No more tax on tax for Indians

The key game-changer in the newly rolled out Indian tax regime is the introduction of "input tax credit," whereby credits of input taxes paid at each stage of production or service delivery can be availed in the succeeding stages of value addition, tax experts and analysts said.

Predominantly conceptualised around a "one nation, one tax, one market" philosophy, the Goods and Services Tax - designed to change the indirect tax landscape of Asia's third-largest economy - helps eliminate India's previous cascading tax structure; eases tax compliances; creates uniform tax rates and structure, and ensures that additional tax burdens on consumer are reduced.

In other words, the transformative reform, meant to eliminate "tax on tax," is fundamentally a tax only on value addition at each stage.

"This means that the end consumer will thus only bear the GST charged by the last dealer in the supply chain, with set-off benefits at all the earlier stages," said Anuj Puri, chairman of Anarock Property Consultants.

To ensure that manufacturers, developers and service providers pass on the benefit to the final customer, the government has included an anti-profiteering clause in the GST bill under section 171 of the GST law. This clause clearly states that it is mandatory to pass on the benefit tax reduction due to input tax credit to the final customer, he said.

Puri said GST effectively cuts through a confounding Gordian knot of taxation complexity in the country. In other words, it replaces the multiple taxes levied by the central and state governments and will become subsumed of all the indirect taxes, including central excise duty, commercial tax, octroi tax/charges, value-added tax and service tax.

With the rollout of this path-breaking tax reform, experts expect overall tax burden on goods to fall over time. Many essential goods such as unpacked food grains, gur, milk, eggs and salt won't attract any tax under GST. Some services will get costlier as banking and financial services have been put in the 18 per cent rate slab under GST, from 15 per cent earlier.

"However, going forward, it is expected that due to reduced cost because of availability of GST credit on items hitherto not available, the price of services will also come down which will benefit the consumers," said Sandeep Sehgal, director of tax and regulatory at Ashok Maheshwary & Associates.

Prices of many common goods at the stores are likely to remain unchanged in the initial days after the GST rollout. Manufacturers may wait for a few weeks to gauge the net impact of GST on them as well as on wholesalers and distributors and may revise the prices accordingly later. After the GST rollout, many items like footwear below ?500, garments and mobile phones could become cheaper. On the other hand, items like TV and small cars could become costlier. Petroleum products such as petrol, diesel and aviation turbine fuel have been kept out of GST as of now. The GST Council will take a decision on it at a later date. Alcohol has also been kept out of GST.

"For the residential real estate sector, the implementation of GST will definitely be a positive sentiment booster among property buyers. GST may not be instrumental in bringing down the prices of residential real estate over the short term. However, it will benefit all the stakeholders of the residential real estate sector, as the perception of the sector will improve on the back of a simplified tax structure and accountability being fixed at every stage," said Puri.

Joe Verghese, managing director of Colliers International India, said the industrial property and warehousing segment would be the primary beneficiary of adoption of the GST system as operating efficiency is expected to increase. "However, during the early stages of implementation, we expect costs to increase due to the negative impact on the supply chain through-put due to teething issues. On the other hand, commercial leasing transactions, which constitute a major portion of overall commercial property business in India, will see an immediate increase of three per cent in occupier commercial leasing costs. The biggest impact wills the double-whammy of Rera and GST at the same time on the residential sector. Both of this would seriously affect supply and lead to further increase in prices."

"A simple and transparent tax applied on the purchase price is the biggest takeaway for property buyers," said Puri.

Under the GST regime, all under-construction properties will be charged at 12 per cent (excluding stamp duty and registration charges). It will not apply to completed and ready-to-move-in projects, as there are no indirect taxes applicable in the sale of such properties.

Source: Khaleej Times