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GST Bill: Why services industry is looking at Goods and Services Tax as you would 'look at snake'

GST Bill: Why services industry is looking at Goods and Services Tax as you would 'look at snake'

Sectors such as commercial vehicles, telecom, print media, cigarettes and jewelry would be adversely impacted once GST Bill is implemented in its entirety.

Photo: Reuters Photo: Reuters

Amid all the euphoria over the enactment of Goods and Services Tax (GST) Bill, one section sits in the corner wishing the unified indirect tax structure would not have come into being, and if you love to eat out, travel or talk long over phone, you should wish the same as cost of such services will edge up significantly once GST Bill is implemented in its entirety.

Currently, services industry attracts 15 per cent tax, which may shoot up to 18-22 per cent depending on the rate the GST Council agrees on. Consequently, restaurant bills, expenditure on staying at hotels would go up. Similarly, air travel will also turn costlier. Sectors such as commercial vehicles, telecom, print media, cigarettes and jewelry would also be adversely impacted.

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"Services companies are looking at the GST as you would look at a snake," told Amit Kumar Sarkar, head of indirect tax at Grant Thornton to Reuters.

Insurance products such as life, motor and health, will also get costlier.

"Insurance solutions will begin to cost more starting April 2017 as GST will increase the current tax structure by 3 per cent, which means taxes will go up by 300 basis points," said Anil Chopra- Group CEO & Director, Bajaj Capital.

Current service tax rate on insurance solutions covering protection & investments is 15 per cent (14 per cent plus 0.5 per cent Swach Bharat Cess, plus 0.5 per cent Krishi Kalyan Cess) which would increase up to 18 per cent or 300 bps.

Brokerage Motilal Oswal Securities believes consumers are likely to feel the pinch of higher prices of services after GST is implemented as services constitute a larger share in the consumption basket of Indian households.


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"While services comprise a very small share in CPI, they account for almost 50 per cent of the total consumption basket in the economy. Thus, while the impact of GST may not be visible in the official inflation measures, it will certainly pinch consumers, as the share of services has been rising," said the brokerage in a research note.

In December 2015, a committee headed by the chief economic adviser Dr Arvind Subramanian on 'Possible Tax rates under GST' recommended a standard GST rate of 17-18 percent but states want a higher level.


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Few brokerages reckon a higher GST rate could push up consumer inflation by as much as 2.5 per cent.

Prime Minister Narendra Modi and Finance Minister Arun Jaitley may have won a tough battle to get many dissenting voices on board; a tougher battle now awaits them on the inflation front as Bharatiya Janata Party (BJP) faces electoral tests in crucial state elections such as Uttar Pradesh next year.