Mumbai: With the goods and services tax (GST) expected to be taken up in the Rajya Sabha on Wednesday, great hopes are placed on its implementation giving a boost of at least one and a half per cent to GDP. However it will hurt the poor as after GST the percentage of indirect tax is expected to increase according to Edelweiss Research.
The aam consumers pay this tax to the government indirectly when they buy goods from the manufacturer or retailer in the form of VAT, service tax, sales tax, excise etc.
Bankbazar.com quotes a tweet by revenue secretary Hasmukh Adhia, which says that provisional revenue figures for indirect tax showed a 41 per cent growth in April 2016 as compared to revenue figures during the same time last year because of 22 per cent rise in customs collections for April 2016 at Rs 17,495 crore, while service tax collections witnessed an increase of 27 per cent, shooting up from Rs 14,585 crore last year to Rs 18,647 crore this April.
Indirect tax currently forms 34 per cent of the total tax collection (Direct & Indirect), of Rs 14.6 lakh crores, with Rs 2.8 lakh crore from excise and Rs 2.1 lakh crore from service tax.
The GST however is good news for several industries like logistics, cement, consumer durables, FMCG, pharma, auto and building and home materials according to Mr. Abnish Kumar Sudhanshu, director & research head, Amrapali Aadya Trading & Investments Pvt Ltd.
It will for instance cut down the transit time for the logistics industry, bringing in more efficiency and benefiting both transporters and manufacturers. It also enhances inter-state commerce as it cuts down trade barriers between states.
Most goods manufactured in the country have an indirect tax component of an average 27-30 per cent. If the proposed GST falls near 18-20 per cent, then the final prices of goods may come down to 9-10 per cent Since a standard rate would be applicable across the country post GST the ultimately cost of manufactured products will be less compare to earlier and auto companies will be benefitted. So will auto ancillaries as it will have more incentives in terms of lower interest rates for accessing finance and removal of customs duties on import of select raw materials. Additionally, it will benefit them from unorganised players along with cost optimisation in terms of movement and warehousing of goods due to uniform tax rate.
FMCG will benefit by the savings of 30 per cent on logistics cost. The FMCG companies currently pay tax of 22-27 per cent and If GST rate falls between 18-19 per cent as expected it will lower prices, and reduce the price differential with unorganised players. Other beneficiaries will be cement companies currently paying 24.5 per cent tax, says Mr Sudanshu.
