GST has caused a major stir in Indian economy since its implementation on 1st July 2017. GST can be viewed as a major influential factor which helped boost the economy on upward momentum and provide a favourable economic scenario that would help with creating a positive sentiment across all sectors in the market. Since its implementation stock market has seen one of all time high uptrend momentums with the major indices continuing to breach new heights and the market on all sectors seeing stable growth as indicated by performance of benchmark indices.
There has been some major improvement in our country’s economic situation such as
- increase in the number of tax payers
- increased compliance for tax policies
- facilitating better and faster transportation of goods across the country eliminating the need for State-based check posts
- increasing digitized transaction of funds
- creating a stable market environment across the country, with increased chances of stable growth in the long-term across all sectors, resulting in more jobs and better chance at increasing investment with positive return expectations.
Another Key factor to be noted besides the above mentioned list of changes is reduction of tax burden on the end user/customer (removal of cascading tax effect) by implementing input tax credit system. Under this system the tax already paid for inputs is taken off the taxes to be paid for the final product, or output. This way more people pay taxes instead of the consumer bearing the burden of taxes levied at every step of manufacturing. However the implementation of GST caused stress in the short term, slowing down inflation and creating a short term negative economic scenario.
This negative scenario has been constantly dealt with on various occasions in the 101 days since GST came under implementation. A few examples that could be noted are:
- On August 5, the GST Council lowered tax rates on a few services covering textile sector, goods transport agencies, car rentals and tractor parts among others.
- Two days later, on August 7, the GST Council recommended raising the ceiling of cess on motor vehicles to 25 per cent from the original 15 per cent.
- On September 20, the government clarified that retaining actionable claims on deregistered brand names would make packaged food taxable at 5 per cent GST.
- On September 29, the Consumer Affairs Ministry allowed businesses to sell their pre-GST stock till December 31.
Many more changes were made during this period such as clarification on employee benefits, cess on tax rates for large SUV cars being hiked by 7% to bring the price on said cars to pre-GST level and so on.
However, the Indian stock market continued to take a huge bearish dive on its bull run from negative global cues. This trend changed after the latest amendments were released regarding GST on 6th October 2017. This triggered a positive market sentiment that pushed Nifty back to the 10000 point level despite major indices in the Asian market taking downtrend movement on global cues from N.Korean woes, resulting from the latest change in the country’s highest governing body and a possible threat of another nuclear test.
The latest amendments to GST are easing in compliance norms for SME’s & exporters and reducing tax rate for 27 items. SME’s and exporters with annual turnover less than INR 1.5 Crore now have the option to move under Composition Scheme of GST where the businesses can pay their taxes on quarterly basis instead of monthly basis. The threshold value for many businesses such as traders, manufacturers and restaurants has been increased from INR 75 lakhs to INR 1 Crore.
The companies from the above sector that meet the required condition are to pay standard tax rates fixed at 1 per cent for traders, 2 per cent for manufacturers and 5 per cent for restaurants. There are two more changes to be noted regarding the amendments on GST; they are regarding reverse charge mechanism and held-up working capital.
The reverse charge mechanism is being suspended till March 2018. This rule shifts the liability to pay the tax on the buyer rather than the seller and kick in if a supplier is not registered under GST to check tax evasion.
For exporters who had complained their working capital was locked up from July & August GST payments, the GST council meet told the government to start issuing refund cheques from 10th October to resolve liquidity related issues. By 1 April next year, the GST council also targets to have e-wallets for every exporter where a notional amount will be credited as an advance credit to pay their taxes.
The Council decided to continue with two pre-GST era schemes that allow duty-free sourcing of materials for export production till March 2018, a move that will improve the liquidity of exporters by preventing their working capital from getting locked up in tax procedures. It has also decided to clear all tax refund claims of exporters for July by 10th October and for August by 18th October. It introduced a 0.1% GST rate for merchant exporters, offering relief from the full applicable GST rates on their procurements as merchant exporters do not manufacture products themselves but procure from others for shipping overseas.View Full Artcile With Comments