GST Roll Out Looks Certain From July 1
After more than a decade of planning and preparation, India looks ready to implement Goods and Service Tax (GST) framework, a comprehensive single taxation system that aims to replace the existing complex system of multiple indirect taxes. The Government has laid down a clear roadmap for GST implementation from July 1, 2017 even though various states have requested the Central Government to push the implementation date till September, citing their logistical unpreparedness. The Government has, however, clarified that the new tax regime will be rolled out from its scheduled date.
Prime Minister Narendra Modi identified this new taxation system as an utmost priority, as he envisaged cutting through corruption and red tape generated due to the swathe of state taxes. The Government has enacted four GST bills.
- Central GST (CGST)
- Integrated GST (IGST)
- Union Territory GST (UTGST), and
- Bill to Compensate States.
Most of the goods and services have been classified under four different tax slabs – 5 per cent, 12 per cent, 18 per cent and 28 per cent. However, certain items such as small cars and luxury cars will attract 28 per cent (1 or 3 per cent cess) and 28 per cent (15 per cent cess), respectively. Some items such as gold and rough diamonds will attract exclusive tax rates. Some items have been excluded from taxation.
GST Rate Classification for goods
|Exempt||5 per cent||12 per cent||18 per cent||28 per cent||28 per cent + Cess|
Tea & Coffee
Drugs & Medicine
Beverages containing milk
(1% / 3% cess)
GST Rate Classification for Services
|Exempt||5 per cent||12 per cent||18 per cent||28 per cent|
Hotel/ Lodges with tariff below INR 1000
Rail tickets (other than sleeper class)
Economy class air tickets
|Rail Tickets (other than economy class)
Construction of building
Restaurant having licence to serve liquor
Restaurant with air-conditioning
Hotel/ Lodges with tariff between INR 2,500- 5,000
Hotel/ Lodges with tariff above INR 5,000
Impacts on Indian Economy and Industry
Most economists, global credit rating agencies and financial institutions feel upbeat about India’s new tax reform. According to them, the GST will increase efficiency of the Indian economy and will push India’s GDP growth rate to over 8 per cent. The Small and Medium Enterprises (SMEs), one of the primary growth drivers of Indian economy, will be the major beneficiary, as the new tax regime will increase production and movement of goods and services across Indian states, thereby making the Indian SMEs more competitive against large domestic enterprises, as well as against various competing countries such as China, Bangladesh and the Philippines. The GST will also have a major impact on transportation and logistics, which will bring down operating costs across industries. This will reduce the overall manufacturing costs, thus benefitting the consumers and boosting domestic consumption.
Impacts of Goods and Service Tax on Foreign companies
A successful implementation of GST is poised to make the Government’s Ease of Doing Business dream a reality. The GST will lower overall tax rates, eliminate multiplicativity of taxes and simplify compliance procedure to increase efficiency, thus giving a level-playing field to the foreign companies already operational or looking to operate in the Indian market. This new tax regime would also end the opaque nature of State and Central tax system, giving foreign companies a transparent and fixed tax structure for almost all goods and services.