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Event Update
The Goods and Services Tax (GST)
Independent Equity Research
August - 2016
2
“………………..but I have promises to keep, And miles to go before I sleep”
Robert Frost
AN UPDATE ON ONE OF INDIA’S MOST REVOLUTIONARY ECONOMIC REFORMS: GST
Q: What is the Goods and Services Tax (GST)?
A:
The GST is a comprehensive nationwide indirect tax on manufacture, sale and consumption of goods and services. The
aim is to make India a unified common market. GST will be levied and collected at each stage of sale or purchase of
goods or services.
Through an input tax credit mechanism, this tax will be collected on value-addition on transactions involving both goods
and services, at each stage of sale or purchase in the entire supply chain. This system allows the set-off of GST paid on the
procurement of goods and services against the GST which is payable on the supply of goods or services. However, the end
consumer ultimately bears this tax being the last person in the whole supply chain.
The ultimate objective is to widen tax base of the country followed by reduction in tax rates leading to lower cost to
consumers.
The Government aims to implement GST from April, 2017.
Q: What are objectives of GST?
A: Some of the primary objectives of GST-based taxation are:
Ensuring availability of input credit across the value chain
Minimizing cascading effect of taxation
Simplification of tax administration and compliance
Harmonization of tax base, laws, and administration procedures across the country
Minimizing tax rate slabs to avoid classification issues
Prevention of unhealthy competition among states
Increasing the tax base and raising compliance
Q: What are the GST implication challenges?
A:
• Lack of Adaptation
• Trained staff
• Double registration can increase compliances and cost
• Lack of clear mechanism to control tax evasion
• Hard to estimate the exact impact of GST
Q: Which taxes will be subsumed into the GST?
A:
At the Central Level:
o Central Excise Duty
o Additional Excise Duty
o Service Tax
o Countervailing Duty
o Special additional duty of customs
o Central Surcharges and Cesses so far as they relate to the supply of goods and services.
At the State Level:
o Value-added tax / Sales tax
o Entertainment tax
o Octroi and entry tax
o Purchase tax
o Luxury tax
o Taxes on lottery, betting and gambling
3
Q: What are the areas that are not covered under purview of GST?
A:
• All Petroleum products (a number of states have voiced concerns)
• Tax on entertainment and amusement levied and collected by Panchayat /Municipality/District Council
• Tax on alcoholic liquor for human consumption
• Stamp duty, Customs duty
• Taxes on consumption or sale of electricity
Q: What is the expected GST structure to be implemented in India?
A:
GST will be a dual rate structure under which both the Union and State governments will be empowered to levy and administer
taxes concurrently on a uniform base of goods and services.
CGST: The Centre would levy and collect CGST on all transactions within a state.
SGST: The States would levy and collect SGST on all transactions within a state, to be levied by the states.
IGST: The Centre would levy and collect IGST on all inter-state transactions. Rate of IGST will be approximately equal
to sum of CGST and SGST.
Q: Illustration – pre-GST and post-GST
A:
Pre-GST Scenario
Current Scenario (Rs.) Manufacturer Distribution Retailer Price to Consumer
Cost of Production 100 172 216
Value add 50 20 30
Total 150 192 246
Excise @ 12.5% 19 - -
TOTAL 169 192 246 253
CST @ 2% 3 - -
VAT @ 12.5% 0 24 31
VAT Set off (0) -
(24)
TOTAL 172 216 253
Source: Edelweiss Research
Post-GST Scenario
Current Scenario (Rs.) Manufacturer Distribution Retailer Price to Consumer
Cost of Production 100 180 210
Value add 50 20 30
Total 150 200 240 248
GST @ 20% 30 40 48
GST Set off - (30) (40)
TOTAL 180 210 248
Source: Edelweiss Research
Q: What are the expected benefits of GST?
A:
GST will result in lower tax incidence for manufacturers in organized sector, with a harmonized tax structure, unified tax
base and common rules and administrative procedures coming into effect across the nation. It will also result in widening
of the tax base to include a comprehensive list of goods and services. This will bring in transparency and encourage
investments in the organized sector, helping the economy gain growth momentum.
Specified consumer
price is of inter-
state, if goods are
moving in the same
state then price to
end consumer is
going to reduce by
Rs. 3, which is equal
to CST paid by
Manufacturer.
4
GST will subsume large number of taxes imposed by the central and state governments. Full credit of input tax will be
available which will avoid double taxation, currently prevalent in some sectors. This will lower effective tax rates for
multiple sectors.
Logistics and inventory carrying costs will decline. Currently, companies put additional set ups like depots and C&F
agents in different states to bypass CST. With GST coming into force, these companies can have centralized warehouses
and avoid additional costs.
