On July 1, India moved on to a new era of taxation with the rollout of Goods and Services Tax (GST). It has now subsumed 17 central and state indirect taxes and 23 cesses into a single tax regime. Such a big transition is bound to change the lives of many individuals and businesses. Some of such changes are as follows:
Change in shopping online
Under the new regime, goods will be delivered to a customer much faster than the previous regime due to removal of paperwork to be filed with state authorities. Though goods will reach on time, a pain point for consumers would be returns and cancellations as e-commerce companies may make this a tad difficult since they would now have to bear the tax amount on their own and only later be able to get a refund from the government in case of returns and cancellations. The companies will face a major cash-flow disadvantage due to returns and cancellations.
Relief to consumers
A huge relief to consumers has been the reduction in nominal tax rates for a majority of goods. Half of the items in the Consumer Price Index (CPI) basket will be exempt from GST and another tenth will be taxed at the lowest rate of 5%. The balance CPI goods would come under either of the two standard rates of 12% or 18%, rather than the highest rate of 28%.
The government has set up an anti-profiteering body to keep a watch on how businesses recalibrate the tax-inclusive price charged from consumers. Hence, companies and traders are expected to pass on the benefit to the consumers. This would result in further reduction of prices on various goods and services.
Getting tech savvy
In lines with Digital India, all filings in GST will have to be done online. Hence, all businesses would not only have to update their systems but also train their workforce to become tech savvy. It will specifically effect smaller traders who earlier managed their tax filings manually.
Ease of process
GST will not only ease the process of business but also bring in transparency in the whole process. All the invoices uploaded by sellers will also be visible to buyers. For the first time, consumers will get to know the actual amount of taxes they are paying for goods and services in the form of single GST. The efficiency of GST is expected to bring down the tax burden and improve transparency.
Tax breaks to end
There is no more excise duty exemption for setting up production units in the north east or hill states. Businesses will have to make investment decisions based on sound economics rather than tax arbitrage. Units that have already come up on the promise of excise exemption for a specified period will have to pay tax first and claim refunds in the remaining period.
Competitive business environment
It will shift the burden of taxes from the manufacturers in India where the tax system is unfairly skewed towards the consumers. Manufacturers will pay lower taxes and there will be an environment of greater competitiveness and more freedom in business.
The number of returns to be filed under GST has been a hot topic of debate. In the GST regime businesses have to file a total of 37 returns per state. However, everything being online, it is expected to be easier. Also, now such businesses would have to deal with one tax authority rather than multiple authorities as in the past regime.
The writer is partner, Nangia & Co LLP