CA SUDHIR HALAKHANDI
THE OTHER SIDE OF GST- WHY GOODS AND SERVICE TAX IS BEING GLORIFIED AS “SANJEVANI”
Goods and Service Tax is being glorified as a system of taxation by which economy will take a upward swing and further it will ease the trade and industry with respect to the indirect tax system of the country. The revenue will be increased and the consumers have to pay less tax. “Only one” indirect tax has to be paid by the trade and industry and all the other indirect taxes will be subsumed in GST. As per News reports coming from big industrial leaders the GST will be a biggest tax reform in the country and Trade and Industry are eagerly waiting for it. It is propagated that GST is the last chance for Indian economy to get the right track and it will be revolutionary step.
Whenever GST is delayed for one or other reason the reaction from certain specific sector of the trade and industry is the same- The reforms are blocked and it will hamper the economic growth of the country. The News are coming from so highly influential sectors coupled with the reaction from the Government Sector that there is no reason to believe that GST will give a good turnaround to economy of the country and it should be implemented immediately.
GST was on the Top agenda of the UPA government and it is on the top at NDA also and for both of the GST was and is the prestigious issue.
Hence as per News reports everyone including trade and Industry and the Government wants GST as early as possible and in that case the GST should have been introduced in the country in 2010 itself. In 2006 Indian Finance Minister has introduced concept of GST in Indian parliament during his Budget speech and it was promised that GST will be introduced in India in 2010.
GST is an indirect tax system and it is continuously referred as one of the biggest revolution in the Indian economic and taxation system and it will give a good boost to the GDP of the country.
See every coin has two sides and this is one side of GST which is being referred by the Government or its agencies and certain industrial sector is also supporting this view. Any system of taxation which has been referred with so much positive attribute must be accepted by every stakeholder but still there is another side of the GST which is referred in the following paragraphs.
Everything is clear in the Government material about the negative or not so positive aspect of the Indian version of GST but only good things are being highlighted and further there is so much hope from the GST in a certain powerful section of the Trade and Industry hence the general perception of the General taxpaying public is also affected and everyone is eagerly waiting for the GST without even considering the Negative aspect of the GST. Less us see some of the points which are not so positive about the GST:-
1. GST is being referred as a single taxation system but in reality it is a dual tax in which state and centre will collect separate tax on a single transaction of sale and service. In 2006 it was introduced as a single taxation system in which centre will collect tax and distributed between the states and the centre. This system was rejected at the initial stage by the states and hence a compromised dual system of taxation is being introduced so GST in India is not being introduced as single taxation system in its standard format. It is compromised system of GST with dual taxation on a single transaction.
2. At present the main Indirect tax system of central Government is central excise. All the goods and commodities are not covered by the central excise and further there is an exemption limit of Rs. 1.50 Crores in the central excise and further traders are not liable to pay central excise. The central excise is payable up to the stage of Manufacturing but now GST is payable up to the stage of sale. So it appears that the whole exercise is being done to increase the revenue of the centre from indirect taxes.
See here a vast majority of dealers are not covered with the central excise but they are only paying VAT in the state. As per a rough estimate the number of dealers covered under VAT is 20 Times more than the dealers are covered under the Central Excise.
Now all the Vat dealers will be required to pay “Central Goods and service tax” and the number of such dealers who first time paying the central indirect tax will be significantly very large.
Here I am not talking about the tax impact or collection of revenue but the number of new dealers who will be covered by central Indirect taxes then how it will ease the trade and Industry from the procedures of the Indirect tax system. Why it has been propagated as a simple tax when a vast majority of dealers have to fulfill the procedural formalities of a new tax as well as the existing tax. The burden of 90 % dealers will be doubled under proposed GST.
3. The very fancy statement which is attributed to GST is that it will increase the revenue and further consumers have to pay less tax. This is very casual and misleading statement. GST is an indirect tax and ultimate burden have to be borne by the consumers and if Government wants to collect more tax then it will have to be collected from the consumers ultimately. The section of the Trade and Industry which is very eagerly waiting for the GST will not shed their margin for the sake of revenue to the Government.
The exercise of GST is to get the ultimate generation of more revenue to the Government especially to the central Government and it has to be paid by the consumers. Hence GST will be a burden on the Consumers.
