The Effects Of GST Into Packaging Industry

Gst

GST is all Set to revolutionize the way India does impose taxes. GST is to be applied on all the value additions taking place at each stage of the production cycle. Right from buying raw materials, manufacturing, warehousing till sale to the customers, tax at every stage is added up and charged to the customers. But now the final consumer will have to bear only the GST charges that will be imposed by the last dealer. Now, this sounds the same but the benefits at every stage is what makes the difference. GST is to unify the indirect tax imposed on goods and services. Goods and Services tax (GST) is believed to initiate the last mile of a long journey of indirect taxes in India. This goods and service tax will combine all the taxes and replace the number of central and state tax.

Basically, the GST is implied to subsume various indirect taxes levied at different levels, with the idea of reducing red-tape, plugging leakages and paving the way for a transparent indirect tax regime.

Now whether this new revolution will be beneficial to the poor or not only time can tell. But the prices of vegetables and fruits are likely to rise under the GST regime and services such as eating at restaurants will get more expensive. What will likely get cheaper are items such as clothes, as cascading taxes at various stages of manufacturing would no longer apply to them.

Rates of GST and revenue-neutral rate (RNR)-

Provided below are the various changes that the proposed RNR has gone through since the idea of GST was first floated in the Indian economy:

  • The first official recommendation by the Thirteenth finance Commission Report of the Task Force on GST4 proposed taxation of all goods and services at a single GST rate of 12%—comprising 5% for CGST and 7% for SGST.
  • Subsequently, the then finance minister had proposed a rate of 16% for services, 24% for goods and 12% for concessional goods.
  • The National Institute of Public Finance and Policy (NIPFP), in its report submitted to EC, suggested an RNR of up to 26.68%, which is being recalculated by NIPFP on the basis of current revenue data.
  • It is anticipated that a single rate would be applicable for both goods and services.
  • The incumbent finance minister has stated in a public forum that the RNR would be lower than 27%.
  • A new committee has been set up to examine the RNR, depending on various factors, including the growth of the economy.

The Select Committee has recommended in its report that RNR should not go beyond 20% for standard rate and 14% for reduced rate.

  • It is most likely that RNR would be between 18% to 22%. Further, there would be a lower rate for a few goods and services.

How will GST affect different sectors-Gst

GST is expected to turn India into one common market, leading to greater ease of doing business and big savings in logistics from across all sectors. Whereas, some companies are likely because of the decrements in the GST rates. Others will lose as the rate will be higher than the present effective rate.

Here are few departments with possible negative and positive effects:

  • Technical:
    Apparently GST is known for removing multiple taxes. IT companies can have several delivery points and offices working together to serve to a single contract. Due to GST, companies might require each center to generate a separate invoice. 

FAST MOVING CONSUMER GOODS (FMCG):

Companies could generate substantial savings in logistics and distribution costs as the need for multiple sales depots will be eliminated. Such companies at least pay 24-25% including excise duty. GST at 17-19% could yield reduction in an overall tax here.

E-COMMERCE:

GST will help create a single unified market across India and allow free movement and supply of goods in every part of the country. It will also eliminate the pressuring effect of taxes on customers and bring down the product prices.

TELECOM INDUSTRY:

Handset prices are likely to come down and even out across states. For handset manufacturers, GST will bring in ease of doing business as they may no longer need to set up state specific entities and transfer stocks to them.
On the other hand, call charges, data rates will go up if tax rate in the GST regime exceeds 15%.

AUTOMOBILES:

On-road price of vehicles could drop by 8% or so. Lower prices can be construed as an indirect stimulus to boost volumes.
This demand for commercial vehicles could negatively hit in the medium term.

GST EFFECTS ON PAPER, JUTE, COTTON MATERIALS:

However, the impact of GST on the textile sector will be quite significant. Given following are the key impacts for an e-commerce company on account of GST:

  • Place of supply in case of B2B transactions would be the location of the service recipient. This could be important to understand additional compliance requirement for e-commerce companies.

An impact of GST on online marketplaces:

The possible higher tax rate on the output side.  Applicability of GST will abolish all the other indirect taxes collected by both state and central government. GST is introduced with the concept of “One Country One Market”. With this concept whole country will convert into a single market place and all the rules, regulation and acts that changes across the borders of states, will be abolished.

The online marketplace can also claim the credit of all taxes on the input side.  No multiple registrations may be required. Impact on pricing to be analyzed keeping in mind the interplay between tax rate and credits.

About 60% of the Indian Textile Industry is cotton based. Other fibers produced in India include silk, jute, wool and man-made fibers.

Jute is chiefly used to make sacks for food grains and coarse fabric for wrapping bales of raw cotton. Most of the jute yarn is sent to a weaving unit where it is converted into a fabric.

GST RATES ON OUR PRODUCTS-

Tax-Free Textile Goods: 

5% GST with no refund of ITC accumulation

  • Woven fabrics
  • Cotton Fabric

12% GST