THE TAXATION MOVE: - CHANGE IN INDIAN ECONOMY

Change is inevitable. Such change can be anywhere and due to any reason. Such change is being discussed in this article on the Indian economy where the change is being shown on different sectors of the Indian economy after and before GST. India is one of the developing nations where important decisions are being taken on various issues to make it the developed one and taken the ways to make it progress.

 IMPACT ON ECONOMY AFTER GST

Goods and Services Tax is levied on the manufacturing and sales of goods and services across the country. The tax is charged at every stage of the manufacturing process. GST is applicable to both the customer and the manufacturer. It is a destination-based tax. This means that GST is to be collected at the point of consumption.

 EFFECT OF GST ON THE INDIAN ECONOMY

 Simplification of the tax structure:

GST has simplified the taxation system of the country. As GST is a single tax, calculating taxes at the multiple stages of the supply chain has become easier. Through this, both customers and manufacturers get a clear idea of the amount of tax they are charged and its basis. Further, hassles of handling tax officials and authorities can also be avoided.

 Fostering production:

As per the Indian retail industry, the total tax component is around 30% of the product cost. Due to the impact of GST, the taxes have gone down. So, the end consumer has to pay lesser taxes. The reduced burden of taxes has enhanced the production and growth of the retail and other industries.

SME support:

Small and medium enterprises can now register under the Composition Scheme introduced by GST. Through this scheme, they pay taxes according to their annual turnover. Therefore, businesses having an annual turnover of Rs. 1.5 crores only have to pay 1% GST. Moreover, other enterprises having a turnover of Rs. 50 lakh are required to pay 6% as GST. 

Enhanced pan India operations:

Companies can now avoid taxation roadblocks, such as toll plazas and check posts. Earlier, these created problems, including damage to unpreserved products while transporting them. So, manufacturers had to keep buffer stock to make up for the damages. These overhead costs of storing and warehousing hampered their profit. A single taxation system has reduced these problems. They can now transport their goods easily across India. This has resulted in the improvement of their pan India operations.

Increase in exports:

GST has reduced the customs duty on exporting goods. The cost of production in the local markets has also decreased due to GST. All these factors have increased the rate of exports in the country. Companies have become more competitive when it comes to expanding their businesses globally.

IMPACT OF GST ON STARTUPS

Higher threshold for registration

As per the current VAT structure, any business with a turnover of more than Rs 5 lakh has to get VAT registration and pay VAT (different in different states). Under GST this threshold is 20 lakhs thus exempting many small businesses including start-ups. GST also has a scheme of lower taxes for small businesses with turnover between 20 to 1 crore though it’s optional. It is called the composition scheme. This will bring respite from tax burdens to newly established businesses. This will motivate startups to own their ventures.

Startups can enjoy tax credit on their purchases

A lot of start-ups are into the service industry i.e., they pay service tax. Under the GST regime, they can set off the VAT paid on the purchases (say office supplies) with the service tax on their sales which they cannot under the current regime.

The online simpler procedure under GST

The entire GST process starting from registration to filing returns and payment of GST tax is online. Start-ups do not have to run around to tax offices to get various registrations under Excise, VAT, Service tax.

Simpler taxation

Start-ups often work on a tight budget and cannot devote resources to look after the various tax compliances under Excise, VAT, CST, Service Tax, etc. GST will subsume all of this thus reducing the time spent for tax compliances. Also, start-ups dealing with both goods and services will find it much easier to file and pay one GST tax instead of both VAT and service tax.

Increased efficiency in logistics

GST will unite India removing restrictions on inter-state movement of goods. This will bring warehouse consolidation across the country which will benefit an economy. As an outcome of GST, warehouse operators and e-commerce players have already shown interest in setting up their warehouses at strategic locations such as Nagpur, which is the zero mile city of India and is well connected.

The tax burden for manufacturing start-ups 

However, start-ups in the manufacturing sector will bear the brunt. Under the existing excise laws, only manufacturing business with a turnover of more than Rs 1.50 crore has to pay excise but with the implementation of GST, the turnover limit has been reduced to Rs 20 lakh thus increasing the tax burden for many manufacturing start-ups.