4. The calculation of RNR (Revenue Neutral Rate) is very difficult and further Govt. wants to enhance its revenue hence rate of Tax will be a problem. As per the News reports the proposed rate for State GST is 12% and Central GST is 14% Plus Govt. wants to impose 1% CST at the initial stage of GST on the interstate sale of Goods and services. So the normal rate of overall tax will be 26%. This rate is very high comparing to the fact that small and medium Industries are at present not covered by the central excise and most of the Goods such as agricultural products are out of the preview of the Central Excise. At present the Maximum rate of VAT is 14.5% but a large number of Goods are covered by the 5% category.
Let us have a look at countries which have more than 20% GST/VAT and these countries are as under:-
| NAME OF COUNTRY | GST/VAT RATE | PER CAPITA INCOME IN US $ |
| Sweden | 25.00 | 60380 |
| Denmark | 25.00 | 59818 |
| Finland | 22.00 | 49150 |
| Austria | 20.00 | 50510 |
| Italy | 20.00 | 35685 |
| France | 19.60 | 42560 |
| India | 26.00 | 1497 |
See the difference of per capita income of these countries and the rate of Tax. These all are in first 20 Top countries of the world and we are 120th County out of 164. The rate of 26% may be reduced by 2 to 3 percent but even then the capacity of the taxpaying public is limited.
How the consumers will pay such high rate of Tax and if this is not paid then how the expectations of the Govt. will be met regarding collection of
5. GST is now converted into a purely political issue and it is evident from the fate of GST in the Upper house (Rajya Sabha) of the parliament. The GST is the concept of NDA and they have tried to bring it in their tenure. UPA is also keen on GST then what is the problem? Why it was not cleared in Rajya Sabha instantly. The reason is “Political Compulsions” hence instead of playing politics with GST a concrete Nationwide opinion should be made on GST and our lawmakers should work on it instead of making a confusing situation.
The GST is referred as one of biggest revolution in indirect taxation system in the country and if it is so important then why it is to be decided on Political party line to confuse the whole trade and Industry and also to the taxpaying public.
6. The concept of GST was introduced in 2006 and at that time it was referred as a single tax and at that time lot of benefits to trade and industry were attributed to the GST. Since then a new compromised format of GST has been developed but not a single benefit of the GST has been reduced from the list of benefits of the GST. If the standard format of GST is compromised then the so called benefits should also be reduced from the publicity campaign of the GST.
Since the benefits as referred to GST are not tested on real grounds hence the whole exercise of propagating GST is confusing and misleading.
7. The improvement and innovation in the Manufacturing and distribution of Goods and service, increase in exports of the country, Agricultural and Labour reforms , checking the corruption , less Government control are some of the factors which are responsible for the economic growth of the country and most of the economic revolutions in the world are based on these factors. A tax system can make a revolution in the economy of the country is “rarest of the rare” thing.
Government has to collect tax and the tax systems are Direct taxes and Indirect Taxes and GST is just a new system of indirect taxation (for India) which may be slightly better or worst from the present system of taxation and it should be referred simply “as such” only since big or tall claims for this system will make its practical implementation very hard and further acceptance of this system by the Indian economy will also be very difficult.
(Author may be contacted at [email protected] or on 9198280 67256)
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Dear Sudhirji,
I agree with your inferences and understand more negatives than positives . Top this up with punishing developed states for building up infrastructure and promoting industry with all kind of incentives at the expense of state population by passing on GST to consuming states. Wonderful idea to reward states and its people of having failed in controlling population . This will be additional incentive to bounties received from central government every year based upon their population . in nutshell totally ill conceived taxation system of rewarding inefficient states and its inefficient people.
With introduction of GST as a Consuption based tax with revenue going to the Receiving state, the P.M.’s slogan “Come, Make in India” would really mean this:
PM : “Come, Make in India”
State Chief Ministers : “But not necessarily in my State – You may please set up your unit in the adjoining State”
No competition amongst States for industrialisation of their State. Full abdication of responsibility of States for growth of the economy – It is the sole responsibility of RBI Governor through monetary policies alone. The only fiscal changes would be through variation in the VAT rates as in Britain. Table given below:
Standard UK VAT Rate from 1979 to 1991
18/06/1979 to 18/03/1991 – 15 %
Standard UK VAT Rate from 1991 to 2008
19/03/1991 to 30/11/2008 – 17.5 %
Standard UK VAT Rate from 2008 to 2009
01/12/2008 to 31/12/2009 – 15 %
Standard UK VAT Rate from 2010 to 2011
01/01/2010 to 03/01/2011 – 17.5 %
Standard UK VAT Rate from 2011 to Present
04/01/2011 to Present – 20 %
It may be noted that when the tax rate was decreased from 17.5% to give a boost to the economy, the prices of goods on the shelves were not decreased but when the rate was increased to 17.5% and 20%, the labels were changed and prices hiked.
