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GST: One nation, one market, one tax
June, 28th 2017

In A Four-Part Series, Sachin Menon (Partner And Head, Indirect Tax At KPMG-India), Writes About The Goods and Services Tax And Its Implications On The Common Man And Businesses In Kerala
India is all set to make history on the midnight of June 30 through the introduction of Goods and Service Tax (GST), the mother of all tax reforms. GST is expected to bring about a uniform system of indirect taxation by replacing various taxes levied by central and state governments as well as local authorities.

As per the existing structure, central government has the power to levy customs and excise duties and service tax, whereas state government has the power to levy VAT, entry tax etc.

With the introduction of GST, central and state governments will abolish all multiple taxes (except customs duty) and levy dual GST (central and state GST) simultaneously for supply of goods and services within the state. If the supply is interstate, a single integrated GST will be levied on all supplies. Except J&K, Centre and state governments have enacted laws to levy GST. This article seeks to explain some of the major questions that we all have What to expect and how the new system will function

What are the benefits of GST for businessmen industrialists?

Businessmen are excited that finally we are about to embrace the `one nation, one market, one tax' regime. The current indirect taxation system created borders within borders and tax laws, tax rates differed from state to state. The current system did not provide tax credits for interstate transactions.This led to distortions in the allocation of resources and indirect taxes, which was a major concern while taking business decisions.

So, one of the most important benefits of GST is that it would integrate India's economy into a single market. This would help in avoiding tax cascading scenarios. GST being neutral to factors of production, business processes, business models, organizational struc tures and geographical loca tions; decisions in GST regime can be taken purely on business terms and taxation impacts will play a lessor role.

This will enhance the ease of doing business and bring about predictable tax regime similar to other developed economies. This can enable India to position itself as the most-pre ferred global investment desti nation.
How GST will affect FMCG traders in Kerala?

As expected, GST rates for most FMCG goods are kept lower compared to the current rate. This should lead to more demand and increased consumption in the sector. Further, increasing the deemed credit on closing inventory without ex cise invoice to 60%, is a major relief for the sector. FMCG has tremendous opportunities to optimize the supply chain and reduce costs.

However, the biggest challenge will be the burden on dealersdistributors to meet GST compliance requirements.

How it will impact produc ers of plantation crops (tea, cof fee, cardamom and rubber), traders and exporters?

Agri sector has direct impact on our personal lives and family budgets. The overall impact of GST is expected to be positive in this sector.

Kerala, being a major pro ducerexporter of plantation crops, should be pleased that the impact in the sector is minimal.

While tax rates of cardamom and rubber has been retained at 5% (same as in Kerala VAT), the same for green tea leaves and coffee beans is zero (the present rate is 5%).

Traders and exporters are expected to benefit from the free flow of credits. Under the earlier regime, they were not able to utilize their input credits of excise and service tax on input goods services; they were not eligible for credit on interstate transactions. The expected free movement of goods, reduced transportation time and costs are also encouraging factors in the sector. However, the sector has some concern areas like fertilizers being taxed at 12%.

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