Blocked working capital:

The new generation taxation mechanism would need to uphold funds in the electronic form with the tax department leading to a blockage of the capital which is the cost for the organizations. Additionally, the input tax credit mechanism will also lead to choked capital. All in all, the businesses would have to part from a portion of their funds [without interest] under GST.

BEFORE GST:-

Education in India is provided by public schools (controlled and funded by three levels: central, state, and local) and private schools. Under various articles of the Indian Constitution, free and compulsory education is provided as a fundamental right to children between the ages of 6 and 14. The approximate ratio of public schools to private schools in India is 7:5.

India has made progress in increasing the attainment rate of primary education. In 2011, Approximately 75% of the population, aged between 7 and 10 years, was literate. India's improved education system is often cited as one of the main contributors to its economic development. Much of the progress, especially in higher education and scientific research, has been credited to various public institutions.

While enrolment in higher education has increased steadily over the past decade, reaching a Gross Enrollment Ratio of 24% in 2013, there still remains a significant distance to catch up with tertiary education enrolment levels of developed nations, a challenge that will be necessary to overcome in order to continue to reap a demographic dividend from India's comparatively young population.

At the primary and secondary level, India has a large private school system complementing the government-run schools, with 29% of students receiving private education in the 6 to 14 age group. Certain post-secondary technical schools are also private. The private education market in India had a revenue of US$450 million in 2008 but is projected to be a US$40 billion market. 

Although there are private schools in India, they are highly regulated in terms of what they can teach, in what form they can operate (must be a non-profit to run any accredited educational institution), and all other aspects of the operation. Hence, the differentiation of government schools and private schools can be misleading.

As per the Annual Status of Education Report (ASER) 2012, 96.5% of all rural children between the ages of 6-14 were enrolled in school. This is the fourth annual survey to report enrolment above 96%. India has maintained an average enrolment ratio of 95% for students in this age group from the year 2007 to 2014.

As an outcome, the number of students in the age group 6-14 who are not enrolled in school has come down to 2.8% in the year academic year 2018 (ASER 2018). Another report from 2013 stated that there were 229 million students enrolled in different accredited urban and rural schools of India, from Class I to XII, representing an increase of 23 lakh students over 2002 total enrolment, and a 19% increase in girl's enrolment. While quantitatively India is inching closer to universal education, the quality of its education has been questioned particularly in its government-run school system.

While more than 95 percent of children attend primary school, just 40 percent of Indian adolescents attend secondary school (Grades 9-12). Since 2000, the World Bank has committed over $2 billion to education in India. Some of the reasons for the poor quality include an absence of around 25% of teachers every day. The states of India have introduced tests and education assessment system to identify and improve such schools.

IMPACT OF GST ON EDUCATION SECTOR

GST is providing relief in some sectors related to education whereas it has increased burden on the private institutions and coaching centers which ultimately lead to the burden on the parents.

Exempted Educational Services under GST

The educational services exempted under GST are assessment and examination fees, curriculum-related or course materials, excursion and field trips related to the course of study or part of curriculum requirement; except for food and accommodation supplied on those trips, and various student administrative services such as registration, the printing of academic transcripts, issuing or replacement of student cards, late fee payments, administration of the library, etc.

The educational services provided by the Assessment agencies approved by the Sector Skill Council or the National Skill Development Corporation, National Skill Development Corporation set up by the Government of India, Sector Skill Councils approved by the National Skill Development Corporation, and Training partners approved by the National Skill Development Corporation or the Sector Skill Council are also exempted from GST.

Non-Exempted Educational Services under GST

 1. Higher Education Institutions and Private Institutions

The exemption under GST has been granted for pre-schools till higher secondary education. Since universities and other advanced educational institutions have not been mentioned in the exception list, 18% GST is expected to be levied on these institutions. Higher education in the private segment will end up being more costly and in turn, competition for admissions in government schools/colleges/foundations will increase. There will be a 3 to 5% of the obligation jump on the administration costs that will over the long haul impact the common man.

