3.1.

1 IMPACT OF GST ON REAL ESTATE SECTOR

INTRODUCTION – GST may bring a lot of relief to the real estate sector. Supply chain
mechanism in real estate sector to be revamped after implementation of GST.

Real estate sector is

one of the most
pivotal sector of the
Indian economy. Real
estate sector plays a
vital role in
employment
generation in India.
The importance of
Real estate sector can
be understood with
its average 5-6% GDP contribution and stimulating demands for more than 250 ancillary
industries.

GST REGIME FOR REAL ESTATE SECTOR: GST would bring a lot of transparency in the real
estate sector and minimize unscruplous transactions. Under the current tax laws, VAT and
Service tax charged by different Contractors and excise duty, entry tax, octroi is paid on the
procurements. GST law will increase the margin in the hands of contractor/developer by
removing all the above- mentioned taxes.

GST RATE ON REAL ESTATE: Currently, the sale of land and buildings have been kept out of
the ambit of GST but it is expected to be taxed with in a period of a year. Cement will be
taxed at the rate of 28% under GST. It is higher the current average rate of tax around 23-
24% but a lot of additional taxes charged over the average rate would be subsumed under
GST. Iron rods and pillars used in construction of buildings is charged at the rate of 18%
which is similar to the current average rate of 19.5%.

3.1.2 IMPACT OF GST ON BANKS AND NBFCs IN INDIA:

Implementation of GST is standing true to its slogan of “One Nation, One Tax” and turning it
into reality. GST is making impact on every business sector in the country, including the
service sector. The service sector, most specifically, financial services based on funds and
insurances (Non-Banking Financial Company) NBFCs and Bank are impacted the most.
Withdrawing money from an ATM has become easier owing to its place in every locality,
irrespective of whether you an account in that bank or not. However, almost all of us have
received a text message or a phone call from our respective banks where we have an
account, informing us that after a certain number of transactions and specific amount
withdrawl the bank will charge us a nominal fee as per the instructions of the Reserve Bank
of India. Though this isn’t new to us now with the implementation of GST, where service tax
was earlier charged at 15% now, it will be replaced by 18 percebt GST. Some impacts and
issues relating to the provisions in the Model GST Law are discussed below.

REGISTRATION HAS BECOME A PROBLEM: During the pre- GST regime, banks and NBFCs
with Pan-India operations cou;d release its service tax compliance by a single centralised
registration process. Now, under the current GST regime, these banks and NBFCs need to
get different registration for each state that they work into. Along with the burdent of GST
cpmpliance, the filing of returns has also expanded generously wherever periodicitry of
returns, level of details needed in such returns and number of return formats are
concerned.

ADJUDICATION AND ASSESMENT MADE DIFFICULT: The assesment was performed by the
state regulators under which a particular branch is registerred in the previous tax regime.
Now, under GST , all registered branches of banks and NBFCs will need to justify its position
as per its chargeability in a respective state and a valid reason for using ITC in different
states. Under the pre-GST regime, a taxpayer was adjudged by only one adjudicating
authority for an issue.

TRANSACTIONS SUBJECT TO GST : There are certain services provided by banks and NBFCs
that are impacted by the implementation of GST. Some of the services include

1. Loan: Loan being money to money transaction, is not subject to GST. Moreover, the
interest that is to be charged on loans is also exempted from GST.
 2. Lease: Lease, in financial sectors, can either be a supply of services (transfer of right
to use goods for cash, deferred payment, etc.) or supply of goods (transfer of title in
goods), which will attract GST at the rate similar to assets that are leased out.
3. Hire Purchase: Hire Purchase transaction includes a hirer providing an asset for use
on hire rental basis and a right to acquire the asset at the end of the hiring tenure at
a nominal rate. This transaction will, therefore be charged at the same rate at which
a hired asset is charged under GST.

3.1.3 IMPACT OF GST ON FMCG SECTOR

The Indian FMCG Sector is the

fourth largest sector in the
economy with a total market
size in excess of US$ 13.1
billion. Fast Moving Consumer
Goods (FMCG) goods are
popularly named as consumer
packaged goodsa. Items in this
category include all consumables (other than groceries/pulses) people buy at regular
intervals. FMCG is also one of the fastest growing sectors among all the sectors in the Indian
economy. Within the FMCG sector, food product is the leading segment, accounting for 43%
of the overall sectors

POST-GST IMPACT ON FMCG SECTOR:

The fast-moving consumer goods (FMCG) segment is the fourth largest sector in the Indian
economy. It has grown from US$ 9 billion in FY 2000 to US$ 49 billion in FY 2016-17 and has
an expected compound annual growth rate (CAGR) of 20.6 percent to reach US$ 103.7
billion by 2020, according to the India Brand Equity Foundation’s July 2017 presentation.
Within the FMCG sector, food product is the leading segment, accounting for 43 percent of
the overall sector. Personal care (22 percent) and fabric care (12 percent) come next in
terms of market share.
GST IMPACT: The total current tax rate for the FMCG induster is around 22-24 percent.
Under GST. The tax rate comes to an average of 18-20 percent. Lets’ look at how the new
tax rates under GST impact major products within the sector:

