AzharAhmedDrRajneesh MishraMSSM60020thJanuary 2018GST andtaxation in India : The way AheadGoods andService Tax (GST) was rolled out in India on July 1st 2017, afterseveral rounds of dead lock in the parliament. Observers have described thereform as the most meaningful change to India’s tax regima since the countrybecame independent in 1947. A late night parliament session befitted thishistoric moment. Though the prime minister of India Narendra Modi is theprinciple driving force behind GST, this epoch making reform reflects thecollective will of 135 crore people represented in the sovereign parliament andstate legislatures. The launch, however, was boycotted by several parties.
TheGST was established to subsume various indirect taxes levied at differentlevels, with the idea of reducing rep-tape, plugging leakages and paring theway for a transparent indirect tax regime. What is GST? The GST is meant to be a unified indirect taxacross the country on products and services. In the current system, tax islevied at each stage separately by the Union government and the States atvarying rates, on the full value of the goods.
But under the GST system, taxwill be levied only on the value added at each stage. It is a single tax(collected at multiple points) with a full set-off for taxes paid earlier inthe value chain.Thus, the final consumer will bear only the GSTcharged by the last dealer in the supply chain with set-off benefits at all theprevious stages. The GST is classified into two types State GST and CentralGST. What is State GST and Central GST? For transactionswithin a State, there will be two components of GST – Central GST (CGST) andState GST (SGST) – levied on the value of goods and services. Both the Centreand the States will simultaneously levy GST across the value chain.In the case of inter-State transactions, the Centrewould levy and collect the Integrated Goods and Services Tax (IGST).
The IGSTwould be roughly equal to CGST plus SGST.How will GST help in getting rid of tax evasion? Acomprehensive IT system, GSTN, will a-lot universal GST numbers to allmanufacturers and traders, stockist, wholesalers and retailers. This willsimplify the administration of indirect taxes and plug leakages.
The governmentalso plans to incentivise tax compliance by traders. It gives the country oneuniform tax, and no frequent rate changes. A lower tax burden, one market tohelp business and no truck queues at state borders. GDP could raise by 2%. Lessscope for evasion which means higher revenues.
Lower taxes to boost exports. What it means for business? There won’t be any fearthat a state will randomly raise taxes, and there will be transparency intaxes. Goods and services providers will get the benefit of input tax creditfor the goods used effectively making the real incidence of taxation lower thanthe headline taxation rate.
The government has categorised items in five majorslab – 0%, 5%, 12%, 18% and 28%. Here is the updated list of goods and servicestaxes under various GST slabs.No tax will be imposed on items like jute, freshmeat, fish, chicken, eggs, milks, curd, natural honey, fresh fruits and vegetables,flours, basin, bread, salt, stamps, judicial papers, printed books, newspaper,and bone meat etc.0.25%: Rough industrial diamonds including unsortedrough diamonds to face 0.25% instead of 3% GST. 12% Frozen meat products,butter cheese, ghee, dry fruits in packed form, animal far, sausages, fruitjuice, Ayurveda medicines, tooth powder, ketchup and sauces.
On Nov 10, 2017,these items have been shifted from 18% to12% tax bracket: Condensed milk, refinedsugar and sugar cubes, pasta, curry paste, mayonnaise and salad dressings,parts of specified agricultural, horticultural, forestry, harvesting orthreshing machinery, specified parts pf sewing machine, spectacles frames,furniture wholly made of bamboo or cane. On January 18, these items were movedto 12% GST slab LPG Supply to household domestic consumers by private LPGdistributors Tailoring service, Tamarind Kernel powder, mehndi paste in cones, Scientificand technical instruments basket ware and wicker work Velvet fabric Cigarettefilter rods services. All restaurants, restaurants of hotels with roomtariff of less than rs 7,500, Food parcels, Textile job work, transport servicesrailways, air transport, supply of e-waste. 12% on apparel above rs 1000, frozenmeat products, butter, cheese, ghee, dry fruits in packaged from, animal fat,sausage, fruits juices medicine, tooth powder, match sticks, colouring books, picturebooks etc.
