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JOURNAL OF CRITICAL REVIEWS GOODS AND SERVICES TAX IMPACT IN

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 JOURNAL OF CRITICAL REVIEWS
ISSN- 2394-5125 VOL 7, ISSUE 16, 2020

GOODS AND SERVICES TAX IMPACT IN SERVICE

SECTOR
Rakesh Kumar1, Prof. Dr Rupa Khanna Malhotra2, Kawal Preet Singh Oberoi3

1
Research Scholar, Department of Commerce, Graphic Era Deemed To Be University, Dehradun, UK
2
Department of Commerce, Graphic Era Deemed To Be University, Dehradun, UK
3
Graphic Era Hill University, Dehradun

Email aigrakeshkumar@gmail.com1

Received: 14 March 2020 Revised and Accepted: 8 July 2020

ABSTRACT: Goods and services Tax(GST) is robust change in Indian economy. Single tax system , reduced
procedural compliance, faceless returns , huge uses of digitisation etc, are some major reforms in indirect tax
after implementation of GST. Pre – GST era had total 17 taxes on goods and service which have been merged
into single tax system called GST. New tax procedures and slabs had impact on every sector positive as well
as negative. Service sector contributes more than half share in Indian economy. After implementation of GST,
service sector also affected. This research paper emphasis GST impact on service sector. Study analysis and
interpretation rate of GST in pre-GST regime and existing regime. Secondary data used to analysis this study.

KEY WORD: Goods, Service, Compliances, reforms, implementation, economy, emphasis,

I. INTRODUCTION
Goods and service tax is a new breakthrough in indirect tax system in India. Since independence numerous taxes
like Excise Duties, VAT, CENVAT, MODVAT ,Local Taxes etc were levied and collected on goods and
services . Till 1987 excise duties confined with manufacturer and not applicable in supply chain system. In this
regard, MODVAT was introduced, but it was not solution of plethora of taxes. There were no uniformity in
VAT registration and collection of payment. To remove all these deficiency Goods and service Tax (GST) Act
2017 was passed and introduced.
IMPLEMENTATION OF GST
Idea of GST was not a new phenomenon. France was the first country in the world which adopted GST in 1954.
However in present time 140 countries adopted GST model (including India). There are many GST model in the
world, like Australian Model, Canadianmodel,Kalkar- Shah Model, Bagchi-Poddar Model etc. India has adopted
Dual GST model. Beside India, Brazil is the only country which has adopted Dual GST model like India. In
the year 2003, first recommendation to implement GST on the basis of VAT was given by Kalkar Task force.
There were many deficienciesin that model. With passage of time, after huge recommendation by the industry
people Goods and Services Tax Act was passed in 2017 and implemented on 01 July 2017. Goods and
servicetax Network (GSTN) has made tremendous changes in indirect tax system. Since July 2017,service
sectors were also included in the ambit of GST.
Further, GST removed cascading effect in the tax regime, double taxation, and also reduced procedural
compliances. Its impactwas reflected in allspheres like consumer, supplier, manufacturerand government.
However, Indiahas highest GST slab in the world as shown in fig no 1.

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ISSN- 2394-5125 VOL 7, ISSUE 16, 2020

Rate of GST(%) compare with other

countries
India (28%)

France(20%)
30
25 Australia(10%)
20
15 Singapore(7%)
10
5
0
India (28%) France(20%) Australia(10%) Singapore(7%)