All talk of avoidance of cascading effect of taxes is “Bull…”
In a federal country like India, with CGST, SGST and IGST, we will all be served old wine in new bottle.
writer has put acutal position before the common public of india. gst system will work in the present indian tax administration system as axe on the throat of the indian small bussinessman. growing revenue with cheaper price never possible as such things also populated while vat was implemented but all the state governments increased vat from 12% to 14.5 % . if revenue increased why vat rate are increasing continuoulsy. GST is the process in over all for big industry men and government to put obstacles in the way of small manugactureres retailers those are doing bussiness within exemption limit say 10lac or below 1.5 cr turnover and nothing is paying to governmant and putting big compititon for big players. These small peoples will be outside from their shops and factories because they never be able to understand and comply very tough gst legal and panel provisions. ALL GST practise is collusiion of industry and polotics.
Truly dispassionate analysis of the subject instead of the self- serving statements that have been repeated ad nausem for the last 4 to 5 years on the so called merits of the VAT/GST system. About 120 countries have adopted it but a truly federal country like the USA has not adopted it so far and is not even thinking of implementing it. Even Brazil which is a federal contry like ours has not thought of reversing the revenue sharing concept – the State of origin collects and retains the tax, the Receiving state grants set off to the inter state buyer and only the value addition is taxed by the Receiving state. Thus, there is no need for 1% CST which is proposed to be retained solely with a view to protect and insure against the likely revenue loss upon reversal of revenue sharing structure. Why should a Gujarati PM think of going in for a possibly Loss-making proposition if there is a possibility of revenue loss? Think of the smaller states like Chhatisgarh/Jharkhand who will have to pass on the entire tax collection to the Receiving state? How much can they expect to be reciprocated by way of consumption based tax within Jharkhand?
Mohammed Tughlak shifted his capital from Delhi to Daulatabad and when he reaised his mistake he admitted it and corrected the mistake. Here, after realising the perils of total reversal of revenue sharing structure, we are shifting the capital to midway – Gwalior/Indore/Jaipur. (Half baked GST)
GST is nothing but new “tax collection” system.It has nothing to do with economic growth. It is meant for the convenience of ” trade and industry” who act as “tax collector” for the government.It will reduce the cost of compliance and procedural formalities for trade and industry. So trade and industry is eagerly waiting for GST. They are in cahoot with the Government. No government on the planet earth will bring any tax reform like GST which will result in less tax collection. In GST ultimate taxpayer has no relevance at all. It is fanciful to say that GST will benefit the ultimate taxpayer.On the introduction of GST the Government shall make constitutional amendment that no other tax will be levied by the Central Government and state governments at all . There is no doubt that the ultimate consumers are going to bear the brunt of new tax reform called GST.
Dear Sudhirji,
You have aptly covered “Not-Known-To-All” points in your article. From the work done so far, it is clear that the plight of ultimate/small customer is not considered in the proposed GST regime.
On the other side, it seems from small businessman to a big corporates – everybody has overlooked the fact that higher GST Rate/RNR (compared to the existing tax rate) means Higher Cash Outflow – whatever manner it would be available as credit in the seamless credit mechanism.
I applaud your efforts on mapping of GST Rate with Per Capita Income of few countries, having GST rate in excess of 20%. The table shows dismal scenario of India vis-à-vis to peer country in that league.
According to me the real benefit of GST could be derived if Stamp Duties, Liquor, Tobacco, Electricity and Petroleum products are also included in GST within a defined time line. In India, we know where the shoe is pinching us, but don’t know how to cure and fix it.
I agree with the inferences. However, I doubt whether States would be motivated enough to collect GST from businessmen. The objective of VAT earlier and now GST is to remove inter state barriers which have proved to be big hurdle in movement of goods and a source of corruption apart from arbitrage among traders. Now if States are allowed to levy even 1% discretionary additional tax, it will lead to same problems and paper work.
Moreover, States administration/ politicians have never been disciplined/ honest enough to collect the VAT. A recent statistics revealed that in many states VAT collection on petroleum products constitute as much as half of revenue from VAT. Hence they want to keep these petro products out of GST purview!.
The tax collection should not become a hurdle in running a business and should be painless as far as possible.
Finance Minister is playing with fire when he has increased share of States in central revenue pool without putting in place any mechanism to bring accountability with the State Tax administration.
Really this is excellent one. I think this is initial stage of GST and rate of Tax should not be more than 16%