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:
- Cascading effect
- Disallowance of complete set-off in taxes under particular heads
- Input tax credit was not available for transactions with unregistered suppliers and exempt goods like petroleum
- 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
- 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.
- Local body taxes/entry taxes are also a deterrent for businesses
- 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|
|Goods transport agencies||15||2000||5||5|
|India’s GST vs other countries|
|Type of tax||Standard rate||Filing frequency|
|Brazil||State VAT (ICMS), Federal VAT (IPI)||Multiple bands|
|Canada||Harmonized services tax + state level taxes||5% + higher PST based on diff states||monthly|
|Taiwan||Business tax||5%||Bi monthly|
|USA||diff. Rates acrross|