The Goods and Services Act on core sectors may be challenging to implement, say experts. The worry is not about filing the returns, but the complexity of managing it and maintaining the records, say industry experts across the sectors.
The final GST rate excludes crude oil, natural gas, petrol, diesel and jet fuel but includes kerosene, liquefied petroleum gas and naphtha. The first hurdle that needs to be resolved is oil companies will have to follow two sets of tax systems in the GST era. Sachin Menon, national head (indirect tax) at KPMG India, points out that tax credit cannot be transferred between the two systems.
The reduction in tax rate on domestic coal to five per cent under GST is expected to bring down the cost of power generation, despite increase in capital cost due to higher tax rates in boiler, turbine, generator and other hardware, while imported coal will attract basic customs duty. It is estimated that there will be a relief in variable cost of generation by 3-4 paise per unit for domestic coal users and 7 paise increase for firms using imported coal, according to industry experts. “But it would vary depending on the VAT rate applicable in the state,” said ICRA in its report on GST.
Solar companies also get benefited with only five per cent tax on solar panels, but the wind energy may face cost escalation due to increase in capital cost and higher tax rates in wind turbine generator.
Fertiliser will attract 12 per cent tax under GST against the present regime of excise duty for one per cent and VAT up to five per cent by few states. “As natural gas remains outside the ambit of GST, fertiliser companies will not be able to claim input tax credit on the taxes paid on finished goods, leading to a continuation of the cascading effect of taxation,” says K Ravichandran, senior VP and group head (corporate ratings) at ICRA.
Most of the key ingredients for the construction sector such as cement, iron and steel will be liable to GST at 18 per cent. This may increase the cost of procurement, especially for iron and steel, said Menon.
Packaged cement attracts central excise duty of 12.5 per cent plus Rs 125 PMT and standard VAT rate of 14.5 per cent. If we include tax incidence on account of CST, octroi, entry tax, etc., the present tax incidence would be more than 31 per cent against 28 per cent under GST.
“However the slab rate is higher than the expected slab rate of 18 per cent in which case there was expectation that there could be been some margin expansion,” states Motilal Oswal in its report on GST.