Project Report

Managerial Economics [ECON605]

Submitted to: Submitted by:

Prof. (Dr.) S. K. Laroiya BIPLV KUMAR (50)
Amity Business School, Noida Chirag Jaiswal (58)
Vaibhav Nasir (63)
Abhishek Nayak(61)
Abhinav (59)
Samarth Jain(29)
Sohaib (26)
Parichit(82)
MBA(Finance)

Amity University, Noida

Session:-2017-2019
 Contents

• Introduction
• Earlier indirect tax structure
• Limitations of Earlier Indirect Tax Structure
• Advantages of GST
• GST Structure
• Items not Covered under GST
• GST Council
• GSTN
• GST in India vs GST in Other Countries
• GST Impacts on different Sectors of India's Economy
• Real Estate
• E-commerce
• Travel and tourism
• Ride Hailing Apps
• Smartphones
• Automobile sectors in India
• Cement Industry
• Logistics
• FMCG
• IMF ON GST
• World Bank on GST
Introduction
• 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.

• The idea of moving towards GST was first mooted by the then Union Finance Minister in
his Budget speech for 2006-07. Initially, it was proposed that GST would be introduced
from 1st April 2010.The Empowered Committee of State Finance Ministers (EC) which
had formulated the design of State VAT was requested to come up with a roadmap and
structure for GST. Joint Working Groups of officials having representatives of the States
as well as the Centre were set up to examine various aspects of GST and draw up reports
specifically on exemptions and thresholds, taxation of services and taxation of inter-State
supplies. Based on discussions within and between it and the Central Government, the EC
released its First Discussion Paper (FDP) on the GST in November, 2009. This spelt out
features of the proposed GST and has formed the basis for discussion between the Centre
and the States so far.
• The introduction of the Goods and Services Tax (GST) is a very significant step in the field
of indirect tax reforms in India. By amalgamating a large number of Central and State taxes
into a single tax, GST will mitigate ill effects of cascading or double taxation in a major
way and pave the way for a common national market. From the consumers point of view,
the biggest advantage would be in terms of reduction in the overall tax burden on goods,
which is currently estimated to be around 25%-30%. It would also imply that the actual
burden of indirect taxes on goods and services would be much more transparent to the
consumer. Introduction of GST would also make Indian products competitive in the
domestic and international markets owing to the full neutralization of input taxes across
the value chain of production and distribution. Studies show that this would have a boosting
impact on economic growth. Last but not the least, this tax, because of its transparent and
self-policing character, would be easier to administer. It would also encourage a shift from
 the informal to formal economy. The government proposes to introduce GST with effect
from 1st July 2017.
• France was the first country to implement GST to reduce tax- evasion. Since then, more
than 140 countries have implemented GST with some countries having Dual-GST (e.g.
Brazil, Canada etc.) model. India has chosen the Canadian model of dual GST.

EARLIER INDIRECT TAX STRUCTURE

The taxes that are earlier charged by central and state are:

Central
Central Government levied taxes on the following:

• Income Tax: Tax collected on the income of an individual

• Customs duties: Duties collected on the exports and imports of goods

• Service tax: Taxes gathered on various services

• Central excise: Taxes on Manufacturing of dutiable goods

State

• Value Added Tax (VAT): Sales of goods involve the particular tax. The sales of the goods in intra-
state are covered by the VAT Law of that state, whereas those among the inter-state is levied by the
Central Sales Tax Act. Even the revenue gathered as per the Central Sales Tax Act is done by the State
Governments and the Central Government has no role in it.

• Stamp duties and Land Revenue: Since land is a matter on which only State Governments can
govern, thus the Stamp duties on transfer of immovable properties are levied by State Governments.

• State Excise on Liquor and certain agricultural goods.

In India, indirect taxes are in vast numbers as there were several of taxes to be incurred on manufacture,
import, and sale and even purchase in certain cases. Further the law was governed less by the Acts and
more by day to day notifications, circulars and orders by the Governing bodies.

• Further there are some local indirect taxes levied like Local Body Taxes (LBT) or Octroi.
Limitations of Earlier Indirect Tax Structure

1. Cascading

Current system of multiple levies distributed between Centre & States results into cascading (i.e.
tax on tax) effect. For instance, no credit of State VAT is allowed against Central Tax. CST credit
paid in the originating State is also not allowed in the receiving State. This results in the increase
in the overall burden of tax in the hands of end customer and creates distortion in the market.

2. Exemptions & Concessions

Under the current system, businesses enjoy many kinds of exemptions & concessions under
different levies which break the chain of VAT and thus create distortion. Also these kinds of
benefits do not create a level playing field especially when the same commodity is taxed at
different rates in different jurisdictions.

3. Lack of transparency

Under excise & service tax law, currently there is no mechanism to cross verify the claim of
CENVAT credit made by the manufacturer/service provider. Even under State VAT laws, all the
States in India do not have the mechanism to cross verify the credits.

4. Lack of uniformity in provisions and rates

Present VAT structure across the States lacks uniformity which is not restricted only to the rates
of tax but also the credit provisions as well as procedures.