II. REVIEW OF LITERATURE

As per study conducted by PHD Chamber of CommerceGST essentially is a tax only on value addition. But
the implementation of GST has reduced the barrier between states and had made country a common market.
Easy compliances, uniformity of tax rates, removal of cascading taxes has improved competitiveness are
considered as robust changes in Indian industry in term of taxes.
As per Mrs Rohini Sajjan study on Impact of GST on Service Sector has found that implementation of
GST has impacted on service sectors like logistic, E-commerce , pharma , telecommunication, textile LIC ,
mutual fund etc. In previous regime the taxes on service sector were 15 % of which 5% was Swachh Bharat
Cess and 5% was for Krishi Kalayan Cess but now under GST regime services are charged by 18 %.
T. Priyadhrashani ,Study on Impact of GST on Healthcare and Pharma sector(2017) has concluded that
beside GST, theSupply chain is an important factor in pharmaceutical sector. Efficient supplychain
managementcan reducedthe cost ofdrug.HealthyCredit system also boost overall supply chain in pharmaceutical
sector.
As per study of AjitKumar on Goods and Services Tax in India –Problem and prospectus. Rate of Goods
and service taxes varies from 5% to 28%. Single tax system has becomeeasierfor manufacturer and consumer.
According to D.Amutha(2018)study on Economic Consequences of GST in India, implementation of GST
will remove all creases of indirect tax system of India and help in improving GDP of India and further improve
the growth rate . With the implementation of GST, Indian tax system will be at par with 140 countries of the
world.
As per Amandeep (2018)study on impact of GST on Indian Economy, GST will simplify and unify the
indirect tax system of India.
III. RESEARCH METHODOLOGY
This study is an exploratory study which tries to predict the impact of GST on service sector. Study isbased on
secondary data like newspapers and internet articles, Governments reports and studies of other scholars . In this
study , we had compared Indian GST system with other countries. Under this study service sectors like
Railways, Aviation, Tourism, Hospitality,Media and Entertainment are taken into consideration.
IV. OBJECTIVE OF STUDY
 GST Framework.
 Comparison of Indian GSTmodel with other countries.
 GST impact on service sector.
 Impact on service sector in pandemic (COVID-19).
 Future prospectus.
GST FRAMEWORK
Out of four models as discussed in the introduction of the paper,Indian GST framework is based on Canadian
Model with little modifications. India has adopted a dual GST model i.e. where tax is imposed concurrently by

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the centre and states. For an intra- state sale , the GST is equally divided between the centre and state, and
for inter- state sale , the GST is collected by Centre(IGST) .
GST is therefore destination based tax applicable on all transaction , involving supply of goods/ services for a
consideration , and comprises of Central goods & services Tax (CGST), levied by the Central Government, and
State Goods and Services tax (SGST), levied by the state government or Union Territory Goods and Services
Tax(UTGST) levied by Union Territories , on intra-state supplies of taxable goods & services.
However Petroleum, crude oil, Speed diesel, petrol, natural Gas and aviation fuel are subjected to Central
excise duties. On Tobacco both Excise and GST are implemented.
In pre-GST era, set-off against credit was a major problem. Manufacturers and suppliers faced hurdle to set-
off credit even there were not availability of credit system at some point of supply. There was inbuilt cascading
effect due to not availability of sett- off arrangement specially against other state or central Government. In
GST, drawback of this effect has been removed. Precisely, nowtax paid on inward supply can be set –off
against outward supply known as Input Tax Credit(ITC) . It can be also set-off in following manner.

Credit Type FirstUtilisation Subsequently Utilisation

IGST IGST CGST or SGST in any manner

SGST IGST SGST

CGST IGST CGST

UTGST IGST UTGST

COMPARISON OF INDIAN GST MODEL WITH OTHER COUNTRIES

India hasadopted exclusive GST model known as Dual GST. Every country has adopted GST model in their
own pace according to requirement. However, broadly concept of GST model is “one nation one Tax”. Today
almost two-third countries in the world have adopted GST tax systems. India is latest country in the world who
recently adopted GST model.

1. Canada

As compared to India, CanadianGovernment implemented Goods and service tax in January 1991. GST
impose by Central Government is at the rate of 5%. In addition provincialtax is also imposed which varies from
8 % to 10 %. Combination of these taxes varies from 13% to 15 % and is known as Harmonised SaleTax (HST).

2. Australia

In July 2000, Australia introduced GST. In India Indirect Tax administered by Central board indirect tax(CBIC)
whereas in Australia indirect Tax(GST) administered by Australian Taxation Office( http//:www.ato.au).
Standard GST Rate in Australia is 10%.

3. Malaysia

Malaysia adopted new form of indirect tax in September 2018 known as Sale tax and service tax (SST). SST is
administered by Royal Malaysiancustom Department (RMDC) (http://www.custom.gov.my). Standard rate of
Sale tax is 10% and Service Tax is 6%.

