Will the Goods and Services Tax in India affect the cashew business?

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Mangaluru, Jun 30: With the much debated and the highly anticipated Goods and Services Tax (GST) set for midnight launch on Friday June 30, daijiworld caught up with some of the renowned names in various fields to understand the impact of GST on Mangaluru’s local economy.

President of Confederation of Real Estate Developers’ Associations of India (CREDAI), Mangaluru D B Mehta explained the impact on real estate consumers in three different strata. He also highlighted the overall impact on commodity consumers, small traders and large corporates.

“Cashew nuts become cheaper under GST. The cashew kernels were taxed 5.5% in the VAT rules, but cashew nuts invite only 5% under GST. Input credit is allowed under IGST for the outside state purchases, in case of the raw nuts purchased from states other than the one where kernels are manufactured and exported. Also, the input tax credit for the packing materials purchased from the other states is allowed under the benefit of IGST. The VAT rules charged areca nut at 2%. However, the dried areca nuts are charged at 5% under GST,” he explained.

Consumers: GST will be a little cost inflationary, as things will get a little expensive overall. The government has made mass consumption goods production cheaper, and middle income consumption goods expensive. The burden falls more on middle-class families. And overall, there is a slight price inflationary effect.

Traders: GST will push trade more towards the organised sector. The unorganised sector which includes petty shop owners, small traders and service providers will be severely impacted as

a) GST requires them to have a computer with them, operate it and file the monthly returns online;
b) GST is not applicable to traders with annual turnover below Rs 20 lac. Now, if a GST registered person takes service from the unregistered dealer, the former does not receive input credit, but still has to pay tax on the service used, working out to be a reverse charge mechanism. This will wipe off most small traders who deal with business class. Either the traders have to become big, with a threshold beyond Rs 20 lac, or just close down.

Large corporates are benefitted by the increased ease of doing business.

Real Estate: GST impact as to be looked at through three viewpoints for projects, and separately so for upcoming projects, the ones that start after July 1, and ongoing projects that have already been launched.

For upcoming projects that commence after July 1, here is the break-up:

1) Budget apartments: Overall, it is beneficial for budget apartments, ranging below Rs 4,000 per sq ft, whose construction starts after July 1. These apartments will be a bit on the saving side for purchasers.

2) Mid-priced apartments: The price for these gets equalised when calculating input credit and output tax. The GST impact is thus neutralised.

3) High-priced projects: These projects may be cost inflationary. This High Networth Individual Project category includes those apartments that cost Rs 6,000 and above per sq ft. As the land cost is high and GST is levied on land, the impact of GST becomes a negative.

Ongoing projects must be gauged based what phase of the completion the construction has reached.

If the builder has completed 95% of the building pre-GST, only 5% input credit benefit will be recovered. This becomes a little difficult for the builder who has to pay a 12% output tax regardless of when the project started. This extra cost will be thus passed on to the client due to no other option.

On the other hand, if most part of the construction is due after July 1, the builder can avail the advantage of input credit and pass on the benefit to the purchaser.

“As builders, we are happy with the new tax regime. We face unhealthy competition from unorganised sector who are not CREDAI members and who engage in malpractices. Between RERA and GST, it is a positive, wherein the unorganised sector will be wiped out. Maximum number of consumer complaints are against unorganised sector builders who offer products at lower costs, attract home buyers who in turn get cheated because the product may not be quality based,” D B Mehta said.

KCCI president Jeevan Saldanha said that the impact on Dakshina Kannada will not be very different from the rest of India because the district has a balanced ratio of manufacturing and consumption. “High consumption states like Kerala would benefit and manufacturing states would lose out a little. But for our coastal districts, the impact will be neutral. Moreover, Karnataka is among the most tax compliant states, with an average of 73% GSTN migration. Karlala which is a part of Udupi district has 100% migration to the GSTN portal. Dakshina Kannada which has 1.2 lac SSEs registered under VAT, has a record of 92% migration to the GSTN portal, this only indicates that the state, and more so the district, is all set to welcome the GST tax regime,” Saldanha said.

Price will be inflationary in the short run but will come down and be justified through market competition, he said.

Pros:

1) In the long run, it is beneficial for the manufacturing sector, as now, one can also take ‘input credit’ for the service tax paid on the sale of the product, which is about 12.5 to 15%. Input credit for service tax claim was not available in the old tax regime.

