Impact of GST on Service Sector

• Posted on Aug 8, 2017
• |
• By Dhruv

We all know that Implementation of the GST (Goods and Service Tax) will have both positive and negative impact on the service sector.

Majority of the service businesses will have to make many changes over the years as they will try to get used to with this new taxation system and it is a fact that majority of them are happy because of this changes. This new taxation system will also affect the people in general and will not be restricted to business owners.

The people in the service sector are keen to know about the impact and changes GST will bring in the coming days.

So, some this blog will try to simplify the understanding about the impact of GST on service sector- both positively and negatively.

Positives:

• No more double taxation:

Earlier for any service enterprise, that are into selling their services online, it was not clear whether to apply for VAT or Service Tax on the services. Now under GST, the picture is clearer and by clear picture we mean that products and services are properly distinguished hence the smoke is clear.

• Drop in the cost of inputs:

The main issue with the previous taxation system was its cost of inputs. But now the cost of input will go down as input taxations like excise duty, VAT, etc are not there.

• Clarity for Software Industry:

For companies like Zybra, who dealing with online accounting software, it was a bit difficult to decide whether to apply VAT or Service Tax on the product. Under GST act, the confusion for service industry is over as products and services are distinguished properly.

• Fewer costs to service providers:

Earlier, the credit of VAT and CST that were paid to input were billed to the service provider. But with the GST, the CENVAT credit of SGST and CGST, also IGST that are paid on inputs are properly sorted out under GST. This gives a breather to service providers.

• Equality in all state:

Earlier Jammu and Kashmir was not covered under any taxation system. It created a disadvantage to other places in India because there is no provision in this two states. But under GST, these two states are covered and as result, the whole service sector is under the same taxation law.

Negatives:

• Centralized Registration:

Earlier there was ease in registering their businesses, as the service provider just needed to register in central area for doing their businesses in different states. But now with CGST in the picture, they have to register in the respective state where they are doing business.

• Increased Cost of services to end consumer:

The rate of tax for different services are placed in different slabs and thus it will result into price hike by service providers. The taxes for services is between 18% and 20%, and these slabs are high so ultimately the consumer will get affected.

• Taxes levied for free services:

If you are providing your services for free, the end user will still get taxed for the same. Any services provided without any consideration is taxed. So any service provider have to prepare themselves before providing any free services.

• Burden of filling of returns:

Because of decentralized registration, every business which is operating in different states has to file returns for each of them separately. This will be added a burden and as result, it will turn into a tiresome affair to deal with. One has to file 37 returns in a year so it can get complicated over the period of time.

• Lack of a centralized system of accounting:

Businesses which operating their business in different states have to maintain their accounting records separately for each state due to lack of centralized registration of businesses. Every business operating in the different state is accountable to the respective state for taxation. It means that a business owner has to maintain separate accounts for different states.

Every coin has two sides, by looking at both the aspects of GST on service sector we can say that overall it will be beneficial to the service sector.

• Posted on Aug 8, 2017
• |
• By Dhruv
• |
• 0 Comments