GST: India's new tax leaves service providers worried

India on Friday unveiled four rate bands under a new sales tax for services such as telecoms, insurance and restaurants, a move experts said could complicate compliance and leave businesses at the mercy of an intrusive tax bureaucracy.The Goods and Services Tax (GST), set to be launched from July 1, will have rates of 5, 12, 18 and 28% for services, in line with those applying to goods. It is a big departure from the current regime, where a single rate of 15% is applied on most services.

The biggest argument in favour of the GST - India`s biggest tax overhaul since independence in 1947 - is that it would make it easier to do business by simplifying the tax structure and compliance.But the political challenges of striking a compromise between Prime Minister Narendra Modi`s central government and India`s federal states and territories has meant that life will get more, not less, complicated for many.

For example, hotels and restaurant would be taxed on the basis of their room tariff and turnover of business. Air-conditioned restaurants will even be taxed at a higher rate under the new regime than those without.

Multiple Rates 

Since services account for more than half of India`s $2 trillion economy, the complexities run the risk of derailing the sector`s growth and even slowing Asia`s third-largest economy.

The government, however, defended the move, saying different economic classes can`t be taxed at the same rate.Finance Minister Arun Jaitley also played down concerns that higher headline rates would inflate the tax burden on consumers. Since service providers will get tax input credits, he said, the effective tax rate will be lower.

"The actual incidence on consumers will go down," Jaitley told reporters after a two-day meeting with his counterparts from Indian states.

Under the new regime, while healthcare and education services will be tax exempt, services offered at five-star hotels will be taxed at 28%.

Telecoms and financial services will be taxed at a standard rate of 18%. An industry group representing mobile operators said this would further bleed a sector still smarting from a price war triggered by the aggressive market entry of billionaire Mukesh Ambani`s Reliance Jio. 

Contact No- +91-7987573460

Mail id - info@smartmoneyfs.com

Address - House no. 9, IInd Floor Diamond Colony New Palasia Indore-452001

Website Link -   https://www.smartmoneyfs.com/