2)GST will help increase transparency as you can track the transactions, and thereby there will be an increase in the tax compliance, after a minor hiccup of maybe two months. The government can thus broaden the tax base.

Cons:

1) Too many tax slabs. The number of slabs could have been reduced.

2) Liquor and petrol should have been included under GST, which would benefit the entire economy.

3) Filing of returns is made cumbersome – If one has sales in multiple states, he/she has to file tax in each of the states. Which adds up to three filings per state per month, taking into account the state GST, the central GST, and composite GST.

“The Kanara Chamber of Commerce has decided to have a helpdesk and workshop with adequate resource persons. We have hosted 4 GSTN seminars so far and will have one is the first week of July,” Saldanha said.

Acccording to chartered accountant (CA) S S Nayak, GST regime affects the middle class, some in a good way and some adversely. For the initial period, inflation may increase and may come down gradually.

The local economy of Dakshina Kannada majorly comprises fishing activity, areca nut plantations and sale, cashew processing, and port and harbour activity.

“The fishing industry is very much benefited by the GST regime. The fresh fish sale continues to be exempted from taxation in GST regime. Fish and other aquatic invertebrates processed, cured or frozen are taxable at a reduced 5% rate under GST from the earlier 14.5%. Fish pickles prepared which were exempted as per the VAT rules are chargeable at 12% in GST regime. There is zero GST on fish exported.

Overall Impact

AC restaurants and catering services are costlier. The outdoor catering, 5-star restaurants, invite a tax of 18%. Chicken, cooking oil and branded products will have increased rates. Also, due to the increase in the tax rate for the iron and steel and construction materials, the construction activity will become costlier, Nayak said.

“However, products like soap, hair oil, toothpaste, chewing gum, cold drinks, medicine, shampoo, ice cream, face cream, chocolate, watches, juice, cheese, tea and coffee, get cheaper.

“Rent on residential property will continue to attract zero taxes. Daily Goods like milk, fish, fruits, vegetables, wheat, rice, other food grains incur no taxes.

“Small scale industries are the worst hit. There used to be to an exemption of Rs 1.50 crore to the SME manufacturers, as per the excise duty rules. Now, the same is unavailable. This has crippled the SME manufacturers who cannot compete with giants.

“In short, GST ‘One Nation – One Tax’ brings uniformity all over India and due to the introduction of GST more turnover will come into the organised channel and government earns more taxes thereby,” CA Nayak said.

President of South Canara District Central Cooperative Bank Ltd Dr M N Rajendra Kumar has upon people involved with cooperative sector to wholeheartedly commit themselves to the implementation of the new GST system being launched by the central government on the midnight of Friday June 30. He has also asked people to properly understand the mechanism of the scheme and impart information to others.

Speaking after inaugurating a district level special training programme on implementation of GST in cooperative societies, income tax and TDS, he noted that the central government has planned to merge 14 different taxes into a single GST. Report on its implementation has to be sent before September end, and before that cooperative societies and staff should properly assimilate GST.

In the meanwhile, commissioner for service taxes at Bengaluru, G Narayana Swamy said that contrary to popular notion that GST will result in hike in tax rate, actually the rate will come down in several sectors. Speaking at a workshop organized on GST on Thursday June 29 as part of the general body meeting of Karnataka Chamber of Commerce and Industry, he pointed out that in case of cement industry, the total tax burden inclusive of all taxes was 31 percent of gross income. He said that with GST implementation, this rate will come down to 28 percent. In case of medical equipment, tax rate will come down to 12 from 13 percent. Similar reduction is applicable in several other sectors, he noted.

Joint commissioner in the department of commercial taxes, B V Muralikrishna advised the suppliers and sales institutions to be very careful as they have to jointly furnish certain information to tax department after GST comes into force. He noted that in the past, sellers and suppliers worked together in business, but in tax payment, they worked out things separately. Under the new system, they have been brought together in payment of taxes too, he added. He said that wrong information or failure to furnish details will attract penalty for the sellers.

Under the new system, traders have have to prepare vouchers in prescribed format where state GST, central GST or unified GST have to be mentioned separately. For example, in case of cement, GST amounts pertaining to state and central government have to be properly segregated and mentioned as per the rules. Under GST, states will be compensated for losses if any by the central government.

Several chain stores including Big Bazar, and e-commerce behemoths like Flipkart and Amazon have been doing roaring business by announcing clearance sale and offering big discounts in pre-GST regime that ends at stroke of midnight.

Dajiworld


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