5. Multiple points of taxation

Under the current system there are multiple points of taxation. Excise is levied when goods
manufactured are cleared from the factory premises irrespective of the fact that the clearance is on
account of sale or otherwise. State VAT is levied on sale of goods. Entry tax is levied on entry of
goods in a particular State.
 6. Complexity in determining the nature of transaction – Goods vs. Service

The distinction between goods and services found in the Indian Constitution has become more
complex. Today, good and service are being packaged as composite bundles and offered for sale
to customers under a variety of supply-chain arrangements. Under the current division of taxation
powers in the Constitution, neither the Centre nor the States can apply the tax to such bundles in a
seamless manner. Each Government can tax only parts of the bundle, creating overlaps in taxation.

7. Narrow base

Due to different thresholds under different laws as well as numerous exemptions and concessions,
the current tax base under indirect tax is narrow as compared to other countries.

8. Multiple administrations

Under the current system, businessmen are required to visit different tax offices according to the
applicable laws to his business. These increases the compliance cost of businesses and breeds
unnecessary complexity.

Advantages of GST 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.

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.
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.

GST Structure

GST being a destination based tax got divided into three categories - State Goods and Services
Tax (SGST), Central Goods and Services Tax (CGST) and Integrated Goods and Services Tax
(IGST).

State Goods and Services Tax (SGST)

The State Goods and Services Tax (SGST) is a tax charged on intra-state supplies of both goods
and services by the state government and is governed by the SGST Act. An important point to
note is that any tax liability obtained under SGST can be set off against SGST or IGST input tax
credit only.
Central Goods and Services Tax (CGST)

Central Goods and Services Tax (CGST) is levied on intrastate supplies of both goods and services
by the Central Government and is governed by the CGST Act. SGST, governed by the State
Government, will also be levied on the same intrastate supply.

• An example for CGST and SGST:

Let’s suppose Rajesh is a dealer in Maharashtra who sold goods to Anand in Maharashtra worth
Rs. 10,000. The GST rate is 18% comprising of CGST rate of 9% and SGST rate of 9%. In such
case, the dealer collects Rs. 1800 of which Rs. 900 will go to the Central Government and Rs. 900
will go to the Maharashtra Government.

Integrated Goods and Services Tax (IGST)

The Integrated Goods and Services Tax (IGST) is applicable on all inter-state supplies of goods
and/or services and will be governed by the IGST Act. The tax is levied on any supply of goods
and/or services in both cases of import into India and export from India. Under IGST, exports
would be zero-rated and the tax will be shared between the Central and State Government.

• An example for IGST:

Consider that a businessman Rajesh from Maharashtra had sold goods to Anand from Gujarat
worth Rs. 1,00,000. The GST rate is 18% comprised of 18% IGST. In such case, the dealer has to
charge Rs. 18,000 as IGST. This IGST will go to the Centre.

Why the split into SGST, CGST, and IGST?

India is a federal country where both the Centre and the States have been assigned the powers to
levy and collect taxes. Both the Governments have distinct responsibilities to perform, as per the
Constitution, for which they need to raise tax revenue.

The Centre and States are simultaneously levying GST.

The three types tax structure is implemented to help taxpayers take the credit against each other,
thus ensuring “One Nation, One Tax”.

How is input tax credits adjusted between the State and the Center?

Let us consider that goods worth Rs. 10,000 are sold by manufacturer A from Maharashtra to
Dealer B in Maharashtra.

Dealer B resells them to Trader C in Rajasthan for Rs. 17,500.

Trader C finally sells to end user D in Rajasthan for Rs. 30,000.

Suppose the applicable tax rates for the goods sold are CGST= 9%, SGST=9%, and
IGST=9+9=18%

Since A is selling this to B in Maharashtra itself, it is an intra-state sale and so, CGST@9% and
SGST@9% will apply.

Dealer B (Maharashtra) is selling to Trader C (Rajasthan). Hence, this is an interstate sale,

with IGST@18%.

Trader C (Rajasthan) is selling to end user D also in Rajasthan. Once again it is an intra-state sale
and hence, CGST@9% and SGST@9% will apply.

GST Rates
Rate classification for goods

Exempt(0%) 5% 12% 18% 28% 28% + Cess

Food grains Coal Fruit Juices Kitchenware Air Small cars

Cereals Sugar Vegetable Juices Hair Oil conditioner (1% / 3%
Milk Tea & Coffee Beverages containing Soap Refrigerators cess)
Jaggery Drugs & milk Toothpaste
Luxury cars
Common Medicine Jams Glass fibre
(15% cess)
Salt Edible Oil

Rate classification for services

Exempt 5% 12%-18% 28%

 Education  Goods  Works contract  Cinema tickets
transport
 Healthcare  Business Class  Betting
 Rail tickets air travel
 Residential (other than  Gambling
accommodation sleeper class)  Telecom services
 Hotel/ Lodges with
 Hotel/ Lodges  Economy class  Financial services tariff above INR 7500
with tariff air tickets
below INR  Restaurant
1000  Cab services
aggregators
 Hotel/ Lodges
 Selling space with tariff
for between INR
advertisements 1000 and 7500
in print media

Items not Covered under GST

GST council has announced the rates for goods & services which also contains the list of exempted
goods and services.
There are certain activities which are items not covered under GST. They are beyond the scope of
GST, i.e., GST will not apply on them. These are classified under Schedule III of the GST Act as
“Neither goods nor services”.

1. Services by an employee to the employer in relation to his employment

Related parties include employer-employee which raised many concerns whether employment
now attracted GST. This clarification has been brought in to clarify whether GST is not applicable
on employment. An employee will still pay income tax on salary earned.