 2. Coaching Institutes

As clearing competitive exams and entrance exams seem impossible without taking professional coaching, coaching institutes form an integral part of education. GST has raised the tax rate to 18% from 14% for these coaching institutes. The parents whose children are about to start coaching for IITs and other competitive examinations will be facing the inconvenience as they have to pay more.

3. Cost of Organizing Events

When foreign entities organize any educational or training events in India which are attended by professionals, individuals and overseas participants would be taxed under GST which is again burden as it raises the cost of the training. Apart from the exemption, the private education sectors are likely to get expensive up to 2 or 3% after GST rolled out in India. Even if the lowest tax slab of 5% is applied, the chances are high to get it expensive according to the research and analysis of all the provisions of the bills introduced.

BEFORE GST:-

In the wake of demonetization, Union HRD Minister, Prakash Javadekar launched a cashless payment drive across the centrally aided institutions and proclaimed the benefits of digital payment in the wake of demonetization. The Human Resource Ministry has decided to revise the old policy that promoted all the students from Class 5 and 8. Now, under the new policy, it will be mandatory for all students of classes 5 and 8 to clear the examination so as to get into the next class. As per the RTE (Right To Education) Act, on April 1, 2010, this policy was enforced with the motive of providing education to each and every child between the age of 6 and 14.  Delhi High Court marked a decision that provisional certificate issued by a varsity works valid till a degree is issued, so no university can deny admission if a student cannot submit his previous degree. Telangana has become the first Indian state to make gender education compulsory at the graduate level and has introduced a bilingual textbook, Towards a World of Equals in engineering colleges affiliated to the Jawaharlal Nehru Technological University (JNTU-Hyderabad). Assam government announced free higher secondary, three-year degrees, and polytechnic diploma courses for students who can't afford them.

IMPACT OF GST ON REAL ESTATE

GST brings transparency in the functioning of the real estate sector, the overall increase in price for new residential properties would be lower than that for new commercial properties. It will reduce the cost of buying houses for buyers as in the previous tax regime, they had to pay Service Tax and VAT on the purchase of residential unit when booked prior to their completion, developers had to pay excise duty, customs duty, CST, Entry tax which is non-creditable tax cost, on their professional side, which is included in the price of units. With the uniform tax rate, developers will have input credits on GST paid for services and goods purchased by them which will ultimately reduce the cost for them and can be passed on to the buyers. Now coming to the point of Value added tax (VAT), after the implementation of GST, the tax structure is under the simplification process. After GST implementation, the government has not included the stamp duties under it which are somewhat a relief. The carpet area of a property in the metro city up to 60 square meters (around 650 square feet) and in the non-metro i.e. 90 square meters (970 square feet) condition is included in the affordable housing scheme. While the affordable house will be considered if the value of the property is less than 45 lakhs and would charge 1 percent GST and more than that would levy the 5 percent GST rate. The GST regime has replaced multiplication of taxes and the builders now have to pay a higher amount in the 4-tier taxation but would get input credits eventually. Now, the burden of the higher taxes will be passed over to the home buyers and they may avoid purchasing immediately. The home buyers will end up paying GST apart from those who are linked under the CLSS scheme.

The GST impact on the real estate sector is that the real estate developers can claim the Input Tax Credit (ITC) on construction inputs like labor, cement, bricks, etc. under the GST regime. The ITC was brought to avoid the tax on tax positions. Under ITC, the tax charged on GST will be credited back to the developers. It was expected that the ITC will motivate the developers to revert back the benefits of credit to new homeowners.

Some problems are being faced by the developers while claiming the ITC:

• The receipt of each input is to be properly analyzed to submit estimates of GST.
• The input prices can change over time, making it hard to provide accurate estimates.
• No provision to set-off the increase in price is there to claim ITC.

Goods and services tax has made the housing affair cheap as the tax chaos impacted the sales of the real estate sector. According to the reports, the prices of the properties fell on an average of 3 percent in which the Pune saw the highest decline of 7 with Mumbai at 5 percent in the year 2017. While the prices in Delhi NCR had got a lower 2 percent value than before.

