How will GST benefit the IT industry?
Netgear supports GST as a landmark step towards indirect tax reform and is confident that this will have a huge positive impact on trade and industry in the country. Few of the benefits from GST include:
- GST will replace 17 indirect tax levies and compliance costs will fall
- State and Central revenues will get a boost as the input tax credit will encourage suppliers to pay taxes
- India will become a single market and goods will flow free across the country
- Make in India products will become cheaper because of the input tax credit. Manufacturing will become competitive with the elimination of interstate tax and uniform market
- Spending will increase on IT infrastructure and uniform investment is expected to happen across all states.
What are the immediate effects you are seeing in the market?
Trader community fears GST may impact the upcoming festival season sales. Due to lack of clarity, dealers have reduced taking new stocks, which is resulting in increase of prices for most of the goods. The government must compensate at least 75 percent of the duty on the transition stocks instead of existing 60 percent of CGST.
Currently, only 60-65 percent of traders have registered for GST, and around 30-35 percent have not yet shifted to the new system. We are educating our partners to quickly adopt GST model.
Moreover, we are supporting our channel partners for smooth transition to GST by helping them liquidate their transition inventory, while ensuring that there is no loss of sale at the retail level.
What are the long term effects?
The experts have reiterated that GST implementation will boost the economy and GDP growth by 1-2 percent. In the long run it will attract more goods and services in the tax purview and reduce tax evasion.
Moreover, GST will result in free flow of goods across state borders, which would transform distribution model and supply chain of the businesses. The previous tax model compelled businesses to operate on the state model to avoid inter-state transfers incurring CST (Central Sales Tax). However, with GST the branch transfers and inter-state sales will be subject to creditable Integrated Goods and Services Tax (IGST). This will encourage businesses to move to a centralized warehousing approach resulting in effective costing.
Further, tax revenues of the government would go up with expanded tax net, and fiscal deficit would remain under control. Exports would emerge as more competitive in global markets, while FDI is likely to be encouraged.
However, under GST, the businesses need to have state-wise registration, undertake compliance and maintain state-wise credits but with no cross utilization between CGST and SGST. Businesses need to restructure their supply chain to ensure effective credit utilization and avoid credit accumulation.
How will GST affect the import of IT products and services?
The GST will subsume countervailing duty (CVD) and special additional duty (SAD); however, basic customs duty (BCD) will continue to be there in the import bills. BCD has been kept outside the purview of GST.
Below are few of the implications for imports by virtue of GST implementation in India:
Import as inter-state supply – Import into India will be considered as inter-state supply under GST and accordingly will attract IGST along with BCD and other surcharges. In addition to IGST, customs duty, education cess, and other protective taxes, such as anti-dumping duty and safe-guard duty also continue to be levied on imports of certain goods – carrying over from the previous tax regime. However, in case of import of services, only IGST is levied.
Import of services – GST accords liability of payment of tax on the service receiver, if such services are provided by a person residing outside India. This is similar to the previous provision of reverse charge, wherein service receiver was required to pay tax and file return.
Withdrawal of exemptions – The previous customs import tariff was loaded with multiple exemption notifications which are withdrawn and converted into a refund mechanism. Withdrawal of exemptions and changing them to refund mechanism could fundamentally change the attractiveness and viability of some of the key schemes under the FTP like EOU, STP and advance authorization.