It is no news that the implementation of the GST (Tax on Goods and Services) will bring some important advantages and some disadvantages for the service industry.
Many service companies will face many changes over the years as they try to comply with the introduction of this new tax system and we can be sure that many of them are happy with the changes. You can trust that this new tax system will also affect individuals in general and not just business owners.
Even so, the joy is that it is not all bad. We can expect the positive and most people in the service sector are excited about how things will go.
In this article, we will assess the impact of GST on the service sector, both positively and negatively. We’ll also see what you need to know if you are a service provider.
Positive effects of GST in the service sector
No double taxation: This is something that affects many service providers. In the previous tax system, the contracting of works was complex and this resulted in a tribute for many people. In this case, the transfer of goods is part of the service contract. This means that each invoice has the value of the goods used, as well as the services provided. These two attract a tax rate of 70% each, bringing the total to 140%, which is very high. With the implementation of GST these two are considered one and therefore taxed as “rendering of services”.
More clarity for the software industry: For companies like ProfitBooks, who sell software online, it was unclear whether to charge VAT or service tax on the product. In the GST regime, there is a clear distinction between products and services that will eliminate confusion for the service industry.
Repairs and Maintenance: Service providers that provide repair and maintenance services to companies may apply for both the Entry Credit and the Entry Service Credit as provided by the GST system. The current regime only offers credit for input services, which is somewhat limiting. Now that they can apply for both credit for inputs and credit for input services, they can offer their repair and maintenance services at lower prices and thus attract more customers.
Access to stored inputs: Service providers will access the CENVAT credit for stored inputs. This is best applied when a person moves from one tax category to the next, such as an exemption category to a taxable one.
Take a look at this simple example: In the past, service providers collected taxes for customer service and paid VAT on purchased goods, such as computers. VAT could not be deducted from service tax. But under GST, you pay GST on both sales and purchases, so it’s easy to claim an incoming tax credit for this.
Lower costs for service providers: In the previous tax system, the VAT and CST credit that had been paid on entry was billed to the service provider. Fortunately, with the GST system, the CENVAT credit from SGST / CGST, as well as the IGST that must be paid on inputs and capital goods, are managed by the GST system. This is a relief to the service provider.
The cost of inputs is likely to decrease: now that multiple tax systems have been abolished, the cost of inputs will go down. Entry taxes like VAT, excise duties and the like will no longer be a problem to deal with.
It will bring equality to all states: the previous tax system did not cover Jammu and Kashmir. This was a disadvantage for other places in India because the tax provisions did not cover these two places. However, the GST now covers all land and all service sectors are subject to the same tax laws.