BEFORE GST:-

The real estate sector in India is witnessing rapid growth in the residential, commercial, and industrial segments. Real estate development, once restricted to bigger cities, has shown marked progress in smaller cities and towns owing to the availability of bank loans, higher earnings, and improved standard of living.

The real estate sector of India is projected to post annual revenues of US$ 180 billion by 2020 against US$ 66.8 billion in 2010-11, a compound annual growth rate (CAGR) of 11.6 percent. The demand is expected to grow at a CAGR of 19 percent in the period 2010-2014, with Tier I metropolitan cities expected to account for about 40 percent of this growth. As of now, Mumbai, Delhi-National Capital Region (NCR) and Bengaluru cater for 46 percent of total office space demand in India. This demand is expected to be rise sharply in Tier-II cities such as Kolkata and Chennai in the period 2010-14. 

Today, Delhi-NCR accounts for about 30 percent of the total mall supply in India. About 53 percent of demand for total mall space is projected to come from the country's top seven cities, namely Delhi-NCR, Bengaluru, Mumbai, Kolkata, Pune, Hyderabad, and Chennai, in the period 2010-2014.

The Indian retail realty sector is projected to grow at around 15 percent year-on-year over the next 3-5 years as against a 12-13 percent nominal growth of India's GDP estimated by the International Monetary Fund (IMF). If the sector does indeed manage the aforementioned growth, it will touch Rs 34 trillion (US$ 544.73 billion) by 2016.

IMPACT OF GST ON DIGITAL DEVELOPMENT

The prevailing service tax rate on IT services is 15%. However, the recommended revenue-neutral rate is 15–15.5% and the standard rate is expected to be around 17–18%. Therefore, the cost of IT services will elevate, especially for the end customers who do not usually claim the tax input credit.

Under our current tax structure, the sale of packaged software is entitled to both VAT (approximately 5%) and service tax (15%). However, it is expected that once the GST is implemented, the current average tax rate of around 25–35% will come down to around 18–25%. The cascading effect of the tax will be effectively addressed under the GST regime. Traders, under GST, will be eligible to avail of the credit of services such as in the case of AMC (Annual Maintenance Service) contracts. Currently, IT service providers can’t claim credits of quality including the assessment or deal charge spent on setting the IT infrastructure. Also, services charged by an IT service provider to a client who is a broker is an expense incurred for the IT service provider. Under GST, both the IT service providers and their clients will be eligible to claim full credit for GST. This is expected to eliminate the cascading effects of the present tax structure which will ultimately reduce burden. Under GST, which is a destination-based tax which is collected by the state where the goods or services will be consumed. Most IT companies are registered only with the Central Service Tax authorities and usually all billing and accounting tasks are carried out from a central location. Under the GST regime, service providers are required to obtain registration for all the states that they are catering to, i.e. all states that they have customers in. This is to be done so that the SGST (State Goods and Service Tax) component of IGST (Integrated Goods and Services Tax) is rendered for different states differently. IT service providers will, therefore, have to bifurcate their services and bill their customers based on the location of consumption.

For e-commerce traders, the GST is expected to increase administrative costs. Also, since e-tailers have hundreds of sellers on their platforms, it significantly increases compliance burden. Small sellers will face cash-flow issues and will claim for refunds on the tax paid on inputs, which the e-commerce platform may not support. The tax collection at source (TCS) guideline under GST will increase the administration and documentation workload for e-commerce firms. The model GST law recognizes at least 111 points of taxation which means IT companies providing services all over India will have to seek registration in as many as 37 jurisdictions that will include 29 states, seven union territories, and the Centre. This means that IT companies will have to register and file compliance reports at as many as 111 points.

Even though new provisions under the GST structure such as time-bound processes and clarity on electronic download classifications will ease the process of conducting business for IT companies, there still remain several concerns, especially tax exemptions, which need to be addressed. The government should ensure the GST legislation addresses the aforementioned challenges so that the reform turns into a success for the IT sector. Deskera ERP, being India’s first GST ready software, takes into account all applicable taxes that fall under the blanket of the Indian GST and can be readily plugged in to accommodate any upcoming tax requirements. 

co-Support By :-Rsuhali Goyal