Logistics costs and transit time will also reduce going forward. Currently, considerable time is wasted by trucks at the
state border check-points due to the various sales and entry tax requirements of the different states.
Shift of business from unorganized to organized players as tax advantages currently enjoyed by the unorganized players
will diminish and market share of the organized players may potentially increase.
As per various estimates, the implementation of GST is expected to boost GDP growth by ~2% over next 2 – 3 years.
Q: Will inflation increase after GST?
A:
Impact of GST on inflation will be dependent upon the GST rate and its comprehensiveness. It is widely believed that
under the proposed GST, effective tax rate on goods (~70-75% of the CPI basket) will decline.
Services-oriented components constitute ~25-30% of the CPI basket with high weights on housing, transport and
communication, etc.
Currently, service tax is not imposed on certain (~12% of the CPI basket) services and these services are also expected to
be exempt under GST regime. Thus, hike in tax rate on services is unlikely to have any material direct impact on CPI.
A significant proportion (~35-40%) of goods (mainly agro products) included in the CPI basket is not subject to tax
currently and we expect this status will continue in future also. Thus, transition to GST will not have a significant impact
on inflation.
Q: What would be the sector-wise impact of GST?
A:
Sector
Impact of Tax
Rate
Inventory
Management
Logistics
For organized
Players
Overall
Impact
Cement
Consumer Durables
FMCG
Pharmaceuticals
Automobiles
Capital Goods
IT/ITes
Media
BFSI
Textile
Building / Home
Materials
Telecommunications
Metals
Multiplex
Source: Edelweiss Research
Color Code: Green – Positive, Red – Negative, Yellow -- Neutral
5
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2013.
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information/data arising out of their own investigations. Readers are advised to seek independent professional advice and arrive
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Yeh GST GST kya hai ?

  • 1. Equentis Wealth Advisory Services (P) Ltd Registered Office: 712, Raheja Chambers, Nariman Point, Mumbai – 400021 India Tel: +91 22 61013800 Email: info@researchandranking.com Event Update The Goods and Services Tax (GST) Independent Equity Research August - 2016
  • 2. 2 “………………..but I have promises to keep, And miles to go before I sleep” Robert Frost AN UPDATE ON ONE OF INDIA’S MOST REVOLUTIONARY ECONOMIC REFORMS: GST Q: What is the Goods and Services Tax (GST)? A: The GST is a comprehensive nationwide indirect tax on manufacture, sale and consumption of goods and services. The aim is to make India a unified common market. GST will be levied and collected at each stage of sale or purchase of goods or services. Through an input tax credit mechanism, this tax will be collected on value-addition on transactions involving both goods and services, at each stage of sale or purchase in the entire supply chain. This system allows the set-off of GST paid on the procurement of goods and services against the GST which is payable on the supply of goods or services. However, the end consumer ultimately bears this tax being the last person in the whole supply chain. The ultimate objective is to widen tax base of the country followed by reduction in tax rates leading to lower cost to consumers. The Government aims to implement GST from April, 2017. Q: What are objectives of GST? A: Some of the primary objectives of GST-based taxation are: Ensuring availability of input credit across the value chain Minimizing cascading effect of taxation Simplification of tax administration and compliance Harmonization of tax base, laws, and administration procedures across the country Minimizing tax rate slabs to avoid classification issues Prevention of unhealthy competition among states Increasing the tax base and raising compliance Q: What are the GST implication challenges? A: • Lack of Adaptation • Trained staff • Double registration can increase compliances and cost • Lack of clear mechanism to control tax evasion • Hard to estimate the exact impact of GST Q: Which taxes will be subsumed into the GST? A: At the Central Level: o Central Excise Duty o Additional Excise Duty o Service Tax o Countervailing Duty o Special additional duty of customs o Central Surcharges and Cesses so far as they relate to the supply of goods and services. At the State Level: o Value-added tax / Sales tax o Entertainment tax o Octroi and entry tax o Purchase tax o Luxury tax o Taxes on lottery, betting and gambling
