By now you would have woken up to the news of Rajya Sabha passing GST bill and being one step closer to implementation of the biggest tax reform in India since 70 years. GST is set to replace at least 17 federal and state taxes to implement a single and unified tax – Goods and Services Tax. The reason that our Hon’ble Prime minister Mr. Narendra Modi was vouching fervently for the bill to pass because it will help to increase at least 2% in the current GDP and that is a huge amount in itself, stemming India as one of the fastest growing economies in the world.
For long India’s tax system had layers of direct and indirect taxes which added somewhere between 25% and 40% to the COGS. Currently, abolishing all the taxes in between, GST is pegged at between 18% and 20%, with only 8 months left to implement the same – a timeline that Mr. Narendra Modi has set for the rollout.
It is beyond doubt that all industries will get affected by this news. With a standard of 18% being speculated to being implemented, there will be some areas that the consumers may benefit and some places where it might not. Looking at banking and financial sector, one of the crucial sectors for consumers, one might say that it can get a bit expensive for the consumers.
While today financial and banking services come with a ST of 14.5%, definitely with the implementation of GST at 18% – 20%, the services will get expensive for the consumer. Along with the taxes, comes the compliances that the banks and consumers need to follow. In IGST, the GST will be internally divided between SGST and CGST, hence, there might need to be a different set of processes and compliances required to do.
One of the major fears that consumers may have is that the interest of loans, foreign currency, retail services and trading in securities will fall under the scope of GST and if that happens, the cost for everything will increase fundamentally. Though banks have put forward their recommendation to not include these in the ambit of GST, it will be only time which will say if these recommendations will be accepted or no.
Banks on the other hand will be beneficiaries of this reform since all said and done, individuals and businesses deal with banks on a regular basis. Though if the operations are not streamlined and well – defined, there might be an increase in the operational cost which cannot be passed onto the customer. There will be care required while managing compliances along with a whole lot of services and also training of internal staff.
While GST has been claimed to the biggest reform in India, there needs to be some thought given to the banking and financial services since they are very crucial to the consumers and their investment pattern.
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