Companies such as Patanjali,

ITC, HUL, and Marico are
either slashing the prices of
goods or increasing the
volume of the products on
dispatches made from 1 July
onward, extending the tax
benefits to consumers under
the GST regime. In particular, HUL has slashed the price of its detergent soap Rin bar of 250
gm from Rs. 18 to Rs. 15 and increased the weight of its Surf Excel bar costing Rs. 10 from 95
gm to 105gm. Lower prices could potentially support volume growth of certain products,
particularly in the rural segment. “ We believe it could result in a faster consumption shift
from unbranded yo branded products, spurring volume growth for FMCG companies.
Simultaneously, it will also bring operational efficiency with rationalization of supply chain
by removing bottlenecks,” says Sanjay Manyal, Analyst, ICICI Securities. He also pointed out
that tax exemption provided to several critical products required for food processing –
jaggery, cereals, and milk – would benefit the industry.

TOP GAINS AND LOSSES: Wondering who will gain and who will lose from the new GST
structure? Companies such as Marico will benefit from the change in the rates of edible oil,
and the rates of hair oil have decreased in their favour as well. Colgate-Palmolive will also
gain under GST, as toothpaste will become cheaper now.

On the other hand, gifting dry fruits on festivals will become an expensive affair now as the
rates have increased from 4-5 percent to 12 percent. Also, the rates of dairy products like
ghee, butter, and cheese have increased from an average rate 4-5 percent to 12 percent.
This increase will have a negative ripple effect and hurt the entire ecosystem of farmers,
retailers, distributors, and bottlers in India. This increase in tax will further limit the growth
of the beverage industry,” said the Indian Beverage Association (IBA) in a statement.
 3.1.4 IMPACT OF GST ON MANUFACTURING SECTOR

GST – the unified tax system that is set to revolutionize indirect taxation in India – is finally
here. Some of the key proposed advantages are streamlining of tax payments, reduction in
tax frauds, and ease of doing business. Here is a look at how these will play out in the
manufacturing domain.

Make In India & Manufacturing :

The manufacturing sector in India

contribues a mere 16% to the overall
GDP. However, the potential to mske this
a high-growth and high-GDP sectoe is
huge. The “Make In India” campaign by
Prime Minister Narendra Modi makes this
possibility real, by giving impetus to the
sector. Furthermore, PwC estimates that
India will become will become that fifth
largest manufacturing company in the
world by the end of 2020. It would be
interesting to know how the Goods and
Services Tax of GST impact this roadmap.

Impact of GST on Manufacturing:

GST is one of the key policy changes that will have a direct impact on manufacturing
establishments. So far, the existing complex tax structure has been a dampener, resulting in
the slow growth of the sector.

Overall, GST is expected to have a positive impact and boost manufacturing. Here is why:

 Removal of multiple valuations will create simplification: The old tax regime
subjects manufacture goods to excise duty, which is calculated on differently in
different states.
  Improved cash flows: Under the new tax laws, manufacturers can claim input-tax
credit on input goods, which seems to be a positive sign for cash flow. SMEs are
keenly observing the time difference between tax credit and the credit and the
credit being available.
 Single registration process will provide ease of registration: The old regime
required manufacturers to register eaxh manufacturing facility seperately, even
those in the same state. GST will simplify the plant registration process by allowing
single registration process for all manufacturing entities within the same state..
 Removal of cascading will lead to lower cost-to-customer: The old tax regime does
not allow manufacturers to claim tax credit on inter-state transaction taxes such as
octroi, central sales tax, entry tax, etc. This results in cascading of taxes – an extra
cost to the manufacturing company. The unified GST regime will eliminate multiple
taxes and thus lower cost of production; this, in turn, will mean lower pricing for the
customer. For example, prior to 1 July 2017, SMEs in manufacturing used to pay
Excise Duty, Central State Tax and sometimes VAT too at 12.5%, 2% and 5.5%
respectively. With GST in effect, they are required to pay 18% in taxes.
 Restructuring of supply chain: To allign with the GST law, businesses will be required
to realligns the supply chains. However, this is a blessing in disguise. Till date, most
supply chain structuring has been designed around how to manage tax regimes

Manufacturers, however, are concerned about the following aspects:

 Increase in mmediate working capital requirement: Branch transfers and depo-

transfer will be treated as taxable under GST; IFST will be applicable on thsese
transfers. This increases the requirement for immediate working capital.
 More stringent and elaborate transaction management: GST aims to achieve
better tax compliance. To make this possible, manufacturers must work towards
streamlining existing transactions; this means additional resources and costs. For
example, under GST, credit in respect to an invoice can be taken only up to one
year of the invoice date.
 3.1.5 EFFECT OF GST ON AGRICULTURE SECTOR

GOVERNMENT PLANNING ‘ONE NATION, ONE MARKET’ IN AGRICULTURE SECTOR.