4. United Kingdom

United Kingdom introduced new form of indirect tax in April 1973 known as value- added tax (VAT). VAT is
administered by HM Revenue and Customs(http://www.gov.uk/governement/organisations/hm-revenue-
customs). Standard rate of VAT is 20%.
GST IMPACT ON SERVICE SECTOR
“The contribution of services sector is high in India’s GDP, and has also attracted significant foreign investment
flows, and has contributed significantly to exports as well as provided large-scale employment. Service sector

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ISSN- 2394-5125 VOL 7, ISSUE 16, 2020

constitutes 53.5% of country GDP. However reports state that in first year of implementation , across ten
prominent services ,GST revenue paid to the government has reduced by 20 percent compared to the last
year of service tax regime. Reason as per government reports and experts were higher utilisation of input tax
credit for aiming tax paymentunder GST. The cost of services was increased by implementation of GST.

In previous tax regime, service tax was applicable at the rate of 15% on Services rendered which includes 0.5%
for Swachh Bharat Cess and 0.5% for Krishi Kalyan Cess but in the goods and service tax regime, it has been
extended at 18% making the services and works contracts costlier.

1. Railways Sector
Indian Railways is 4th largestrailway network and as well as employer in the world. On day to day basis,
dependence of Indian population is very high on railways.Services tax was applicable on transport of goods and
passengers. The railway also enjoys a 70% of abatement. Effective rate of service tax in earlier regime was
4.5%. But in GST regime service tax is 5 %. Further ITCis applicablefor businesstraveller which wasnot
applicable in erstwhile regime. Now GST rate is 5% on Transport of goods and ITC is also applicable in some
of the cases. However some Goods like Relief material for disaster, Defence or military equipment,
Newspaper or magazine registered with newspaperconsortium, Railway equipment or material, Agriculture
product ,Milk , salt, food etc are exempted from GST
2. Aviation Sector
GST rate for flight in economy class is 5 % and in business class is 12 %. In contrast under the erstwhile service
tax regime were 6% and 9% respectively. Thus, there is positive change in tax rate for economy class
travelunder GST as compare to previous service tax regime. Presently Aviation Turbine Fuel (ATF) is outside
the scope of GST. Airline companies store spare parts in central warehouses between states. These are regularly
transferred to airport in different state as per requirements. Aircraft seats, parts and battery are taxed at 28%
,aircraft engine & motor and nut bolt are charged at 18% , whereas landing gear and propellers are taxed as
5% under GST. When GST was launched, carriers had to pay taxes on the cost of the aircraft in addition tothe
tax on lease rental paid. As per a recent changes in rate , the government has exempted aircraft imported on
lease from the levy to avoid double taxation.
3. Banking and Finance Sector
Pre –GST, the bank wereonly ableto receive a partial credit of CENVAT and nostate VATcredit on procured
goods was obtained. Since all the indirect taxesare subsumed to GST, credit for GST applicable on procured
goods can also be availed. As widely known, GST curb tax evasion andreduce the formation of parallel
economy. This will allow financial institutions to reap benefit in the near future with more accounted transaction
and increased demand of fund.
4. Media and Entertainment
Before GST regime , temporary transfer or permitting the use or enjoyment of a copyright covered under sub
section13(1) (a) and (b) of Indian copyright Act, 1957 relating to original literary , dramatic , musical or
artistic work or cinematograph films was exempted from service tax. Under the GST this exemption has been
removed. Supply of all the intellectual property right attract GST at the rate of 12%.
The pre GST didnot allow set-off ofinput tax credit on goods against the liability forproviding services or vice
versa. With GST, the seamless credit facility, it can be fairly expected that the credit base of producers is likely
to expand. At the same time, the increase default rate of tax on services from 15 % ST to 18 % GST could be
made as an impending cash outflow.
5.Tourism and Hospitality Industry
Indian is largest market of travel andtourism. It offers diverse portfolio of niche tourism product - cruises,
adventure, medical , wellness , sports MICE, eco- tourism , film , rural and religious tourism. India has been
recognized a destination forspiritual tourism fordomestic and international tourist. GST has created many
opportunities in hotel sectors by reducing GST rates. The result of reducing tax burden in hotel sector leads to
8.3% growth in hotel sector in 2018-19(Sourcescleartax).

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Previously, Service tax provisions were applicable pan India except Jammu & Kashmir. The special status did
not allowed Central Govt. to collect service tax on the services rendered in that part of India but as per the
Model Goods and Services Tax Law, GST extends to all over India including Jammu & Kashmir and also
allows Central Govt. to collect the service taxes on rendered services in the state of Jammu and Kashmir which
has eventually increase the Govt. Revenue.

