destructive competition among states.

The cumulative tax collection (direct & indirect) in India currently is at Rs. 14.6 lakh crore, of which nearly 34 percent constitutes indirect taxes, with Rs. 2.8 lakh crore coming from excise and Rs. 2.1 lakh crore from service tax. The existing taxation rate peaks at 26.5 percent. With the implementation of the GST, the whole indirect tax system in India is anticipated to grow.

Impact Of GST On Inflation
Once the proposed GST is in effect, the tax rate on goods (comprising about 70-75 percent of the CPI load) will decrease. Along with this, a notable proportion of goods won’t be subject to tax and you should anticipate a status quo in the near future.
Service tax is not imposed on certain services and these services are expected remain outside of the GST regime. Thus, the overall transition to GST will not have a significant impact on inflation.

Automobile Sector
The active tax rate in this area ranges from 30 percent and 47 percent. Once GST is implemented, the GST Rate is expected to waver between 20-22 percent. The transit time and the overall cost will be diminished as the goods will be transported from one state to another by comfortably surpassing various checkpoints and octroi.

Consumer Durables
The tax rate for this sector varies between 7 percent and 30 percent. GST will benefit businesses that have not availed tax exemptions in the past. It will drive to the decrease of the price gap between the organised and unorganised sector.

The logistics sector is originally split into four divisions -- warehousing, transportation, freight forwarding and value-added logistics.
The transportation provides the major chunk of 60 percent of the logistic pie, succeeded by warehousing at 24.5 percent. Packaging and other related businesses make the rest of the segment.
The existing interstate taxation has driven businesses to maintain warehouses in each state, in addition to this many carrier agents in each state makes the supply chain inefficient and long. The GST Implementation will increase demand for high capacity trucks and lead to overall reduction in transportation expenses.

While GST can drive inflation up in the short term because the price of some goods will rise, economists say it will expand business activity and prevent tax evasion.



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