Implementing
Goods and Services Tax was a very complex and bold decision. It was
not just about how it is going to change the Indian tax system but
also about the effect of GST
on Indian economy
that was at stake. The government has carefully taken steps to
implement GST in a refined manner as much as possible. GST council
formed, and it awarded the contract to build GSTN to Infosys. GSTN
handles all the functions related to GST through technology. It
handles the front end that is the GST portal. Issues like tax
payments, GST payment information, Filing returns, information about
different GST services are available on the GST portal. On the
backend, GSTN handles the whole infrastructure like the security of
data, efficient functioning of servers, etc. Without GSTN, GST would
not be possible. The technological advancements that were available
in India were put to use, and there were some innovative technologies
used to make GST possible. After the implementation of GST, there was
an effect on various sectors and industries, and the IT sector, too,
had its share of effect.

IT
sector before GST

In the
previous tax system, the IT sector had different taxes levied on it.
Like it was with any other industry. VAT (Value added tax) and
Service tax both were levied on the sale of any packaged software.
The service tax was 15%, and VAT on the sale of software was around
5%. There was an added Excise duty that applied to the manufacture of
IT products. If there was any software that was built and sold
through CD, then there were three taxes levied on it. VAT, Service
Tax, and Excise Duty. Excise Duty was levied for the manufacturing of
software. Service Tax was levied because the software can be
downloaded multiple times, and that makes it a service. And VAT was
applicable because of the sale of the software.

If there
were a distributor or agency that would deal with the reselling of
software, then there would be a “tax on tax” or cascading effect
that would be levied. It would cut the profits of the distributor.
The software reseller had no option other than increasing the price
of the software to recover the costs. So basically, under the IT
sector, those who dealt with software development and selling would
have to pay different taxes. But the overall cost of tax in the
earlier regime compared to the GST have its positives and negatives.

Information
Technology sector can be taxed as goods as well as services.

The
information technology sector can be categorized into Goods and
Services separately or combined because the nature of the IT industry
is different than any other sector. There is a thin line between the
goods supplied and services provided in digital format. When the
software manufactured as a product, it comes under Goods tax slab.
But if that software has a recurring income or if it provides
service, then it will come under the Services tax slab. Some software
comes under both Goods and Services. For Example, if there is a
software that is used for calculating GST payments and does not have
a monthly subscription, then it would come under the Goods category.
But If a software provided GST payment information service and
charged regularly, then it would come under the services category.

Effect
of GST on Information Technology

One of the
significant changes the new tax regime made to the taxation of the IT
industry is the removal of a single
point taxation system.
Earlier IT industry had a single point taxation system. With GST,
there are 111 points of taxation levied. This means that while
processing Goods and Services tax, the companies will have to deal
with State GST, Central GST, and Inter-state GST. There are 37
jurisdictions with Center, Seven union territories, and 29 states. If
multiplied, 37 jurisdictions with three GSTs would add up to 111
points of taxation. Software Companies will encounter increased
compliance costs because they will have to address this taxation
system.

The
cascading effect is removed for the Goods related to the IT sector
like any other industry. Supplies like cables, hard disks, servers,
motherboards, circuits, etc. will not have any cascading effect on
it. This will help the IT industry in a significant manner because
the end cost of a product will become cheaper, and buying power will
increase. Consumers will now have to pay only the tax on value
addition and not the cascading taxes. It will help IT companies get
better ROI ( Return on Investment) and also help new players to
experiment and create better technologies.

However,
companies might experience a slightly negative impact because of the
changes in the taxes levied on the complete products. Photocopying
machines, Fax machines, Printers, and ink cartridges will now be
taxed at 28% instead of 18% of the previous tax regime. There is a
tax increase in software services. Software service providers will
have to pay 18% GST instead of the earlier 15% tax. Similarly, taxes
increased from 15% to 18% on freelance services.

The
companies that export services like BPO, overseas software
development, and consultancies will come under 0% tax slab, and they
will be able to claim credits on the input tax paid.

Conclusion

The debate
about the effect of GST on Indian economy generates mixed opinions.
There are different sectors of Indian industries that were affected
by GST in various manners. The impact of GST on the IT sector can be
said to be both positive and negative in its own way. There are some
pros and cons on different levels. But the use of IT in the
implementation of GST created greater efficiency for the new tax
system. A taxpayer without any GST
payment information
can pay taxes online securely because of the integration of highly
advanced technology in the GST portal. There are many issues that
information technology was able to resolve and create an advanced
system helping the country move towards faster development.