  • 3. 3 Q: What are the areas that are not covered under purview of GST? A: • All Petroleum products (a number of states have voiced concerns) • Tax on entertainment and amusement levied and collected by Panchayat /Municipality/District Council • Tax on alcoholic liquor for human consumption • Stamp duty, Customs duty • Taxes on consumption or sale of electricity Q: What is the expected GST structure to be implemented in India? A: GST will be a dual rate structure under which both the Union and State governments will be empowered to levy and administer taxes concurrently on a uniform base of goods and services. CGST: The Centre would levy and collect CGST on all transactions within a state. SGST: The States would levy and collect SGST on all transactions within a state, to be levied by the states. IGST: The Centre would levy and collect IGST on all inter-state transactions. Rate of IGST will be approximately equal to sum of CGST and SGST. Q: Illustration – pre-GST and post-GST A: Pre-GST Scenario Current Scenario (Rs.) Manufacturer Distribution Retailer Price to Consumer Cost of Production 100 172 216 Value add 50 20 30 Total 150 192 246 Excise @ 12.5% 19 - - TOTAL 169 192 246 253 CST @ 2% 3 - - VAT @ 12.5% 0 24 31 VAT Set off (0) - (24) TOTAL 172 216 253 Source: Edelweiss Research Post-GST Scenario Current Scenario (Rs.) Manufacturer Distribution Retailer Price to Consumer Cost of Production 100 180 210 Value add 50 20 30 Total 150 200 240 248 GST @ 20% 30 40 48 GST Set off - (30) (40) TOTAL 180 210 248 Source: Edelweiss Research Q: What are the expected benefits of GST? A: GST will result in lower tax incidence for manufacturers in organized sector, with a harmonized tax structure, unified tax base and common rules and administrative procedures coming into effect across the nation. It will also result in widening of the tax base to include a comprehensive list of goods and services. This will bring in transparency and encourage investments in the organized sector, helping the economy gain growth momentum. Specified consumer price is of inter- state, if goods are moving in the same state then price to end consumer is going to reduce by Rs. 3, which is equal to CST paid by Manufacturer.
  • 4. 4 GST will subsume large number of taxes imposed by the central and state governments. Full credit of input tax will be available which will avoid double taxation, currently prevalent in some sectors. This will lower effective tax rates for multiple sectors. Logistics and inventory carrying costs will decline. Currently, companies put additional set ups like depots and C&F agents in different states to bypass CST. With GST coming into force, these companies can have centralized warehouses and avoid additional costs. Logistics costs and transit time will also reduce going forward. Currently, considerable time is wasted by trucks at the state border check-points due to the various sales and entry tax requirements of the different states. Shift of business from unorganized to organized players as tax advantages currently enjoyed by the unorganized players will diminish and market share of the organized players may potentially increase. As per various estimates, the implementation of GST is expected to boost GDP growth by ~2% over next 2 – 3 years. Q: Will inflation increase after GST? A: Impact of GST on inflation will be dependent upon the GST rate and its comprehensiveness. It is widely believed that under the proposed GST, effective tax rate on goods (~70-75% of the CPI basket) will decline. Services-oriented components constitute ~25-30% of the CPI basket with high weights on housing, transport and communication, etc. Currently, service tax is not imposed on certain (~12% of the CPI basket) services and these services are also expected to be exempt under GST regime. Thus, hike in tax rate on services is unlikely to have any material direct impact on CPI. A significant proportion (~35-40%) of goods (mainly agro products) included in the CPI basket is not subject to tax currently and we expect this status will continue in future also. Thus, transition to GST will not have a significant impact on inflation. Q: What would be the sector-wise impact of GST? A: Sector Impact of Tax Rate Inventory Management Logistics For organized Players Overall Impact Cement Consumer Durables FMCG Pharmaceuticals Automobiles Capital Goods IT/ITes Media BFSI Textile Building / Home Materials Telecommunications Metals Multiplex Source: Edelweiss Research Color Code: Green – Positive, Red – Negative, Yellow -- Neutral
  • 5. 5 DISCLAIMER Equentis Wealth Advisory Services Private Limited (EWASPL) is registered under the SEBI (Investment Advisers) Regulations, 2013. “Research & Ranking” is the brand under which the Research Division of EWASPL render’s its Research Services. General Disclaimers: This Research Report (hereinafter called ‘Report’) is prepared and distributed by EWASPL for information purposes only. The recommendations, if any, made herein are expression of views and/or opinions and should not be deemed or construed to be neither advice for the purpose of purchase or sale of any security, derivatives or any other security through EWASPL nor any solicitation or offering of any investment /trading opportunity on behalf of the issuer(s) of the respective security(ies) referred to herein. These information / opinions / views are not meant to serve as a professional investment guide for the readers. No action is solicited based upon the information provided herein. Recipients of this Report should rely on information/data arising out of their own investigations. Readers are advised to seek independent professional advice and arrive at an informed trading/investment decision before executing any trades or making any investments. This Report has been prepared on the basis of publicly available information, internally developed data and other sources believed by EWASPL to be reliable. EWASPL or its directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information / opinions / views. 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