V. IMPACT ON SERVICE SECTOR IN PANDEMIC (COVID-19)

1. Aviation Sector

As per aviation ministry annually GST contribution is 5700 cr. Since 23 Mar 2020 all national and international
flight have been suspended which will very badly effect the GST collection from aviation sector.

2. Indian Railways

Indian railway is fourth largest railway network in the world. Since July 2017 GST is applicable at the rate of 5
percent. During lockdown period GST loss will be occurred.There are many businesses like food, tea, tourism
connected with railways. All these business got effect due to pandemic.

3. E-Commerce

India is second largest internet user base having 627 million internet user. E- commerce platform like Amazon,
Flipchart, Pay tm, Snap deal etc are facilitated Indian economy. Average rate of GST is 18 % and GST
collection will fell down due to pandemic.

4. Automobile Industry

Automobile industry is fourth largest industry in the world. But due to COVID-19, automobile industry is very
badly affected and will have adverse effect on GST collection. Overall revenue impact will be 1500 crore to
15,200 crore per month.

5. Restaurant Business

It is necessity to have food to live, but it isluxury to have food in restaurant.There are several brands likewise
Pizza Hut, Dominos, KFC, McDonald, Café coffee day etc. At present 5% GST is applicable over all restaurant
services. As per NRAI Food Report 2019 Rupees 18000 Cr tax paid by Indian Food Industry. Hence it is said 50
Cr taxes were paid by the restaurant service providers. Over thelockdown period there is a huge loss from this
sector and on the other hand many people are forced to lose their jobs.

VI. FUTURE PROSPECTUS

With help of digitalisation, registration procedure is simplified and had reduced burden on manufacturers as
well as consumers. But still compliance is required at operational level. In present GST structure
separateregistration is required for operations in more than one state. This has affected various financial
andbanking sectors which have multiplebranches in every state. In addition ITC claim also become a
complicated. These things are clearly sufficed by Arundhati Bhattacharya, Chairman of SBI that“In respect of
GST, the fact of the matter is, we are dealing in services, to that extent there are certain challenges. First of all,
there is no centralized registration. If you look at the other jurisdictions where GST has been rolled out, services
always have centralized registration. Here we will need to have 37 registrations for all the 37 states (including
Union Territories).”

VII. CONCLUSION

It can be concluded that new form of indirect tax (GST) in India reduced compliance procedure and easily set-
off credit. In addition, digitalisation in GST (GSTN) is a cornerstone of indirect tax. However there are many
miles to go for more easy procedure, like single registration in whole country. As compared to other countries,
taxation rate is slightly high.

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ISSN- 2394-5125 VOL 7, ISSUE 16, 2020

GST has made some services costlier like eating out in fancy restaurant but for a common man many services
are economical like air travel through economic class.

It is very clear that the GST collection during Covid 19 will be affected and novel corona has not only taken the
lives and lively hood but has also impacted the overall economy and all the development plans of the countries
around the world.

VIII. REFERENCES:

[1] G Joseph Mary, T Vara Lakshmi, A Muthu Krishna(2020) Modification of tax building from established
arrangement to GST model: an Experimental study,(JOCR)ISSN:2394-5125,vol7, issue19.

[2] Sajjan Rohini (2017):Impact of GST on Service Sector, IOSR Journal of Business
Andmanagement (IOSR-JBM) e- ISSN: 2278-487X,p-ISSN: 2319-7668 PP35-38.
[3] AfzaNoor(2019): Impact of GST on Service Sector, International Journal of Research and scientific
innovation (IJRSI) Volume VI, issue V.
[4] Padhi Shiba Prasad (2018): GST and Railway, Tax Bulletin Volume -30.
[5] Pwc(2018). Impact of GST on aviation sector. Retrieved from https://www.pwc.in.
[6] Pwc(2018). Impact of GST on Media and Entertainment Industry sector. Retrieved from
https://www.pwc.in.
[7] GST impact on Train(2017): retrieved from https://m.economictimes.com.
[8] Kumar Ajit (2017); Goods and Services Tax –Problem and Prospectus, International Journal in
Management and Social Science Volume-05.

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