2. Court/Tribunal Services including District Court, High Court and Supreme Court

Courts will not charge GST to pass judgement.

3. Duties performed by:

 The Members of Parliament, State Legislature, Panchayats, Municipalities and other local
authorities
 Any person who holds a post under the provisions of the Constitution
 Chairperson/Member/Director in a body established by the government or a local body and
who is not an employee of the same

4. Services of a funeral, burial, crematorium or mortuary including transportation of the

deceased

There are no taxes on funeral services for any religion.

5. Sale of land and sale of building

Construction of a new building is subject to GST (being works contract).

6. Actionable claims (other than lottery, betting and gambling)

Actionable Claims’ means claims which can be enforced only by a legal action or a suit, example
a book debt, bill of exchange, promissory note. A book debt (debtor) is not goods because it can
be transferred as per Transfer of Property Act but cannot be sold. Bill of exchange, promissory
note can be transferred under Negotiable Instruments Act by delivery or endorsement but cannot
be sold.

Actionable claims are neither products nor services. They can be considered as something in lieu
of money. So GST will not apply on these.

Lottery, betting and gambling attract 28% GST.

Apart from Schedule III, GST is also not applicable on the following, i.e., they are beyond the
scope of GST:

Alcohol for human consumption: Alcohol for human consumption has been kept outside the
purview of GST in India at present. However, the taxes imposed to alcohol for human
consumption will continue as per the structure before GST implementation.
Petroleum products: Petroleum Products such as petroleum crude, motor spirit (petrol), high
speed diesel, natural gas and aviation turbine fuel etc. are also kept outside the purview of GST
in India. However, the taxes for these products will be charged as per the structure before
introduction of GST.
Electricity: The electricity has been kept outside the purview of GST at present. However, the
taxes applicable at present for electricity will continue as before.

GST Council

The mechanism of GST Council would ensure harmonization on different aspects of GST between
the Centre and the States as well as among States. It has been specifically provided that the GST
Council, in its discharge of various functions, shall be guided by the need for a harmonized
structure of GST and for the development of a harmonized national market for goods and services.
The GST Council shall establish a mechanism to adjudicate disputes arising out of its
recommendation or implementation thereof.

The GST Council which will be a joint forum of the Centre and the States, shall consist of the
following members: -
  Union Finance Minister – Chairperson
 The Union Minister of State, in-charge of Revenue of finance – Member
 The Minister In-charge of finance or taxation or any other Minister nominated by each
State Government – Members

Voting Rights

• Centre- One third of total votes cast

• States - Two-thirds of the total vote cast
• Each state, big or small, will have equal vote
• Decision by two-thirds majority

GST Council Meetings

GST Council has met seventeen times since its constitution and some important decisions taken in
the GST Council meeting are:-

 Rules for conduct of business in GST Council.

 Timetable for implementation of GST.
 The threshold limit for exemption from levy of GST would be Rs. 20 lakhs for the States
except for the Special Category States, as enumerated in Article 279A of the Constitution,
for which it will be Rs 10 Lakhs).
 The threshold for availing the Composition scheme would be Rs. 75 lakhs in States other
than the North East States, Sikkim and Himachal Pradesh where the threshold for availing
the Composition scheme would be Rs. 50 lakhs. The GST Council has also recommended
that manufacturers of the following goods shall not be eligible for the Composition
Levy; Ice cream and other edible ice, whether or not containing cocoa, Pan
masala, Tobacco and manufactured tobacco substitutes. Service providers would be kept
out of the Composition Scheme, except restaurant services.
 To compensate States for 5 years for loss of revenue due to implementation of GST, the
base year for the revenue of the State would be 2015-16 and a fixed growth rate of 14%
will be applied to it.
  Approval of the Draft GST Rules on registration, payment, return, refund and invoice,
valuation, input tax credit, composition and transitional provisions.
 All entities exempted from payment of indirect tax under any existing tax incentive scheme
would pay tax in the GST regime and the decision to continue with any incentive scheme
shall be with the concerned State or Central government. In case, the State or Central
Government decides to continue with any existing exemption/incentive scheme; it will be
administered by way of a reimbursement mechanism.
 Adoption of four slabs tax rate structure of 5%, 12%, 18% and 28%. In addition, there
would be a category of exempt goods and further a cess would be levied on certain goods
such as luxury cars, aerated drinks, pan masala and tobacco products, over and above the
rate of 28% for payment of compensation to the states.
 GST rates on 1211 items were approved at the 14th GST Council meeting held at Srinagar
on 18th and 19th of May 2017.
 At the 15th GST Council meeting held at New Delhi on 3rd June 2017, tax rates on the
remaining goods were approved.
 28 states, and 2 Union Territories with Legislatures (Delhi and Puducherry) have already
passed their respective State GST Bill in their State Assemblies.
 Issue of cross empowerment and administrative division of taxpayers between the States
and Centre has been resolved.

The Central Goods and Services Tax bill, Integrated Goods and Services Tax bill, Union
Territories (without legislature) Goods and Services Tax bill and Goods and Services Tax
(Compensation to States) bill have been passed by the Lok Sabha on 29.03.2017 and by the Rajya
Sabha on 06.04.2017.

