Impact of GST on Industries in India

Abstract:
The introduction of Goods and Service tax (GST) has upheaved the indirect taxation system. GST majorly
focuses on ease of doing business by levying just one tax across the country. This research paper mainly
focuses on the overall impact of GST on some of the industries which are backbone of the economic
growth of the country. It is crucial to understand the positive or negative impact due to GST on these
industries.

Introduction:
Goods and Service Tax, one of the most awaited tax, came into effect on 1 st July 2017. The main purpose
of introducing GST was to subsume all the indirect tax into one tax to avoid the cascading effect of tax.
The other benefits of GST were the increase of the threshold limit for registration which was major relief
to small traders and small service provider, reducing the compliances, composition scheme for small
businesses, channelizing the logistics sector through online compliances etc. This has definitely led to
ease of doing business. The impact would be different for each industry, hence the overall impact on
Agriculture industry, Automobile industry, Logistic Industry, E-commerce Industry, Real Estate Sector,
Health Care and Pharma Industry, Telecommunication Industry and Textile Industry is provided in the
paper.

Sector-Wise GST Impact Analysis

a) GST Impact on Agriculture:

Agriculture industry being one of the major contributors in GDP of India and it is prominent to
understand the impact of GST in this sector. As per the earlier statistics this industry contributes around
16 percent to GDP and around 70 percent of rural household still depend on agriculture as the source of
livelihood.

Positive Impact: GST is introduced towards making a reliable and transparent supply mechanism which
would reduce the burden of double taxation. Also, with the growth of FMCG sector the implementation
of GST and opening of Foreign Direct Investment has resulted to rise the market by 7.1% from Oct-20 to
Dec-20. With the application of GST, it has lead to reduction in the cost of heavy machinery and
reduction in tax burden. Also, there is GST exemption on storage and warehouses of agricultural
produce which has reduced the tax burden which have created an opportunity for farmers to sell the
products at best prices without any state barriers and led to increase in the income of farmers. Since
GST is consumption- based tax it will be levied only when food products are sold by the manufacturer
unlike earlier where excise duty was imposed prior to sale. Further, full credit is allowed of prior GST
paid on inputs/purchases. Also, they have reduced the tax rate on interstate stock transfers resulting in
reduction of working capital required by the companies. Also, with the introduction of National
Agriculture Market (NAM) by the Centre for GST has created the scope for increased transparency and
impartial trade of agri-commodities without the restriction of multiple taxation

Negative Impact: Under GST, dairy farming, poultry farming and stock breeding kept out of the
definition of agriculture and are taxable products. Earlier these items were exempt under CENVAT and
only 4% VAT was charged on food items. Tax rate of fertilizers is also increased to 12% from earlier 5% to
6% under VAT. Earlier, basic custom duty of 5% was attracted on the imported project equipment,
however, with the introduction of GST now 18% tax is levied along with 5% tax on custom duty. This has
led to increase in cost of imported machinery.

b) GST Impact on Automobiles:

India was the fifth largest auto-market in 2019 in the passenger and commercial vehicles and seventh
largest in commercial vehicle. India is also one of the eminent auto exporter and is also expecting
growth in the exports. Hence, it is necessary to understand the GST implication in this sector

Positive Impact: Before introduction of GST, various taxes such as Excise Duty, Nccd +Auto cess,VAT,
were applied which totaled to approximately 28% to 45% and in addition to this Road Tax and Motor
Vehicle Tax was applied for which the rates were decided by the State. With the introduction of GST, the
rates are same across the states which will has also put an end to the practices of tax evasion where due
to different state taxes consumers would buy the vehicles other than from the place they reside to avoid
excess tax. The GST rate for the vehicle is now 18% and 28%. which has also reduced the tax burden on
the end consumer. The other benefits are to the manufacturers where they can claim credit of the
expenses like rent, advertisement etc. Government is also promoting electric vehicles by providing
subsidy to the manufacturers and the amount of the subsidy to be excluded from the transaction value
thereby reducing the cost of vehicle which would be beneficial for both the manufacturers as well as
consumers.

Negative Impact: GST is also charged on after- sale services like warranties and vouchers at the time of
their issuance instead of, at their redemption thus blocking the working capital. The other drawback is
different GST rates are applied on the additional services provided like insurance, accessories etc. which
would fall under the category of composite and mixed supply. Since, there is no clarification on the
same, there is the possibility of litigation on this area.

c) GST Impact on Logistics:

Logistics plays a very crucial role for manufacturing and trading activities. With GST replacing the VAT
and other taxes lets understand the impact on this sector.

