The GST is being criticised for being hard on the service sector. The detailed evaluation of GST on various service sectors is given below.
Power generation has grown rapidly in recent years. There has been a considerable shift from fossil fuel-based energy to clean and renewable sources of power generation. For the power sector in India, which currently enjoys a multitude of tax concessions and exemptions, the GST is going to bring about an unfamiliar change. It will also bring about a shift in the trajectory of the sector and its growth. The success of the transition to a new tax regime will inadvertently depend upon how well the industry prepares to adapt to this change.
Taxes on cable and DTH services are now at 18% from the previous rate of 25-40% that constituted a total of the entertainment and service tax. Moreover, since the service providers are eligible to claim input tax credit, the tax incidence could be even smaller. Currently, DTH and cable service providers are not eligible for VAT input credits paid on domestically-procured capital goods and inputs of special additional duty (SAD) paid on imported capital goods and inputs. In addition to the benefit of lower headline rates of GST, the service providers shall be eligible for full input tax credits of GST paid with respect of inputs and input services.
Banking and Finance
The GST marks a substantial shift from the current tax regime. Owing to the nature and volume of operations provided by banks and NBFCs viz-a-viz lease transactions, hire purchase, related to actionable claims, fund and non-fund based services etc., GST compliance will be quite difficult to implement in these sectors. Currently, NBFCs and banks with pan-India operations can discharge their service tax compliances through a single registration. However, under the GST, they would need to obtain a separate registration for each state where they operate. Under GST, 50% of the CENVAT credit availed against inputs, input services, and capital goods is to be reversed which leaves them with a position of reduced credit of 50% on capital goods, thereby increasing the cost of capital. The impact of GST on banks and NBFCs will be such that operations, transactions, accounting and compliance will need to be reconsidered in its entirety.
The newly implemented tax regime has not just impacted various business industries but has also affected the financial transactions costs. According to a report by the DNA, the service tax for the banking transaction, which is currently at 15% will now go up to 18%. The revised rates would be applicable for servicing charges and annual maintenance contracts, which will have to be borne by the banks eventually. According to Arundhati Bhattacharya, the Chairperson of the SBI, “For all our services, we have to put the cost of the service plus the service tax. Under the GST regime, this will get converted into the cost of the service plus the GST, which will go up from the existing service tax rate of 15% to 18%.”
The new taxation in this sector will help in more efficient cross-state transportation, less paperwork for road transporters, and bring down logistics costs.
Previously all the 29 states collected taxes at different rates on goods that moved across their borders. As a result, tax on freight was collected multiple times. The GST will replace around 15 state and federal taxes and tariffs. The incidence of tax will come down to 5% from 6% for bookings made on cab aggregators like Ola and Uber. Buses and pick-up vans carrying more than 10 passengers will be subjected to no extra cess. With the reduction in rates, domestic travel or budget travel will become easier compared to business class travel. Business class travel will get costlier with a marginal increase from 9% to 12%. Non-AC train travel has been exempted and AC travel will become a bit more expensive as the tax rate has gone up to 5% from the present 4.5%. Other options like metro, local trains and religious travel have also been exempted.
Earlier, the entertainment tax was levied by states and the rates ranged from 0 to 110%, with an average of 30%. The earlier service tax was 15% and the industry enjoyed 60% abatement. So 40% of the 15% tax had to be paid. The total tax during the VAT regime was around 20.5%. Under the GST system, tax on the tickets will be 28% along with the food and drinks tax of 18%. So the rate of tax will be lower than the previous system. GST is expected to have a mixed effect on the entertainment industry depending on the states. For states with a high entertainment tax, GST will be beneficial as it will reduce the prices for the end consumers. However, GST will have a negative effect on states, which already have a low entertainment tax.