Salient features of GST:-

Input tax credit

Taxpayer is allowed to take credit of taxes paid on inputs (input tax credit), as self-assessed, in his
return. Taxpayer can take credit of taxes paid on all goods and services, other than a few items in
the negative list, and utilize the same for payment of output tax. Credit of taxes paid on inputs can
be taken where the inputs are used for business purposes or for making taxable supplies. Full input
tax credit shall be allowed on capital goods on its receipt as against the current Central Government
and many State Government practice of staggering the credit in more than one installment.
Unutilized input tax credit can be carried forward. The facility of distribution of input tax credit
for services amongst group companies has been provided for through the mechanism of Input
Service Distributor (ISD).

HSN (Harmonized System of Nomenclature)

HSN code shall be used for classifying the goods under the GST regime. Taxpayers whose turnover
is above Rs. 1.5 crore but below Rs. 5 crore shall use 2-digit code and the taxpayers whose turnover
is Rs. 5 crore and above shall use 4-digit code. Taxpayers whose turnover is below Rs. 1.5 crore
are not required to mention HSN Code in their invoices.

Refund

Time limit for claiming online refund has been increased from one year to two years. Refund shall
be granted within 60 days from the date of receipt of complete application. Interest is payable if
refund is not sanctioned within the stipulated period of 60 days. If the refund claim is less than Rs.
2 lakhs, there is no need for the claimant to furnish any documentary evidence to prove that he has
not passed on the incidence of tax to any other person. Only a self-certification to this effect would
suffice. Refund of input tax credit shall be allowed in case of exports or where the credit
accumulation is on account of inverted duty structure (i.e. where the tax rate on output is higher
than that on inputs).

Demands

A new concept of sunset clause for tax disputes has been introduced. It provides that Adjudication
Order shall be issued within 3 years of filing of annual return in normal cases and the time limit is
5 years (from the date of filing of annual return) in fraud/suppression cases. SCN will have to be
issued at least 3 months prior to the time limit prescribed for issue of adjudication order in normal
cases and at least 6 months prior to the time limit prescribed for issue of adjudication order in cases
involving fraud/suppression etc. Penalty is Nil or minimal if the tax short paid / non-paid is
deposited along with interest at the stage of audit/investigation.

GSTN

Putting in place a robust IT network is an absolute must for implementation of GST. A Special
Purpose Vehicle called the GSTN has been set up to cater to the needs of GST. The GSTN shall
provide a shared IT infrastructure and services to Central and State Governments, taxpayers and
other stakeholders for implementation of GST. The functions of the GSTN would, inter alia,
include: (i) facilitating registration; (ii) forwarding the returns to Central and State authorities; (iii)
computation and settlement of IGST; (iv) matching of tax payment details with banking network;
(v) providing various MIS reports to the Central and the State Governments based on the taxpayer
return information; (vi) providing analysis of taxpayers’ profile; and (vii) running the matching
engine for matching, reversal and reclaim of input tax credit. The target date for introduction of
GST is 1st July, 2017.

The GSTN will also make available standard software for small traders to keep their accounts in
that, so that straight away it can be uploaded as their monthly returns on GSTN website. This will
make compliance easier for small traders.

The Goods and Service Tax Network (or GSTN) is a non-profit, non-government organization. It
will manage the entire IT system of the GST portal, which is the mother database for everything
GST. This portal will be used by the government to track every financial transaction, and will
provide taxpayers with all services – from registration to filing taxes and maintaining all tax details.

Structure of GSTN

Private players own 51% share in the GSTN, and the rest is owned by the government. The
authorized capital of the GSTN is ₹10 crore (US$1.6 million), of which 49% of the shares are
divided equally between the Central and State governments, and the remaining is with private
banks.
The GSTN has also been approved for a non-recurring grant of Rs. 315 crores. The contract for
developing this vast technological backend was awarded to Infosys in September 2015.

The GSTN is chaired by Mr. Navin Kumar, an Indian Administrative Service servant (1975 batch),
who has served in many senior positions with the Govt. of Bihar, and the Central Govt.

Shareholder Shareholding

Central Government 24.5%

State Governments & EC 24.5%

HDFC 10%

HDFC Bank 10%

ICICI Bank 10%

NSE Strategic Investment Co 10%

LIC Housing Finance Ltd 11%

Total 100%

Features of the GSTN

The GSTN is a complex IT initiative. It will establish a uniform interface for the taxpayer and also
create a common and shared IT infrastructure between the Centre and States.

1. Trusted National Information Utility -The GSTN is a trusted National Information

Utility (NIU) providing reliable, efficient and robust IT backbone for the smooth
functioning of GST in India.

2. Handles Complex Transactions GST is a destination based tax. The adjustment of IGST
(for inter-state trade) at the government level (Centre & various states) will be extremely
complex, considering the sheer volume of transactions all over India. A rapid settlement
 mechanism amongst the States and the Centre will be possible only when there is a strong
IT infrastructure and service backbone which captures, processes and exchanges
information.

3. All Information Will Be Secure The government will have strategic control over the
GSTN, as it is necessary to keep the information of all taxpayers confidential and secure.
The Central Government will have control over the composition of the Board, mechanisms
of Special Resolution and Shareholders Agreement, and agreements between the GSTN
and other state governments. Also, the shareholding pattern is such that the Government
shareholding at 49% is far more than that of any single private institution.

4. Expenses Will Be Shared The user charges will be paid entirely by the Central
Government and the State Governments in equal proportion (i.e. 50:50) on behalf of all
users. The state share will be then apportioned to individual states, in proportion to the
number of taxpayers in the state.

