GST Set to Fuel Growth of Industries

HYDERABAD: The much-awaited Goods and Services Tax (GST), which will come into effect from April  2016, is likely to benefit industries operating in both Telangana and Andhra Pradesh.

With the Central government including all petroleum products under the ambit of GST — which eliminates double taxation — industries purchasing bulk fuel, petroleum products like lubricants are likely to have a cost advantage of about 15-20 per cent. However, retail consumers like you and I might get only some nominal relief in the form of price cut in fuel prices.

“For the industry, cost of fuel, diesel, or lubricants will reduce by 15-20 per cent due to absence of double taxation,” said Devendra Surana, MD, Bhagyanagar India Ltd.

Interestingly, both TS and AP earn a significant amount of revenue via taxes on petrol and alcohol, which has been excluded from the GST for now. Initially, there has been severe resistance from state governments to include petrol under GST. Considering the requests from various states, the Central government on Wednesday said the tax rate on petrol for individual states will be determined by a government-appointed GST council at a later date.

“Taxes on petrol and alcohol are two big revenue streams for AP, which is starved of funds,” Suresh Chitturi, president, CII-AP told Express.

He, however, added that the implementation of GST will have inherent benefits to AP due to uniform tax structure and transparency in administration.

Implementation of the proposed GST Bill, is also likely to fetch more revenues for state governments, as they will now be entitled for a share in service tax. Currently, individual states do not earn revenue via service tax. “As the country is moving towards more services as opposed to manufacturing, significant amount of service taxes will be collected and states will be entitled with a part of that component,” said Surana.

As on FY14, AP generates 4.4 per cent of the total service tax collection in the country, while TS  service tax collections are about 2.5 per cent.

Meanwhile, analysts are in a wait-and-watch mode as far as the distribution of money from the Centre to the states is concerned. “For instance, during the initial days of the Value Added Tax (VAT), the money was going to the Centre, which was to direct it to states. But this distribution was not very effective as it was supposed to be. Now, the governments may want a better mechanism of diverting revenue from centre to states,” Chitturi said.

What is GST?

A uniform tax rate to replace central excise, state VAT, entertainment tax, octroi, entry tax, luxury tax and purchase tax on goods and services

Why GST?

  •  To improve tax compliances, remove exemptions and multiple tax structures and ensure transparency
  •  More than 150 countries have adopted GST (excluding the US) and is an emerging as a global standard

Who benefits?

Industry, will have lower compliance costs, as it simplifies the indirect tax structure to one general rate that can be paid by all companies

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