GST- the nuts and bolts

While the GST is set to replace the existing tax structure in the country, it is imperative to understand its impact across sectors and industries and also draw a basic comparison with tax structures internationally.  This will be crucial to understand how the sectors could be impacted with the Goods and Services Tax. First, it is critical to know why the existing structure needed to be replaced.

The major drawbacks of Existing tax structure include:

  1. Cascading effect
  2. Disallowance of complete set-off in taxes under particular heads
  3. Input tax credit was not available for transactions with unregistered suppliers and exempt goods like petroleum
  4. Even while input tax credit was available partially, credits could not be transferred across jurisdictions (state and centre) and this resulted in higher cost of doing business
  5. Taxes at a central and state level could not be offset against one another. Thus if traders, not involved in manufacturing, consumed services such as rent, on which they paid service tax, could not get the offset as their output tax liability was VAT.
  6. Local body taxes/entry taxes are also a deterrent for businesses
  7. The barriers to trade in terms of inter-state taxation resulted in sub-optimal sourcing and supply chain dynamics.

One of the main perquisites of GST in India is the perceived shift from the unorganized sector to the organized sector. Across industries, businesses will be required to be GST-compliant for their customers to receive input tax credit. It is imperative to analyze various key sectors and their stance as far as GST is concerned.

Sector Industry %organised Industry size in INR bn Current tax rate GST rate
FMCG Detergent 65 200 24-28 18
Soaps 80 145 24-28 18
Biscuits 67 260 24-28 18
Instant noodles 90 30 24-28 18
Consumer Discretionary Paints 70 450 24-28 28
Footwear 55 1100 12 12
Jewellery 20 2800 2 5
Apparel 20 4225 10 12
Building materials Plywood 30 180 28 28
Tiles 40 210 28 28
Pipes 50 210 28 28
Consumer electricals Fans 65 120 28 28
Lights 70 143 28 28
Wires 65 200 18 28
Goods transport agencies 15 2000 5 5
Express Logistics 20 300 15 18

 

India’s GST vs other countries
  Type of tax Standard rate Filing frequency
Australia GST 10% monthly
Brazil State VAT (ICMS), Federal VAT (IPI) Multiple bands
Canada Harmonized services tax + state level taxes 5% + higher PST based on diff states monthly
Germany VAT 19% Monthly
Indonesia VAT 10% Monthly
Korea VAT 10% quarterly
Malaysia GST 6% Monthly
Mexico VAT 16% monthly
Newzealand GST 15% monthly
Russia VAT 18% quarterly
Singapore GST 7% quarterly
South Africa VAT 14% monthly
Taiwan Business tax 5% Bi monthly
Turkey VAT 18% Monthly
USA diff. Rates acrross

 

gst (1)

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