Positive Impact: There are numerous GTS exemptions provided e.g. exmption on transportation for
agricultural produce, hiring of motor vehicle as a means of transportation, loading- unloading and
specific exemptions for storage and warehousing etc. Further, due to GST ‘One Nation, One Tax’
multiple state taxes are replaced with one tax- GST, which allows to transact with ease across the
different states. Due to this, various players are now keen on setting up a warehouse in Nagpur- the
Zero-mile city.

Negative Impact: There is lot of ambiguity for the exempt services under GST such as ‘Hiring a vehicle to
another GTA service provider’,’ Transportation of goods by road where consignment note is not issued’
leading to lot of litigation in this area. The government should provide more clarity since the opinion of
the officers are conflicting to the provisions. Also, there are various litigations going on, on the rate of
GST where the officers are applying different rate than already provided in the Act. The other major
concern is petrol and diesel expenses are not covered in GST is becoming a cost for the logistics industry.
The other concern being, in spite of reduction in the crude prices there is no change in VAT/CST on
crude oil thereby increasing the cost further. Since, GST can be charged on ‘reverse charge mechanism’
but the input credit service receiver cannot claim the tax credit for the same it is another drawback
regarding the price charged.

d) GST Impact on E-commerce:

E-commerce has witnessed immense growth in the recent years one can see increase in buying and
selling of goods and services over internet. In case of e-commerce, location of recipient of
goods/services is considered as place of supply in case of Business to Consumers (B2C) services and
Business to Business (B2B) consumers. Let us look into positive and negative impact of GST on e-
commerce industry:

Positive Impact: One of the positive impacts is removal of cascading effect. Earlier where number of
taxes (VAT, Service Tax, CST etc.) the input credit of certain services like warehousing etc. were not
available to dealers but with GST replacing all the other indirect taxes dealers will now be able to avail
the input credit which were not available earlier thus reducing the overall cost.

Negative Impact: One of the major drawbacks of GST is it does not facilitate centralized registration
whereas under service tax companies had one centralized registration. Since for Business to Consumers
(B2C) services, GST is charged on place of supply,the companies would have to apply registration in
every state where the company has to supply the goods/services, leading to additional compliances.

e) GST Impact on Healthcare and Pharma Industry:

Healthcare and Pharma industry is one of the crucial industries of India and with GST being introduced
the major advantage is all the eight taxes which were charged earlier have been replaced by a single tax
i.e. GST which has also simplified the way of doing business. However, the major concern on
introduction of GST is the rates on medicines which was 5% have been increased to 12%. Further, GST is
levied now on the products which were duty free earlier like free samples and discount offers etc.

f) GST Impact on Real Estate:

Real Estate is one of the important sector for the economic growth of the country. Before the
introduction of GST various taxes like Value Added Tax, service tax. Octroi, Central excise etc. were
charged while transferring the property to buyer. However, the builders were deprived of the input tax
credit which led to the rise in the cost for the buyers. With the introduction of GST, all the above-
mentioned taxes were merged into a single tax where now builders can avail input tax credit (ITC) on the
taxes paid.

One of the positive impacts of GST is that the tax rates were lowered drastically in 2019 to encourage
common man to buy the property at affordable rate under the scheme launched by Government to
provide houses to all by 2022. The rates before and after 2019 are as under where the builders were
provided with a choice to avail or not to avail ITC.
 Type of House Property

Affordable Housing:
Non-affordable Housing:
-Metro Cities: Less than or equal to Rs.45 lakhs
Other than affordable housing than in metro and
and carpet area less than or equal to 60sq meter
non-metro
-Non-Metro Cities: Less than or equal to Rs.45
lakhs and carpet area less than or equal to 60sq
meter

GST rate prior to April GST rate from April 2019 GST rate prior to April GST rate from April
2019 is 8% with ITC is 1% without ITC 2019 is 12% with ITC 2019 is 5% without ITC

Another benefit from introduction of GST the threshold has been increased from Rs.10 lakhs p.a. to
Rs.20 lakhs p.a. where the income is from renting of the house property.

One of the major drawbacks is GST paid under Reverse Charge Mechanism (RCM). In GST, various
services are included under RCM like services received from solicitor, transporters etc where the tax has
to be borne by developer and the same cannot be claimed under ITC, which could an increased cost to
the developers.

g) GST Impact on Telecommunication Industry:

India is the second largest telecommunication market with around 1.16 million subscribers with around
757.61 million internet subscribers. It is expected that in coming years telecommunication industry will
largely contribute in the GDP of India. This becomes prominent to understand the impact of indirect
taxation of this sector.