The government has opted for four slabs for bothgoods and services- 5%, 12%, 18% and 28%. In addition, several items face zerolevy, while bullion will attract 3% GST and luxury an sin goods that are in thetop bracket will also attract a cess that will be used to compensate states forrevenue loss. GST will ensurethat indirect tax rates and structures are common across the country, therebyincreasing certainty and ease of doing business. In other words, GST would makedoing business in the country tax neutral, irrespective of the choice of placeof doing business. A system ofseamless tax-credits throughout the value-chain, and across boundaries ofStates, would ensure that there is minimal cascading of taxes.
This wouldreduce hidden costs of doing business.Advantages of GST: GST will mainly remove the Cascadingeffect on the sale of goods and services. Removal of cascading effect willdirectly impact the cost of goods. The cost of goods should decrease since taxon tax is eliminated in the GST regime.
GST is also mainly technologicallydriven. All activities like registration, return filing, application for refundand response to notice needs to be done online on the GST Portal. Thiswill speed up the processes.What changes has GST brought in? : GST will improve the collection of taxes as well as boostthe development of Indian economy by removing the indirect tax barriers betweenstates and integrating the country through a uniform tax rate.The Centre needs to follow throughwith pending legislation for the goods and services tax (GST).
As the recentthe lack of reforms in the indirect tax regime leads to high costs andinefficiencies in myriad ways. For instance, blocked input taxes or distortingtax-on-tax and cascading rates could add up to as much as three-fourths ofinvestment in plant and machinery.The Centreneeds to follow through with pending legislation for the goods and services tax(GST).
As the recent Arvind Subramanian expert committee points out, the lackof reforms in the indirect tax regime leads to high costs and inefficiencies inmyriad ways. For instance, blocked input taxes or distorting tax-on-tax andcascading rates could add up to as much as three-fourths of investment in plantand machinery.Hence the pressing need to changeover from the dual value-added tax (VAT) system in the Centre and the states toan integrated GST, with tax levied only on the value added and input taxcredits seamlessly available across the value chain.
It would shore uptransparency and boost tax efficiency. As the report points out, the GSTBill does provide a 2% band for the states above the standard GST rate, for taxflexibility. But varying rates can distort and divert economic activity. TheGST Council needs to work at uniform rates so as to have a truly nationalmarket. It also needs to decide on a date for including key petro-products inthe GST regime.Such items do providedisproportionately high tax revenue for both the Centre and the states.
Butgiven the polluting externalities of petro-goods, along with the standard GSTrate, a top-up non-Vatable rate of, say, 24% would make sense. A similar ratestructure can be envisaged for potable alcohol and tobacco. In due course, itwould also make sense to include electricity duty and real estate in GST.As for the issues flagged by theCongress, a rigid GST rate in the constitutional amendment is unwarranted. Italso makes sense for the political executive to resolve tax issues viaconsensus and, if need be, by setting up an expert committee. With regard todoing away with the 2% central sales tax, it would make better sense to reduceit by 1% now and bring it to zero in, say, two years, as the Centre compensatesthe states for revenue shortfall, if any, for five years.
Final Verdict: Real estate is abeneficiary as 16 indirect taxes have been subsumed in a single GST at 12%.FMCG also benefits as logistics cost reduction will play a big role. If you run a business,chances are that GST has affected you, positively or negatively! The fullimpact of GST will take some time to play out, as companies evaluate the impacton their supply chains and as consumers and competition react to the pricetransmissions. For a comprehensive analysis on GST’s impact on various sectors. Works Citedhttps://www.taxmann.com/blogpost/2000000031/what-is-gst-goods-and-services-tax-in-india.aspxhttps://blogs.economictimes.indiatimes.com/figuringitout/way-ahead-is-to-reform-indirect-tax-regime-with-gst/https://www.tradebriefs.com/index.php/component/content/article?id=466419https://cleartax.in/s/gst-law-goods-and-services-tax.http://www.cbec.gov.in/htdocs-cbec/gst