Functions of GSTN

GSTN is the backbone of the Common Portal which is the interface between the taxpayers
and the government. The entire process of GST is online starting from registration to the filing
of returns.

It has to support about 3 billion invoices per month and the subsequent return filing
for 65 to 70 lakh taxpayers.

The GSTN will handle:

 Invoices
 Various returns
 Registrations
 Payments & Refunds
GSTIN

The Goods and Service Tax Identification Number (GSTIN) is the unique number each taxpayer
will receive once they have registered on the common portal. It is based on a taxpayer’s PAN.
Each taxpayer is assigned a state-wise PAN-based 15-digit Goods and Services Taxpayer
Identification Number (GSTIN).

Here is a format break-down of the GSTIN:

 The first two digits represent the state code as per Indian Census 2011. Every state has a
unique code. For instance,
o State code of Karnataka is 29
o State code of Delhi is 07
 The next ten digits will be the PAN number of the taxpayer
 The thirteenth digit will be assigned based on the number of registration within a state
 The fourteenth digit will be Z by default
 The last digit will be for check code. It may be an alphabet or a number.

GST in India vs GST in Other Countries

 The Indian GST case is structured for efficient tax collection, reduction in corruption, easy
inter-state movement of goods etc. France was the first country to implement GST to
reduce tax- evasion. Since then, more than 160 countries have implemented GST with some
countries having Dual-GST (e.g. Brazil, Canada etc.) model. India has chosen the Canadian
model of dual GST.
  However, the one big difference between the Indian model of GST and similar taxes in
other countries is the dual GST model. Many countries in the world have a single unified
GST system, countries like Brazil and Canada have a dual GST system whereby GST is
levied by both the federal and state or provincial governments. In India, a dual GST is
proposed whereby a Central Goods and Services Tax (CGST) and a State Goods and
Services Tax (SGST) will be levied on the taxable value of every transaction of supply of
goods and services.

How will GST impact the Indian Economy?

 The introduction of GST will reduce the tax burden on the producers and will also foster
the growth with more production rate.
 GST will bring more transparency to the taxation system as the end consumer will become
aware of what taxes they are charges and on what basis.
 Extending the tax base with GST will significantly add to the government revenue.
 Producers will now be able to get a tax credit for the taxes they have paid throughout the
goods and services chain.
 There will be a control over the black money circulation as the traders and shopkeepers
will be checked periodically for their transactions.

GST Impacts on different Sectors of India's Economy

Real Estate

Under the new tax structure, due to the input credit benefits that most builders will get on the key
raw materials they buy, the base price of property projects launched post 1 July 2017 will be
comparatively cheaper. Buying under-construction properties will attract a net effective rate of
12% as against the earlier rate of 5.5% (including value added tax and service tax). Real estate
players such as Proptiger and Quikr want to pass this cost benefit on to property buyers. “For new
projects with 100% input credit passed to the buyer and land cost being 50% of the project cost,
we expect property prices to fall by around 1% in western and northern markets and around 3% in
southern markets,” said a report by Edelweiss. However, prices of ready-to-move-in apartments
with completion certificates, before implementation of GST on 1 July, would remain steady as
these properties are out of the GST ambit. Any price change in the segment will depend purely on
demand and supply.

E-commerce

E-commerce websites such as Flipkart and Amazon.in will have to collect TCS (tax collected at
source) at a fixed 1% rate, and pay this collection to the sellers listed on their websites. This is
likely to impact prices and make online shopping more expensive. Though the latest notification
issued by the government stated that the provisions of “TDS (Section 51 of the CGST/SGST Act
2017) and TCS (Section 52 of the CGST/SGST Act, 2017) will be brought into force from a date
which will be communicated later.”

Also to deal effectively with GST, e-commerce platforms are regularly engaging and training the
sellers on their stores. Commenting on GST’s impact Rajiv Kumar, Founder, e-commerce website
StoreHippo has stated: “We are thrilled to announce the reformation of our tax engine in
accordance to GST. E-Commerce platforms need to provide flexible and powerful tax solutions
after the implementation of GST and StoreHippo facilitates this through its new move, aimed at
simplifying GST for all involved.”

Travel and tourism

Depending on room rates there are four slabs for hotels and lodges. While Hotels and lodges with
room rates below $16 (Rs 1,000) a day have been exempted from GST, accommodation costing
$16 - $39 (Rs 1,000-Rs 2,500), $39 - $117 (Rs 2,500-7500) and above $117 (Rs 7500) will attract
12% 18%, and a 28% tax slab respectively. Ritesh Agarwal, founder and CEO, OYO concurs that
the lower tax rate for budget hotels sector will ensure that the industry’s quality upgrade continues
while delivering standardized accommodation to millions of middle-class travellers. He says,
“Hotels are the single biggest contributor to tourism industry which accounts for 7.5% of the GDP.
The move will boost revenue from the travel & tourism sector for the next many years. The
industry is expected to contribute $280 Billion to the GDP by 2026 and will pass on the benefits
of uniform taxation across the country to travellers.” Budget travellers also have a reason to cheer
as air travel for economy class passengers has become cheaper. On the other hand, business class
fares are going to cost more with a marginal increase from earlier 9% to GST rate of 12%.

