Addressing IT Hardware Industry's GST Challenges


The complexities of multiple indirect taxes without the ability to claim credit of such taxes by different persons resulted in cascading effect on taxes and taxes being levied on various participants in the supply chain. GST addresses this and it promises to lower the overall production cost and thereby increase the output of the economy in the long run. Quantitatively, experts are of the opinion that the GDP is expected to rise by 1% to 2% on account of implementation of GST in India. However, in the short run, it is expected to be disruptive due to transition issues while migrating into the new regime. 

Further, with the inclusion of anti-profiteering provisions, it has been ensured that the benefits on account of implementation of GST are provided to the end customers, which should ensure reduction in the price of the goods or services under GST.

With the passage of the CGST, IGST, UTGST and Compensation Bills in the Parliament and receiving the assent by the President, the laws are falling in place for the implementation of GST.  However, there are certain issues for the IT hardware industry which needs to be addressed before implementation of GST.

Read more: GST Bill Passed: What It Means For IT Sector?

One of the issues which is highlighted time and again is with regard to no clarity with regard to the exact GST rate which would be applicable for IT products.  Presently, the effective tax rate on most IT hardware goods is in the range of 13% - 15% (central excise duty and VAT) and hence 12% GST rate should be a possibility. It is believed that States would have no reservations on representing for 12% of GST (6% CGST + 6% SGST) as the States would be earning more than what they are under the present VAT regime. Accordingly, it is essential that IT products are subject to GST at the rate of 12% in order to ensure that the cost of IT goods remain low to the end consumers. 

The Government’s scheme of “Make in India” has been immensely successful.  The Government is still deliberating on the mechanism to be adopted to perpetuate “Make in India” under the GST and no concrete framework has been put together in this regard. In order to reduce the import burden it is essential that the ‘Make in India’ scheme be extended to all ITA goods, specifically to notebooks, desktops, servers and storage and MAIT expects the Honorable Finance Minister to look into this aspect given the push towards indigenizing manufacture in India. There is no clarity on Grandfathering of benefits offered by States into GST.

Additionally, there is an ambiguity with regard to the taxability with regard to repair activities.  Actual supplies undertaken during the warranty / AMC period should not be subject to GST again as the cost attributable to such repairs including cost of fresh parts is usually included in the cost of original supply / at the time of raining invoice in case of AMC and thereby, already suffers GST.  Accordingly, the taxability of repair activities along with taxability of forward and reverse logistics needs to be clarified.

Read more: Lessons For Indian Biz From Other GST-Compliant Countries

GST Council and the Union Cabinet has paved the way for rolling out the new tax regime from July, clearing all legislations required for the ambitious reform measure. Now all eyes are on the respective State assemblies to pass SGST laws.

While we are at last mile of the marathon for implementation of GST, the Industry is waiting for the announcement of the rate structure as companies will need to make corresponding adjustments to their business models and budgets.