Journal of Exclusive Management Science October 2016 - Vol 5 Issue 10 ISSN 2277-5684

Goods and Services Tax (GST) A Game- Changer for India

*Dr. J.Murthy
*Associate Professor, Dept. of MBA, Sree Vidyanikethan Institute of Management, Tirupati. Andhra
Pradesh
Abstract:
The Goods and Services Tax (GST), the biggest reform in Indias indirect tax structure in recent
times. GST seeks to streamline the taxation of trade in goods and services, reducing processes and
increasing the ease of doing business. In a nutshell, Goods and Services Tax (GST) is a comprehensive
multi-stage value added tax on goods and services. It is collected on value added at each stage of sale or
purchase. GST is a destination based regime, against the current regime which is origin based. Thus,
tax will be levied on the final & ultimate consumer. GST will abolish the other taxes such as octroi,
central state tax, and state level sales tax, stamp duty, telecom license fees etc.
This paper attempts to give how GST is going to be implemented and it will study the GST
impact on different industries and on the Indian economy.
Key words: GST, VAT, Indian Economy, Foreign countries, GDP.
Introduction
The recent decision by the government on GST will go down in Indias political-economic history
as a watershed. Goods and Services Tax (GST) would make life easier for the trade and industry and
more importantly reduce the cost of goods and services for the consumer, without compromising on the
revenues of either the Centre or the States. In fact, the GST will lead to a tax buoyancy and push to the
Gross Domestic Product between 1-1.5 per cent with clearance of the cob web of taxes.
The much awaited tax reform GST will make India move up the World Bank ranking of ease of
doing business by several notches.
Goods and Service Tax
GST is one indirect tax for the whole nation, which will make India one unified common market.
GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer.
Credits of input taxes paid at each stage will be available in the subsequent stage of value addition,
which makes GST essentially a tax only on value addition at each stage. The final consumer will thus
bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous
stages.
Presently, the Constitution gives mandate to the Centre and the States to levy indirect taxes
ranging from excise duty, customs, service tax. Valued Added Tax or sales tax, entertainment
tax, octroi, entry tax, purchase tax, luxury tax and different surcharges. Both the Centre and the States
have their own official machineries to collect these taxes. But for Central excise and VAT, most of the
taxes get calculated on a base which itself has been subjected to taxation at some or the other stage of
manufacturing value chain. So, it is a tax on tax making goods and services rather expensive for the
ultimate consumer while making life hard for the trade and industry. The most visible example of
inefficiencies of the system can be seen at inter-state borders with long queues of trucks being
subjected to different kind of tax inspection and payment of octroi and entry tax, blocking traffic on the
highways for hours together.
With the roll out of the GST, expected from April 1, 2017, all these taxes would be subsumed
into a single tax for the consumer. The Centre would levy and collect Central Goods and Services Tax
(CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions
within a State. The input tax credit of CGST would be available for discharging the CGST liability on the
output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST
on output. Services and goods would be subjected to taxes only on value addition at each stage, thus
bringing down the overall tax burden for the consumers.
From manufacturing to destination
As against the present system where the taxes like excise and Central sales tax are levied on
manufacturing at the factory gate or on inter-state movement of goods, the GST involves taxation at
the destination level. This could mean gains for the consuming state and loss for the manufacturing

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Journal of Exclusive Management Science October 2016 - Vol 5 Issue 10 ISSN 2277-5684
state. This is why the state with a good manufacturing base like Tamil Nadu was opposed to the GST
and consuming states like Bihar, West Bengal and Odisha favoured the same. But, the GST Bill
provides for fully compensating the losses to the states for five years. The earlier provision of additional
one per cent levy for the losing states has now been done away with.
GST objectives
Ensuring availability of input credit across the value chain
Minimising cascading effect of taxation
Simplification of tax administration and compliance
Harmonisation of tax base, laws, and administration procedures across the country
Minimising tax rate slabs to avoid classification issues
Prevention of unhealthy competition among states
GST Rate
There would be about three rates Standard rate in the form of X which will cover bulk of the items , Xminus for the items of mass consumption and X-plus for the luxury goods or the so-called sin goods.
In the Constitutional Amendment, there is no mention of the GST rates, which would be decided by the
GST Council comprising of Union Finance Minister as the Chairman and Finance ministers of the
states. Any decision of the GST Council would require three-fourth approval of the Council. The states
would have two third of the voting powers and the Centre one-third. The Congress Party has
demanded a ceiling of 18 per cent on GST standard rate while the government is called upon to ensure
the revenue neutral rate (RNR). Any major deviation from RNR could be counter-productive either for
inflation or for fiscal prudence. Getting the right RNR both for the Centre and the states would be a
major challenge.
Left out
Petroleum products and alcoholic beverages have been left out of the GST, for now, on concerns of the
states which feared these major revenue heads could not be bargained for. For the sake of wider
political consensus, these heads have been left for the future reforms.
The benefits of GST can be summarized as under:

For business and industry

Easy compliance: A robust and comprehensive IT system would be the foundation of the GST
regime in India. Therefore, all tax payer services such as registrations, returns, payments, etc. would be
available to the taxpayers online, which would make compliance easy and transparent.
Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are
common across the country, thereby increasing certainty and ease of doing business. In other words,
GST would make doing business in the country tax neutral, irrespective of the choice of place of doing
business.
Removal of cascading: A system of seamless tax-credits throughout the value-chain, and across
boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden
costs of doing business.
Improved competitiveness: Reduction in transaction costs of doing business would eventually lead
to an improved competitiveness for the trade and industry.
Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST,
complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax
(CST) would reduce the cost of locally manufactured goods and services. This will increase the
competitiveness of Indian goods and services in the international market and give boost to Indian
exports. The uniformity in tax rates and procedures across the country will also go a long way in
reducing the compliance cost.