Ride Hailing Apps

Tax rates are expected to rise from 14.5% to a range between 29% and 43% for drivers who do
not own cars and are associated with Ola and Uber cab-leasing programs. This is due to leases
becoming costlier post-GST. For instance, these individuals were paying an EMI of Rs 25,000 pre-
GST, and in a present scenario they are likely to pay an EMI of around Rs 35,000 to Rs 40,000
post-GST.

Transport services have been taxed at 5%, which will also apply to cab aggregators like Ola and
Uber. The government has not only reaffirmed its pro-consumer, pro-business stance by keeping
transport services in the lowest tax bracket but also put to rest any apprehensions among drivers
and riders around GST rates being inflationary. Thus, GST will bring down the tax rate for ride-
hailing services marginally. The new rate structure as compared to the previous service tax rate of
6% is a step in the right direction by the GST council. But while the 1% fall may bring some cheer
to consumers, driver partners of both Ola and Uber will be affected.

Smartphones

Under GST, mobile handsets are being taxed at 12% as compared to an earlier range of 8-18%
implemented in various states. As a result of this average reduction in tax levied, Apple has reduced
prices of its iPhone by 7.5% and Lenovo has announced a reduction in prices of models sold
through offline brick and mortar stores. Motorola handsets, a Lenovo owned entity, sold through
brick-and-mortar stores are also likely to see a downward price revision in coming days.

According to Rajesh Agarwal, co-founder of Micromax: “The government seems to be in a ‘walk

the talk’ mode, they have been fostering a local manufacturing environment in the country and
have been mindful of the early investments that have been made into manufacturing in India by
many corporate houses already.” A further 10% basic customs duty has been levied on imports of
mobile phones to give protection to local production, thereby giving impetus to several local
companies such as Micromax, Intex and foreign firms including Foxconn, Flex, Salcomp and
iPhone-maker Wistron, that have pumped millions into setting up more than 70 phone and
component manufacturing units over the past couple of years.

Automobile sectors in India

Reduction in Operating Cost

With elimination of CST, companies need not maintain warehouses and C&F agents at multiple
state points. The warehousing infrastructure could be clubbed and lower the operating costs in the
supply chain. Further with the inclusion of business overheads such as advertising, business
promotion under Input tax credit, the operation cost would be further reduced.

Impact on Working Capital

This would be a huge concern for the dealers as the supply is taxable in GST. On the date of vehicle
transfer, GST would be paid and it would lock the capital. Now the dealer would be required to
pay GST on the same day as he receives the advance and it will hurt their outflow. Another cash
lock would be when the auto manufacturers would offer free services/warranties as sales’ benefit
to their customers (at the time of sale of vehicles). They would pre-pay GST on the issue date of
the coupon while customers would be using the service on a later date.

Impact on Auto Valuation after GST

The base GST rate has been set at 28% besides a cess (1% to 15%) on vehicles of different
categories and sizes. Together both will impact the end prices.

Low Impact on Two Wheelers

The impact of GST is marginal on two-wheelers sector as the levy is 28 % on engines below 350cc
and 31% on engine above 350 cc is 31%. Earlier the segment was charged with 30.2 %. Largely
the impact on prices of 81% of market would be broadly unaffected.
High Impact on Commercial Vehicles

The commercial vehicle segment comprises commercial vehicles and three-wheelers. Earlier the
segment was paying 12.5 % Excise Duty + 1 % NCCD + 12.5 % VAT and 2 % CST which totalled
to overall 30.2 % of tax. Herein three-wheelers were excluded of 1% of NCCD. After GST, the
overall impact on the segment is a slight dip of 2.2 % as the levy is 28%. So, the impact in valuation
is again negligible. Similarly, there would be no change in the prices of tractors. The maximum
effect would be visible on a new category being introduced for minibuses ferrying up to 13
passengers. Besides the base rate, the passenger vehicle would invite a 15 % cess on them shooting
up the total GST to 43%, which is a major cause of concern.

Low Impact on Passenger Vehicles

Small cars (both petrol and diesel variants; engine below 1200 cc)

The economic car section would attract the base rate of 28% GST along with a cess of 1% and 3%
which is smaller than current 31.4% to 33.5%. In effect, the price of this segment would be neutral
or reduced marginally. Bigger sedans and SUVs (1,500cc or more engine size, Over 4,000 mm
length and Over 170mm ground clearance). In this segment, the buyer will enjoy the price cut. The
current tax rate was 46.6% to 55.3% which was much higher than the new GST rate of 28 % (+15
% cess).

Green Vehicles under the Purview of GST

A 15% cess above the base GST rate of 28% on green vehicles is questionable as it is far above
the existing 30.3% rate. While the officials have claimed that smaller hybrid vehicles are ruled out
from additional cess of 15%.

Demo Cars Heavily Taxed

GST demands a high tax rate on the demo cars. Currently, these vehicles were taxed at 0.5% while
they are sold in the used car market after a year or so. With GST, tax rates of 28% and 43% of the
sale value would be levied.
Conclusion

All in all, the sentiment all across appears positive so far for the single
manufacturer levy. However, it would be too early to pass the judgment. According to Moody’s
Investors Service, the implementation of the GST is expected to lead to higher GDP growth and
increased tax revenues for the Indian government. The success would largely depend on the
integrated compliance by all the players alike.

Cement Industry

The Indian cement industry is the second largest cement producer in the world right after China.
The Indian Government is highly focused on developing infrastructure, affordable housing and
roads as announced by the FM Mr. Arun Jaitley in the Budget 2017. So, the cement industry is
expected to get a boost in the near future.