Positive Impact: The major cost for telecommunication industry is acquisition of fixed assets like cell
towers, transmission lines, satellites and other various equipment. Prior to GST, service providers were
unable to claim Input Tax Credit (ITC) on these assets purchased which resulted in blockage of working
capital and also increased cost. Now, with GST service providers are able to claim the ITC resulting in
reduction in cost of the assets.

Negative Impact: There are various drawbacks due to GST one of them being increase in tax rate from
15% to 18% which results in increase in the cost. Further, the tax rate on handsets has been hiked from
6% to 12% but reduction in the imported handsets from 18%-27% to 12%. This could affect the local
market. The other drawback is place of GST taxation is service recipients place and this means service
provider will have to register in multiple states where they provide taxable services leading to increased
compliances. Further, the tax rate will have to be divided between central and state (CGST and SGST) for
which additional records are required to be maintained especially where the state circle includes central
as well. E.g.: Delhi includes Delhi, Ghaziabad, Faridabad, Noida, and Gurgaon, covering three states and
Delhi itself falls under central.

h) GST impact on Textile Industry:

Textile industry is one of the oldest which plays a prominent role in development of Indian economy by
contributing to more than 10% in total export. It is the industry which provides employment to both
skilled and unskilled labour. Government has allowed 100% FDI to boost this industry. It is necessary to
understand the positive as well as negative impact on this industry.

Positive Impact: As major of the textile industry is not organized which leads to non-availability of Input
tax credit (ITC) in case there is purchase from this sector. With GST, ITC can be claimed and this lead to
moving the unorganized sector towards the organized. Also, in GST regime it is now allowed to claim
credit on the imported capital goods which was not available prior to introduction of GST. This change is
certainly welcomed as this would certainly decrease the import cost. Another change which is welcomed
is change in the GST rate to 5% on cotton yarn and fabrics which is assumed to increase the cotton
production.

Negative Impact: GST rate on readymade garments has been increased to 12% from 6%-7%
(VAT+Excise). Due to increase in rates this will the price of the readymade garments.

Conclusion:

After analyzing the above industries, it is observed that each industry has its own pros and cons but
most of the industries have been benefitted by replacing the earlier indirect taxes with GST and it has
certainly brought positive impact with the reduced tax rates and with availability of input tax credit.
However, there are few industries where it is necessary for the government to provide clarification
(logistics industry) or step-up to reduce the tax rates (Telecommunication, Health and Pharma industry)
to reduce the cost burden on direct consumers.

References:

a) Agriculture Industry: https://www.jigyasaias.com/article-full/NEWS5C18EB0C78562/

b) Automobile Industry- https://cleartax.in/s/gst-impact-automobile-industry
c) http://www.businessworld.in/article/Impact-Of-GST-On-Automobile-Sector/01-10-2020-
326961/
d) Logistics: https://taxguru.in/goods-and-service-tax/critical-issues-gst-logistics-sector.html
e) Logistics: https://cleartax.in/s/impact-gst-logistics-industry
f) Logistics:https://www.livemint.com/Opinion/NbSCQ2KGNEcTGf1PA7IxcM/GST-impact-on-the-
logistics-sector.html
g) GST on e-commerce- https://cleartax.in/s/gst-applicable-on-ecommerce-sale
h) GST on e-commerce-https://www.gstindia.com/gst-impact-e-commerce-sector/
i) GST on e-commerce -
https://www.researchgate.net/publication/329362990_A_STUDY_ON_IMPACT_OF_GST_ON_E-
COMMERCE_SECTOR_WITH_SPECIAL_REFERANCE_TO_COIMBATORE_CITY
j) GST on healthcare & pharma: https://cleartax.in/s/gst-impact-on-healthcare-pharma-sector
k) GST on Real Estate: https://housing.com/news/gst-real-estate-will-impact-home-buyers-
industry/
l) GST on Real Estate: https://cleartax.in/s/gst-real-estate-sector-affect
m) GST impact on Telecom Sector:
https://www.researchgate.net/publication/
340163051_THE_IMPACT_OF_GST_ON_THE_TELECOM_SECTOR
n) GST on Textile Industry:
https://www.researchgate.net/publication/339089933_GST-_In_Textile_Sector_An_Overview