Companies wishing to sell their wares across the country need not fret over the complex web of state and central taxes any longer as GST forges one of the world's biggest single markets for goods and services.
State boundaries have all disappeared into thin air as the nation flagged off the biggest indirect tax reform in independent India. Companies wishing to sell their wares across the country need not fret over the complex web of state and central taxes any longer as GST forges one of the world's biggest single markets for goods and services.
It is an open market for several daily items like milk, cereals, meat, and curd, and vital services like education and healthcare. These attract zero tax in the new regime. Cars and two-wheelers will be much cheaper from today as GST will bring in lower taxes.
Mobile phones will attract a 12 per cent tax, making most of them costlier by at least 4-5 per cent, while imported phones and parts will carry roughly the same price tags.
Products like soaps, hair oil, and toothpaste will become cheaper, carrying 18 per cent tax, down from the earlier rate of 24-28 per cent. Aerated drinks, tobacco, luxury goods will attract what they call 'sin tax' at 28 per cent.
While movie watching becomes cheaper in most states at a uniform 18 per cent, banking services are set to be expensive as the tax component goes up to 18 per cent from the existing 15 per cent.
The government has pinned hopes that the rollout of new tax regime would enhance tax compliance and efficiency. Finance Minister Arun Jaitley said the GST could lift the economic growth by as much as 2 per cent.
Deepak Jain, partner, Bain & Company, agrees. He believes that GST should impact the GDP positively by 1-2 per cent, though it is expected to create some disruptions in the near term of 12-18 months.
"It would lead to the creation of a unified market, optimisation of tax burden, increased price competitiveness, elimination of inefficiencies in supply chain and shifting away from unorganized to the organised sector," he says.
How will the stock market react to the implementation of GST?
Motilal Oswal, chairman and MD of Motilal Oswal Financial Services Ltd, says the market would react to the initial disruption, "not because it is very severe but more because Nifty is trading at rich levels and pregnant with expectations of better corporate earnings". He believes that Nifty might retrace to 9200-9250 levels and will resume the next rally from there. "One should be ready to deploy more money in equity instruments at lower levels," he says, adding that the new system would act as a much better taxation grid in the long run.
Jain of Bain & Company is confident that the companies stand to gain as it would lower supply chain costs by 10-15 per cent and provide them access to wider markets in the absence of state boundaries. "They would also gain shares from the unorganized market. While manufacturing has cut down supplies to dealers in the last few weeks to avoid any input credit related losses, IT and finance teams in companies have started to adjust their systems to align with the new GST requirements."
Ashishkumar Chauhan, MD & CEO of Asia's oldest bourse, BSE, says the implementation of GST would catapult India's tax infrastructure into world's leading one in a single step. "It is expected to improve ease of doing business and is excepted to be much easier for tax payers as compared to current multiple tax systems encompassing state, centre and city based taxes," he adds.
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