8 ways GST will affect IT and telecom sector

First of all, let us understand what GST is all about. GST (Goods and Services Tax) is a new, unified system of taxation which imposes a tax on the consumer on the purchase of goods or services.

Well, it seems a new concept for a developing country like India, but is a common means of tax collection in the developed countries.

It is fundamentally a comprehensive taxing scheme which brings numerous state and central taxes under one roof while putting away with indirect taxes such as VAT, excise duties, etc.

GST is anticipated to be implemented on April 1, 2017, after Rajya Sabha approved the 122nd amendment in 2014. Let us analyze 8 ways GST will affect the IT and telecom sectors.

1. Ease of doing business

The principal argument in favor of GST states that it increases the flexibility and ease of doing business which will help turn India into one common market. Experts believe it will have a widespread impact on various sectors of the market.

2. GST might be a cause of concern for the telecom sector

Due to petro- goods suffering a sideline in the upcoming GST reform, telecom companies could undergo a setback. Incurring loss on the diesel bills, the estimated loss calculated by the experts reveals approximately Rs 2000 crores annual savings getting a ditch by GST. The reason stated by analysts for the impending loss is not imposing GST on petrochemical products like diesel. This, in turn, will cause a severe brunt to the telecom sector since it is the second largest buyer of petro- products after the railways.

3. Rise in mobile tariffs

The telecom industry has urged the government not to exceed the rate allotted to telecom services to more than 15 percent. Failing to do so may invite price rise of goods such as smartphones, tablets, laptops, call charges, data rates.

4. Good news for smartphone makers

The much talked about motto of the GST ‘Ease of doing business’ aptly applies to the smartphone makers. They would no longer require arranging specific units dedicated to the individual states which helped them in transferring supplies. A huge part of the revenue that was earlier being invested in setting up logistical support could now culminate into savings.

5. Augmenting managerial cost for e- commerce companies

With the implementation of GST, the tax imposed on source point could be a potential issue between ecommerce companies and sellers. As the compliance duty would fall on the e-commerce companies and not on the sellers hence increasing the administrative costs. This would require the e retailers to introduce a reform according to which the destination state to which the delivery is being made accounts for the tax on sale irrespective of the location where the order is made. For example, if a client booked an order in Delhi and wants it to be delivered in Maharashtra, then the e- commerce company would make sure that tax slot of the latter is levied.

6. Free movement of goods

Good news for e-commerce companies as GST will enable the creation of a integrated single market across the nation. This will aid in smooth movement and supply of goods without any hindrance. This will also bring a sigh of relief to the customers with a reduction in heavy taxes imposed thus bringing reducing product costs.

7. Multiple taxations points for IT companies

When Nasscom president R Chandrashekhar was asked about his views on impact of GST on the IT sector he disclosed his worry saying GST could generate several taxation points for the IT companies. He also added saying that the present scenario follows a very simple system with regards to IT companies. There is a single window for central service tax, invoice, registration, etc. The diversified nature of GST e.g. Central GST (CGST), Interstate GST (IGST) and state GST (SGST) it could call for 111 points of taxation.

8. Increase in cost of electronic goods

With the introduction of GST, duty on manufactured goods will see a sharp rise from 14percent to 18 percent. This will lead towards an increase in the rate of mobile phones, laptops and other electronic devices.

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