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Journal of Exclusive Management Science October 2016 - Vol 5 Issue 10 ISSN 2277-5684
For Central and State Governments
Simple and easy to administer: Multiple indirect taxes at the Central and State levels are being
replaced by GST. Backed with a robust end-to-end IT system, GST would be simpler and easier to
administer than all other indirect taxes of the Centre and State levied so far.
Better controls on leakage: GST will result in better tax compliance due to a robust IT
infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the chain of
value addition, there is an in-built mechanism in the design of GST that would incentivize tax
compliance by traders.
Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of the
Government, and will therefore, lead to higher revenue efficiency.
For the consumer
Single and transparent tax proportionate to the value of goods and services: Due to multiple
indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at
progressive stages of value addition, the cost of most goods and services in the country today are laden
with many hidden taxes. Under GST, there would be only one tax from the manufacturer to the
consumer, leading to transparency of taxes paid to the final consumer.
Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the overall tax
burden on most commodities will come down, which will benefit consumers.
Sector wise impact of GST:Consumer durables
The current tax rate for the sector ranges between 7 per cent and 30 per cent.
Highlights:The implementation of GST will essentially benefit companies, which have not availed tax
exemptions in the past. It will lead to the reduction of the price gap between the organized and
unorganized sector. The warehouse/logistics costs across the operational and non-operational
profitability by almost 300-400 bps. The 7th Pay Commission is also expected to boost demand and
fund
inflow
in
the
consumer
durables
sector
by
the
end
of
the
year.
Impact: The impact may remain neutral or negative, specifically for companies which either enjoy tax
exemptions or fall under the concessional tax bracket.
Key beneficiaries: CGCE, Havells, Voltas, Blue Star, Bajaj Electricals, Symphony, Hitachi
Logistics
Highlights: The implementation of GST will lead to lower transit time and thereby generate higher
truck utilisation. This will boost demand for high tonnage trucks and lead to overall reduction in
transportation costs. It will facilitate seamless inter-state flow of goods, which is expected to directly
accelerate demand for logistics services
Impact: The logistics sector is largely fragmented and comprises many unorganized sector avoid tax
which generates a cost gap between them and the organized players.
With the GST coming into picture, we expect an overall positive impact, with a reduction in the cost
competitiveness as all the players will be brought under a uniform tax base, thereby improving growth
opportunities for the organized players
Key beneficiaries: VRL Logistics, GATI, Blue Dart, Transport Corporation of India, Cement
currently, the tax on cement ranges between 27 per cent and 32 per cent
Highlights:The tax rate for the cement sector is expected to decline to 18-20 per cent under the GST
regime. This is expected to lead to savings in the transportation cost, which currently comprises up to
20-25 per cent of total revenue. Thereby, overall realizations of cement companies will substantially
improve post GST rollout
Impact: The impact of GST will be positive, as the companies will also be able to save on their logistic
costs, due to rationalization of warehouses and lower transportation costs (due to decline transit time.
Key beneficiaries: ACC, Ultratech, JK Cement, Shree Cement.

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Journal of Exclusive Management Science October 2016 - Vol 5 Issue 10 ISSN 2277-5684
Textiles/garments
The
effective
tax
rate
for
the
sector
currently
ranges
between
6-7
per
cent
Highlights:Under the GST regime, there is no clarity whether a lower rate will continue for the readymade
garments. Companies may be negatively impacted in case the output tax rate is high. Going forward,
several export companies may also avail duty drawback benefits. Though we await more clarity on the
impact of these benefits.
Key players to be impacted: Arvind, Raymond, Page Industries
IT & ITeS
Currently, the IT industry is subject to an effective tax rate of 14 per cent.
Highlights: The tax rate under GST is expected to increase to 18-20 per cent. The industry earns a large part of
its revenue from exports, which will continue to be exempt under GST. Litigation around taxability of
canned software will probably end under GST regime as there will be no dist distinction between goods
and services.
Impact: It is expected to range from being neutral to slightly negative
Telecom
Currently, telecommunication services are subject to service tax of 14 per cent.
Highlights: The tax rate is expected to increase to 18 per cent under GST. It is expected that the telecom
companies may pass the increased tax burden on postpaid subscribers. Availability of input tax credit
will lower the sector's capex cost.
Impact: Increase in effective tax rate may be marginally negative for the sector. The telecommunication
companies may not be able to pass on all the increase in taxes to all the end consumers, especially the
ones in the lower prepaid segment.
Fast Moving Consumer Goods (FMCG):
Impact: The impact may remain neutral or negative, specifically for companies which either enjoy tax
exemptions or fall under the concessional tax bracket.
Key beneficiaries: CGCE, Havells, Voltas, Blue Star, Bajaj Electricals, Symphony, Hitachi
Conclusion: After the introduction of GST, many sectors will be benefited.
Sectors like media, telecom, automobile etc. will be boosted. Due to the elimination of the cascading
effect of taxes, the cost will be get reduced eventually. Corruption will also get reduced as under current
system there are multiple tax levies by many different authorities like check points between interstate
borders. So this corruption practice will be eliminated due to nationwide single tax applicability. No
doubt, India would definitely benefit by this GST, provided if the GST rate and its implementation
issues gets sorted out.
Sources:

Press Information Bureau, Government of India, & Ministry of Finance

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