The governments model law for agricultural reforms aims to allow farmers a wider choice
of market beyond the local mandi.

The impact of GST on agricultural sector is foreseen to be positive. The agricultural sector is
the largest contributing sector the overall Indian GDP. It covers around 16% on Indian GDP.
The implecation of GST would have an impact on many sections of the society. One of the
major issues faced by the agricultural sector is the transportation of agriculture products
across state lines all over India. It is highly probable that GST shall resolve the issue of
transportation. GST may India with its
firts National Market for the agricultural
goods. Special reduced rates should be
declared for items like tea, coffee, milk
under the GST.

IMPACT OF GST ON AGRICULTURAL

SECTOR: GST is essential to improve
the transparency, reliability, timeline of
supply chain mechanism. A better supply chain mechanism would ensure a reduction in
wastage and cost for the farmers/retailers. GST would also help in reducing the cost of
heavy machinery required for producing agricultural commodities. Under the model GST
law, dairy farming, poultry farming, and stock breeding are kept out of the definition of
agriculture.

Fertilizers an important element of agriculture was oriviously taxed at 6% (1% Excise + 5%

VAT). In the GST regime, the tax on fertilizers have been increased to 12%. The same impact
is on Tractors. Wavier on the manufacture of Tractors is removed and GST of 12% has been
imposed. This is beneficial as now the manufacturers will be able to claim Input Tax Credit.

3.1.6 IMPACT OF GST ON INDIAN HOSPITALITY SECTOR

Goods and Service Tax, or GST! This seems to be the word everyone is treating with
complete trepidition. There is still a lot of uncertainity and wairness in what the next few
months will bring, and what all changes need to be made.

So how does GST affect the

Indian hospitality sector? Just a
few days back, the GST council
provided a slight sigh of relief
to mid-market and luxury
hotels by stating that only
rooms with a tariff of Rs.7,500
and more, and not Rs.5,000 as
declared earlier, would have a
GST of 28%. Hotel room with a tariff between Rs. 2,500 to Rs. 7,500 would have a GST of
18%.

The GST on room tariffs proves to be a double-edged sword; before GST a hotel room with a
tariff of Rs. 5000 would attract about taxes amounting to about 20%, therefore, the same
room would be priced at Rs.6000 before GST and Rs. 5900 after GST. On the flip side a room
with a tariff of Rs. 7500 with taxes would be priced at Rs. 9000 before GST and Rs. 9600
after GST. It will only be logical if the hotelier fixes the price at Rs. 7499 so that the final
amount to the customer would be around Rs. 8850 as it falls under 18% tax slabs.

Many hotels, nowadays, have some sort of dynamic pricing (done manually), which
fluctuates depending on demand and supply. Now since GSR also varies depending on the
tariff, hotels need to ensure that their billing system or PMS is able to alter the tax as per
the pricing of the room across all their distribution channels. The first few months may
require some double checking, but PMS software, such as Hotelogix is already GST ready to
make the transition trouble free for hotels.

A slight relief to the luxury hotel segment is that the GST on their restaurants has been
revised. Initially, the council planned to impose a GST of 28% on the restraunts and five-star
hotels but after a lot of opposition from the hospitality sector they brought it down to 18%.
 3.1.7 EFFECT OF GST ON HEALTH CARE & PHARMACEUTICAL SECTOR

As the GST sets in, pharmaceutical companies have to pay more in manufacturing cost as
raw material cost goes up by 7% and hence the MRP of the product need to be changed to
abosorb that impact.

2016-17 has been tenure of

prolific significance, as India saw a
plethora of reforms, set to change
how the market functions.
Amongst the lot, GST is the single
biggest tax reform which all
industries are witnessing today.
Yet, there is a great deal of
ambiguity surrounding it as its impact on various industries like pharmaceutical industry is
unknown today, creating a lot of uncertainity in the whole supply chain. To comprehend the
impact of GST, we need to get grips on the intricate spectrum of pharmaceutical supply
chain.

There are two key things that have changed are the manufacturing price-many raw
materials for API and products have moved from 5% VAT bracket to 12% GST bracket and a
lot of medicine salts / compounds have moved from 5% to 12% GST bracket. Also there are
a lot of food and medicine supplements which have moved from 12.5%-15% to 18 and 28%
brackets, marking a record hike in price. For this, we need to understand the margins at
which the supply chain operates. The C&F agent operates at 4-6% margin on MRP,
distributor wholesaler operates at 7-8% margin on MRP and retailers at 20% margin on
medicines.

As the GST sets in, pharmaceutical companies have to pay more in manufacturing cost as
raw material cost goes up by 7% and hence the MRP of the product need to be changed to
absorb that impact. While speaking about the overall impact of GST to end consumer, as
manufacturing cost is between 10-15% of product MRP, the GST impact to the end
consumer is less than 1% by cutting C&F cost, yet paying higher GST on finished product, the
total net impact resulting to almost 4% to the end consumer.