After careful deliberation for many years, India finally rolled out a decision to implement a unified tax structure, GST, across the country. The decision was set in motion after obtaining the much-needed nod from both the houses of Parliament. A uniform tax structure is tipped to help tax payers across the country as GST subsume the existing set of taxes such as VAT, service tax, countervailing duty, octroi and some of the other indirect taxes levied by the State Governments. GST will be implemented on the total consumption rather than the current system of levying taxes on total production. According to the Finance Ministry, GST would lend a helping hand in prevention from tax evasion and will certainly ensure seamless transfer of goods and services across the country.
Goods and services tax is bound to be a significant tax reform as it will affect the dynamics related to production and economic efficiency. Its implementation is aimed to replace the various taxes imposed in the current regime. It will emerge as a major factor in elimination of multiple taxes levied by the States and is also expected to make buying goods and services, a cheaper proposition. Thus, it will play an instrumental role in developing a common market across the country.
GST is classified into SGST and CGST. CGST is levied by the Central Government, while SGST is levied by the respective State Government. This dual tax structure is quite similar to the structure followed in some of the developed countries. Hence, the central Government is responsible for imposing and governing CGST while the state government levies SGST as due consideration is given to the place of origin and place of consumption. Apart from the elimination of exemptions, the new GST regime will help in widening the tax base.
In the current tax structure, renewable energy sector enjoys considerable tax incentives inclusive of tax incentives on earning for a period of 10 years, concession on custom duties and excise duty etc. GST will bring an end to these incentives as a unified tax for goods and services would be implemented. The costs related to Solar off grid are expected to be on an upsurge by somewhere between 15-20%. The costs pertaining to Solar PV grid installations will increase somewhere in the range of 12 to 16%. The cost incurred on establishment of wind energy projects would increase in the range of 11-15%. This is expected to bring down the margins for investors in renewable energy.
As per various industry insiders, the implementation of GST would adversely affect the oil and gas sector. GST would not apply to five petroleum products including natural gas, aviation turbine fuel, petrol and diesel for a few initial years. However, products such as kerosene and LPG will fall under the bandwidth of GST. According to a recent study by Ernst & Young, oil and gas industry would need to comply with both the current tax practices and GST. Thus, it will create an inflationary pressure on our economy. To quote an example, refineries would be subjected to pay GST on plant, machinery and services at the time of procurement. But, it is important to note that refineries would not be eligible for getting credit against the VAT and ED that will be levied on petrol and diesel.
Power is a necessity when we talk about manufacturing of capital goods and services. But, the tax structure applicable for this sector has not been rolled out and rationalised yet. Therefore, it is high time that Government takes necessary steps to rationalise the tax structure for this sector. It is important to understand the current scenario is not very bright for the power sector. The sector is currently exempted from CENVAT and concessional rates are levied at the federal level. As a result of this, the power sector in not fortunate when we talk about input tax credits.
With power sector covered under the GST regime, it is anticipated to pave the way for tax credits for the sector. As a result of this, the cost of power generation and distribution is expected to come down considerably. This would certainly increase the competitiveness of the industry in the global arena.
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