Shubham Aneja 

India moves an inch closer to the dream of a unified tax reform, by welcoming a new chapter in Indian Economics- “Goods and Service Tax”. GST is a single tax on the supply of goods and services, right from the manufacture to the consumer. It will replace all indirect taxes levied on goods and services by the Indian Central and state governments wherein, most of the existing taxes will be merged into a single taxation system thus doing away with multiple taxation and promoting the concept of a common market for all. It will create something like a common market, wherein all goods and services, irrespective of their point of origin or transaction, would have a common treatment and a common capped rate.

How Does GST Work

Businesses making taxable supplies have to be registered under GST if their annual sales turnover has exceeded the prescribed threshold. Only a registered person can charge and collect GST on the taxable supplies of goods and services made by him. It is charged on the value or selling price of the products. The amount of GST incurred on input (input tax) can be deducted from the amount of GST charged (output tax) by the registered person.

If the amount of output tax is more than the input tax in the relevant taxable period, the difference shall be remitted to the Government. However, if the input tax is more than the output tax, the difference will be refunded by the Government.

Present Taxation vs Goods and Services Tax

GST will subsume central indirect taxes like excise duty, countervailing duty and service tax, as also state levies like value added tax, octroi, entry tax, luxury tax into one taxation system. The present tax structure is complex due to number of taxes whereas structure of GST is tax friendly, simple, easy. The final consumer will bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages. The current tax structure unmakes India, by fragmenting Indian markets along State lines. These distortions are caused by three features of the current system: The Central Sales Tax (CST) on inter-State sales of goods; numerous intra-State taxes; and the extensive nature of countervailing duty exemptions that favours imports over domestic production. In one fell swoop, the GST would rectify all these distortions: the CST would be eliminated.

CONSTITUTION 122nd AMENDMENT BILL

The Bill amends the Constitution to introduce the goods and services tax (GST). Parliament and state legislatures will have concurrent powers to make laws on it. Only the centre may levy an integrated GST (IGST) on the interstate supply of goods and services, and imports. Alcohol for human consumption has been exempted from its purview. The GST Council will recommend rates of tax, period of levy of additional tax, principles of supply, special provisions to certain states etc. The Bill empowers the centre to impose an additional tax of up to 1%, on the inter-state supply of goods for two years or more. This tax will accrue to states from where the supply originates. Parliament may, by law, provide compensation to states for any loss of revenue from the introduction of GST, up to a five-year period.

ARVIND SUBRAMANIAN PANEL REPORT

Committee headed by the Chief Economic Adviser Dr. Arvind Subramanian on Possible Tax Rates stated that this is a historic opportunity for India to implement a game-changing tax reform. Domestically, it will help improve governance, strengthen tax institutions, facilitate “Make in India by Making One India,” and impart buoyancy to the tax base. come. It has recommended a revenue-neutral rate of 15% with a standard rate of 17-18% which will be levied on most goods and all services. The panel has recommended a three-tier rate structure wherein some essential goods will be taxed at a lower rate of 12%; so-called demerit goods such as luxury cars, aerated beverages, pan masala and tobacco products at a higher rate of 40%.

BENEFITS

It will increase the resources available for poverty alleviation and development. This will happen indirectly as the tax base becomes more buoyant and as the overall resources of the Central and State governments will increase. It will also facilitate “Make In India” by making one India and because the GST would be applied on imports, the negative protection favouring imports and disfavouring domestic manufacturing would be eliminated.

Benefits are categorised as follows-

1. FOR BUSINESS AND INDUSTRY

  • Easy compliance
  • Uniformity of tax rates and structures and Common National market
  • Improved competitiveness
  • Gain to manufactures and exporters

2. FOR CENTRAL AND STATE GOVERNMENTS

  • Simple and easy to administer
  • Better controls on leakage
  • Higher revenue efficiency

3. FOR THE CONSUMER

  • Single and transparent tax proportionate to the value of goods and services
  • Relief in overall tax burden
  • Overall reduction in Prices for Consumers
  • Free Flow of Goods and Services – No Checkpoints
  • Non-Intrusive Electronic Tax Compliance System

APPREHENSIONS

While the GST will simplify tax structure, it will increase the burden of procedural and documentary compliance. Number of returns will increase significantly so also the extent of information. For instance, a real estate developer or contractor will have to file 61 returns in a year compared to 24 returns at present. Similarly, a taxable person providing services from several states will have to take registration and file return in all such states. Currently a single centralised registration is required in such cases.

Services can become expensive. e.g. Telecom, banking, airline etc. Being a new tax, it will take some time for the people to understand its implications. If actual benefit is not passed to consumer and seller increases his profit margin, the prices of goods can also see a rising trend GST will also have impact on cash flow and working capital. Cash flow and working capital of business organisations which maintain high inventory of goods in different states will be adversely affected as they will have to pay GST at full rate on stock transfer from one state to another. Currently CST/VAT is payable on sale and not stock transfers.

CONCLUSION

The introduction of Goods and Services Tax (GST) would be a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax, it would mitigate cascading or double taxation in a major way and pave the way for a common national market. From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated to be around 25%-30%. Introduction of GST would also make Indian products competitive in the domestic and international markets. Studies show that this would have a boosting impact on economic growth. Last but not the least, this tax, because of its transparent and self-policing character, would be easier to administer.

The current tax structure unmakes India, by fragmenting Indian markets along State lines. These distortions are caused by three features of the current system: The Central Sales Tax (CST) on inter-State sales of goods; numerous intra-State taxes; and the extensive nature of countervailing duty exemptions that favours imports over domestic production. In one fell swoop, the GST would rectify all these distortions: the CST would be eliminated; most of the other taxes would be subsumed into the GST.

(Author can be reached at shubhamaneja1993@gmail.com)

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