GST: Structure & Impact | Part 1
With the first ray of sun striking through the sky, comes another much applauded effort of Central Government. The Goods & Service Tax (GST) has swiped clearly through the country on the midnight of June 30 and is now the talk of the town. Set to revolutionize the way India does its taxes, the “One Nation, One Tax” will be levied on each stage of the production cycle- starting from the raw material, processing, stretching manufacturing, warehousing up to the sale top customer. Thus the final consumer will bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
What makes it significantly different from existing system, is the fact that actually it is destination-based tax. With the previous taxation process, the central government levies excise duty on manufacture and state government adding Value Added Tax (VAT) when the item is sold to the next stage in cycle.
GST will engulf all goods other than crude petroleum, motor spirit, diesel, aviation turbine fuel and natural gas. It would apply to all services barring a few to be specified.
Talking of the structure of the newly implemented taxation plan, the government has opted for four slabs for both goods and services — 5%, 12%, 18% and 28%. In addition, several items even face zero levy, while bullion will attract 3% GST. Not only this, to compensate states for revenue loss, luxury and sin goods that are in the top bracket will also attract a cess.
“Dual GST” which is concurrently levied by central and state government comprise of: Central GST (CGST) & State GST (SGST) which will be levied by Center & State respectively. Integrated GST (IGST) which will be levied by Central Government on Inter-State supply of goods and services.
When it comes to automobile industry, GST has its own way. Though it is too early to provide an in-depth analysis of cost per product post GST implementation, as some ambiguity still remains. The experts on ClearTAX had somehow predicted the future of this industry.
With an average combined rate of 26.50 to 44%, previously the excise and VAT are charged at consumer end. However there will be less burden of tax on the end consumer under GST as tax levied are expected to be 18 and 28%.
Also apart from this, dealers/importers would be able to claim GST paid on goods imported/sold. GST would also help the manufacturers in procuring auto parts at a cheaper cost due to an improved supply chain mechanism under GST. Overall economic activity is expected to increase and a better GDP growth is expected that should push demand for vehicle across categories.
It can be summarized that Implementation of GST would reduce the cost of manufacturing of cars due to the subsuming of different taxes levied previously. Under GST, the taxes would be charged on consumption state rather than the origin state, which would give a boost to the growth rate of the automobile industry.
For more on GST stay tuned!