Under the VAT Regime

The tax rates for cement is extremely complex. For example, there are various rates and specific
duties of excise applicable on different types of cement depending on whether they are supplied in
bulk form or in packaged form or whether for industrial or trade purposes. The effective rates
including excise & VAT totals up to around 24-25%.

Cement will attract 28% GST, i.e., a higher rate of tax which means increased costs for the
infrastructure sector.

Refractory cement, mortars, concretes (mainly used for building industry furnaces, huge ovens
etc.) will attract 18% tax.

Cement Bonded Particle Board will attract 12%.

The main raw materials for cement are limestone, coal and electricity. The tax rates on these are
as follows:

 Limestone is taxed at 5%
  Coal is capped at 5%, which is a reduction from the earlier rate of 11.69%
 Electricity is outside the purview of GST

Nothing is mentioned regarding the royalty that the cement companies pay to the state
governments for quarrying limestone. Clean energy cess is levied on coal, which is not available
as an input credit because it is not subsumed by GST.

So, these two factors will continue to be outside the purview of GST and will be included in the
cost of the cement production even after GST is implemented, as was done previously.

Positive Impact of GST on Cement Industry

Warehousing

Cement manufacturers can heave a sigh of relief as the supply chain management of cement will
get a boost under GST. Most companies maintain multiple warehouses across states to avoid CST
and state entry taxes. These warehouses generally operate below their capacity which leads to
operational inefficiencies. Like other sectors, the cement companies will also consolidate their
warehouses and maintain warehouses in areas where it is most beneficial (such as Nagpur-0-mile
city) thus leading to operational economies.

Savings on Transport Costs

Most of the cement manufacturers are located near limestone quarries. But demand for cement is
pan-India which means that the cost of transporting cement from the manufacturer to the buyer is
pretty high. Now, with GST the logistics industry is also going to be overhauled. The transit time
will decline as vehicles will spend lesser time at checkpoints. This will lead to lower transportation
costs and in turn, the cement industry will save transport costs.

Less Complex Taxes

Currently, there are multiple excise duties applicable to cement manufacturers. There are separate
rates and specific duties applicable on different types of cements depending on whether they are
supplied in bulk form or in packaged form, or whether they are for industrial or trade purposes etc.
Conclusion

All these put together may reduce the operating costs for the cement industry in the future.
However, reduction in costs for the end-consumer will occur only if the cement companies
pass on their savings to the consumers. Till then, it is expected that prices of cement will
increase, at least temporarily, once GST is implemented. In turn, costs for infrastructure and
housing which are highly dependent on cement, will also increase.

Logistics

Improvement in Transit Times

Road transportation is the most preferred and economical way to transit bulk goods, however, the
Indian road transportation industry is heavily unorganized and there are a lot of in-transit delays
incurred due to various regulatory impediments, especially at the state borders.

These unproductive transit hours coupled with the regulatory hassles reduce the efficiency of
logistics service providers compared to their international counterparts.

Having a unified market under the new GST regime would assist the smooth flow of goods within
the country as India will become a seamless market without any difference in the interstate or
intrastate market.

Although, border checkpoints may not be done away with immediately, however, reduced
compliance scrutiny at these checkpoints will reduce transport hassles.

This change will enable logistics companies to deliver goods more efficiently and optimize
delivery timelines and improve capacity utilization.

The reduction in delivery timelines would also lead to a certain remodelling of the current
transportation structures. Service providers would be incentivised to leverage hub-and-spoke
supply chain networks by operating large central warehouses and remodelling transportation
routes.
Reduced Paperwork and Consolidation

In a unified taxation structure, a lot of taxes will be subsumed such as entry tax, OCTROI will be
removed. Removal of such taxes will definitely ease the burden of paperwork on the logistics
service providers.

There are a lot of instances where-in vehicles are trapped at the border due to issues with state
specific documentation; moreover, logistics service providers need to have specific registration for
certain states. A single tax window will unburden the logistics players from such processes and
will facilitate quick movement of vehicles across borders.

A major impact of GST will be the consolidation of smaller stock-transfer warehouses into large
warehouses in seven major pockets of the country. This will lead to a reduction of overall logistics
costs and lead to increased business volumes, which in turn will help boost the GDP drastically.

Focus on Technology

In today’s fast-paced world, information technology has to keep abreast of new developments and
change according to the changing needs.

GST will entail a new set of compliance requirements for which companies will have to adopt new
ERP accounting systems and inventory management systems to remain compliant during all
stages.

On the other hand, the industry will then be able to avail tax credits for all its purchases of goods
and capital goods alike, be its goods vehicles, delivery vans or packing machinery. Also, tax credits
on services will continue to be available under the GST regime.

With GST’s imminent implementation, the logistics industry should start exploring different
supply chain models with their clients and at the same time develop a completely synchronized
ERP accounting system to support inventory supply management as required under the GST
regime.
At the moment, there seems to be quite a lot of uncertainty about the migration into GST and
everyone seems to be in perplexed. The dispatches and goods movement in the initial few weeks
will be slow as everyone tries to get their hands around this massive change in the tax structure.
The overall sentiment in the industry is a bit sceptical, and with time things are expected to get
clearer.

Conclusion

• Change in GST rate reduces logistics costs in the country.

