How GST is going to make an adverse impact on service sector

We all know that GST is going to be a biggest reform but it’s not a win win situation for everyone. Especially the service sector is going to face some heat because of GST. Let us discuss some important points that are going to hurt the services sector.

• Registration on the basis of Aggregate turnover and not of taxable turnover: Service sector was earlier covered by service tax and they need to take registration when their taxable turnover was exceeding Rs. 9 lac and they need to start charging service tax when their taxable turnover exceeding Rs. 10 lac. In GST threshold limit to take registration and charge GST is same that is Rs. 9 lac and Rs. 10 lac but instead of “taxable turnover” word “aggregate turnover is used.
  • Under Section 2(6) of Model GST Law “aggregate turnover” means the aggregate value of all taxable and non-taxable supplies, exempt supplies and exports of goods and/or services of a person having the same PAN, to be computed on all India basis and excludes taxes, if any, charged under the CGST Act, SGST Act and the IGST Act, as the case may be;(Source: Model GST Law)
    It clearly includes the exempted and export supplies in definition of ‘Aggregate Turnover” It means  that even if the service provider has exempted turnover of Rs. 8, 90000 and taxable turnover of Rs. 10000 he will have to take registration under GST. This will cause a hardship on service sector catering the exempted services. In India export of services is exempted in most of the cases. There are so many IT companies engaged in export of IT services, earlier they were not required to take registration under Service tax but now even they will have to take registration and file returns.

Illustration: V Company is engaged in providing IT services to the clients based in US. Their annual turnover is Rs. 10, 00,000. Although their entire turnover is exempt from service tax and they don’t even need to take registration and file returns but now under GST they will have to get registration.

• No centralised registration: GST is a consumption based tax. Taxpayer will have to take registration once he cross the threshold limit of Rs. 9 lac but this limit is all over India and not state wise. Now once the limit of turnover cross tax payer will have to take registration in every state in which he is providing services.
• Number of returns: Under the current service tax regime the taxpayer need to file two half yearly returns and one Annual. But under GST regime taxpayer will have to file three returns per registration. This will increase the compliance Multi fold. A service provider existing in all states of India will have to file like 3*29= 87 returns per month plus annual return.
• Hardship on recipient of services:In GST if the supplier make a default in payment of GST then credit of the same will not be allowed to the recipient of services. This will cause a hardship on recipient of services as they will be liable to ensure the payment of GST by supplier of services. Although a ranking system will be in place and the vendors making defaults again and again will be given negative ranking and this data will be available in public domain. This will help recipients of goods/services to avoid any trade/business transaction with dealers having a negative rating.
• Tax rate: For the service sector tax rate was around 12% till 2 years back but then it was increase to 15% gradually. In GST tax rate will be 18% which will increase the tax burden on entire service sector as well as on consumers also. Services like restaurant will be costlier.
• Taxability on the basis of supply: Under GST taxability will be on the basis of consumption.This will cause many problems as nowadays we can provide services at many place simultaneously sitting at one place like webinar,which may be attended by many people sitting in geographically diverse locations. Determination of place of supply of services will be based on Determination of place of supply rules.
• Scope: Definition of services is very wide in GST it includes everything except goods. It will bring so many activities in definition of services.

We hope that Law will be modified to address the hardship it is going to cause to the service sector as growth of services sector is already mute in India.