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GST impact: how key sectors of the economy reacted

Here’s how various sectors in India have reacted to the implementation of the Goods and Services Tax (GST) and how it will impact business.

With India moving towards its biggest tax reform, here’s how various sectors in India have reacted to the implementation of the Goods and Services Tax (GST) and how it will impact business.

Hotel owners find 28% tax steep for cheaper rooms; travel sector satisfied

Following the implementation of the GST, the hospitality and travel sectors expect teething issues in the first few months but are not unduly worried, expecting support from government.

OYO Rooms Founder and CEO Ritesh Agarwal said, “There may be challenges in compliance and implementation but over time, there will be more clarity and familiarity, enabling all stakeholders to adjust, adapt and adhere.”

However, the Federation of Hotel and Restaurant Associations of India (FHRAI) Vice President Garish Oberoi said the 28 per cent GST for hotel rooms with a tariff of Rs 7,500 per night and above is very steep. He asked the government to keep that rate only for rooms with tariff of Rs 10,000 per night and above.

As far as the travel sector goes, the GST rate for tour packages has increased marginally from 4.5% to 5% and players do not expect that to impact the holiday demand.

Industry: CII says GST will make India Inc. more competitive

The Confederation of Indian Industry (CII) has said that the GST will incentivise exports, help expand the tax net, contribute to the ease of doing business and accelerate new business ventures. “Input tax credit will curb inflation by avoiding tax-on-tax. We believe that most businesses would pass on the benefits of input tax credit to consumers so that inflation would be curbed,” CII President Shobana Kamineni said. She added that the industry is prepared for implementing the GST.

Exports: Exporters worried about new restrictions in using duty credit scrips

The Federation of Indian Export Organisations (FIEO) has approached the government to reduce the restrictions on using duty credit scrips. A duty credit scrip is an incentive provided by the government to exporters. It is given to promote exports by providing tax incentives to exporters. It is a pass that allows holders to import goods by not paying a certain amount in import duties. But with the implementation of GST, the new rules say that these scrips can now be utilised only for payment of basic Customs duty and not Integrated Goods and Services Tax (IGST). Earlier, manufacturing exporters who import raw material for export purposes were allowed to utilise these scrips for payment of Customs, excise duty and service tax.

FIEO Director General Ajay Sahai said exporters are worried as they have to arrange funds for payment of GST, which will be refunded to them upon exports. “This may lead to a blocking of funds for over six months in many cases, thus affecting competitiveness of exports,” Mr. Sahai said.

Realty bites

Ready-to-move in apartments will get costlier under GST as developers with large unsold inventories are planning to pass on the higher tax burden to home-buyers. Under GST, the effective tax on under-construction projects has gone up to 12%, which is an increase of 6.5%. The actual GST rate is 18% on realty, but allows one-third of the tax to be deducted from the land value, from the total cost charged by the developer.

“While developers might still get some benefits for projects that are in nascent stages, they will have to bear the tax burden for the ready-to-move-in projects since they are kept out of the GST ambit,” House of Hiranandani Chairman and Managing Director Surendra Hiranandani said.

Anarock Property Consultants Chairman Anuj Puri said the affordable housing sector will not be impacted as there will be no tax under GST for the affordable housing scheme.

Durables: some relief for buyers

Unlike realty, the durables sector is unlikely to pass on the burden of higher tax to the buyers, as the industry is expecting only a marginal price revision despite the category being placed under the highest tax slab of 28% under GST. The tax rate for the sector was around 25-27%.

“Home appliances have become a necessity now with evolving consumer lifestyle and a lower tax slab would have made appliances more affordable in a low-penetrated market. With 28% tax under the GST, we expect the consumer price of home appliances to marginally go up by 1-2%. This could have an impact on demand in the short-run,” says Godrej Appliances business head Kamal Nandi.

Steel: GST a move towards a more organised sector

The steel sector is feeling bullish after the GST roll out. Players in the sector feel that with GST, unorganised players will have to move to organised form of doing business. Steel Users Federation of India (SUFI) has said GST has abolished the special additional duty (SAD) on imported goods which was a very cumbersome procedure.

Indian Stainless Steel Development Association (ISSDA) President K K Pahuja says GST will give the unorganised sector not other choice but to be tech-compliant. “People evading taxes would not be able to survive any longer,” Mr. Pahuja said.

Textiles – Cotton industry happy

The cotton textile industry is also feeling positive. Southern India Mills Association (SIMA) Chairman M Senthilkumar has welcomed the move to bring the entire cotton textile value chain at the lowest slab rate of 5% GST. He said the industry had been suffering with numerous taxes and different types of cess which were adding to the cost indirectly.

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