• The introduction of GST has eliminated the time wasted at state borders by disposing
lengthy clearance processes. A reduction in this road travel time by half can cut logistics
costs by 30-40%, a World Bank report suggests.

FMCG

The fast-moving consumer goods (FMCG) segment is the fourth largest sector in the Indian
economy. It has grown from US$ 9 billion in FY 2000 to US$ 49 billion in FY 2016-17 and has
an expected compound annual growth rate (CAGR) of 20.6 percent to reach US$ 103.7 billion by
2020, according to the India Brand Equity Foundation’s July 2017 presentation.

Within the FMCG sector, food products is the leading segment, accounting for 43 percent of the
overall sector. Personal care (22 percent) and fabric care (12 percent) come next in terms of market
share. Growing awareness, easier access, and changing lifestyles have been the key growth drivers
for the sector.

The total current tax rate for the FMCG industry is around 22-24 percent. Under GST, the tax rate
comes to an average of 18-20 percent.

Let’s look at how the new tax rates under GST impact major products within the sector:
 Previously taxed Currently taxed
Product Companies impacted
at at

HUL, P&G, Jyothy

Detergents 23% 28%
Laboratories

HUL, P&G, Dabur, Himalaya,

Shampoo 24-25% 28%
Patanjali

P&G Hygiene and Health

Sanitary napkins 10-11% 18%
Care

HUL, Dabur, Himalaya,

Skincare 24-25% 28%
Patanjali

Hair dyes 23-28% 28% Godrej Consumer Products

Ayurvedic medicine 7-10% 12% Dabur, Emami

Toothpastes, soaps, hair Colgate-Palmolive, HUL,

22-24% 18%
oil P&G

Asian Paints, Berger Paints,

Paints 25-26% 28%
Nerolac

Branded paneer 3-4% 5% Nestle, Mother Dairy

Butter, ghee, cheese 4-5% 12% Amul, Nestle, Mother Dairy

Companies such as Patanjali, ITC, HUL, and Marico are either slashing the prices of goods or
increasing the volume of the product on dispatches made from 1 July onward, extending
the tax benefits to consumers under the GST regime. In particular, HUL has slashed the price of
its detergent soap Rin bar of 250 gm from Rs 18 to Rs 15 and increased the weight of its Surf
Excel bar costing Rs 10 from 95 gm to 105 gm.
Companies such as Marico will benefit from the change in the rates of edible oil, and the rates of
hair oil have decreased in their favor as well. Colgate-Palmolive will also gain under GST, as
toothpaste will become cheaper now.

On the other hand, gifting dry fruits on festivals will become an expensive affair now as the rates
have increased from 4-5 percent to 12 percent. Also, the rates of dairy products like ghee, butter,
and cheese have increased from an average of 4-5 percent to 12 percent. Companies like Amul and
Nestle will likely revise prices on their products as a result of GST.

 Reduction in logistics costs: The FMCG sector will also benefit from GST by saving a
considerable amount of expenses on logistics. Distribution costs for the FMCG sector
currently amount to 2-7 percent of the total cost, but are expected to drop to 1.5 percent
after implementation of GST software. Due to the smoother supply chain management in
regards to paying tax, claiming input credit, and removing CST under the GST regime,
there will be a cost reduction in terms of transportation and storage of goods. The reduction
in taxes and distribution costs should enable companies to lower prices on consumer goods.
 Increase in effective tax rates: Aerated beverages have been placed in the highest tax slab
of 28 percent and will now attract an additional tax of 12 percent. Beverage companies
have said the effective tax rate of 40 percent on sweetened aerated water and flavoured
water under GST is against the stated policy of maintaining parity with the existing
weighted average tax, which is significantly below 40 percent.

“This increase will have a negative ripple effect and hurt the entire ecosystem of farmers, retailers,
distributors, and bottlers in India. This increase in tax will further limit the growth of the beverage
industry,” said the Indian Beverage Association (IBA) in a statement.

Conclusion

There are some instances where the tax rate under GST is higher than the present tax rates, and in
such cases, several dealers could increase their stock levels in the run up to GST. On the other
hand, in those cases where the GST rate is lower than the current tax rates, dealers would try to
keep minimum stock and dispose of non-moving stock before the onset of GST.
Since different products are taxed at different rates, on a macro level, the average tax and the final
prices that the end customer ends up paying will average out, with some products becoming more
expensive and others becoming cheaper.

Ultimately GST impacts the FMCG sector by readjusting tax brackets and reducing distribution
costs for various companies. Some companies will “gain” with lower taxes and distribution costs,
and thus may respond by increasing product volume and lowering prices, while others may “lose”
with higher taxes, and thus need to compensate by increasing prices.

IMF ON GST

• The IMF projected India to grow at 6.7% in 2017 and 7.4% in 2018, which are 0.5% and
0.3 % points less than the projections earlier this year, respectively.
• IMF chief Christine Lagarde said that there "is a little bit of a short-term slowdown" as a
result. "But for the medium term, we see a very solid track ahead for the Indian economy”

World Bank on GST

• India’s GDP may slow from 8.6% in 2015 to 7.0% in 2017 because of disruptions by
demonetisation and the GST.
• World Bank President Jim Yong Kim said the recent slowdown in India's economic growth
is an "aberration" caused by temporary disruptions in preparation for the GST and asserted
that it will get corrected in the near future.