CA Kapil Goel
The Goods and Service Tax (GST) is a tax likely to be implemented in India, from 1st April 2016. GST is proposed to be a comprehensive indirect tax to be levied on manufacture, sale and consumption of goods as well as services at the national level. It will substitute all indirect taxes levied on goods and services by the Central and State Governments in India as of now. It is aimed at being comprehensive for most goods and services.
Introduction of Goods and Services Tax (GST) will indeed be an important perfection and the next logical step towards a widespread indirect tax reforms in India. Initially, it was conceptualized that there would be a national level goods and services tax, however, with the release of First Discussion Paper by the Empowered Committee of the State Finance Ministers on 10.11.2009, it has been made clear that there would be a “Dual GST” in India, i.e. taxation power lies with both by the Centre and the State to levy the taxes on the Goods and Services. Almost 150 countries have introduced GST in some form since now. While countries such as Singapore and New Zealand tax virtually everything at a single rate, Indonesia has five positive rates, a zero rate and over 30 categories of exemptions. In China, GST applies only to goods and the provision of repairs, replacement and processing services. GST rates of some countries are given below :-
||Rate of GST
In India, government proposed the GST rate at 27% which is well above the global average of 16.4% for similar taxes.
But, Our Finance Minister, Mr. Arun Jaitley told lawmakers that the proposed rate is too high and needed to be much more diluted. But some states are asking for an even higher rates for GST.
Exemptions and exceptions have also been worked into the GST bill. This tax does not apply to alcohol and petroleum products. These will be taxed separately at first. And manufacturing states will be allowed to levy an additional tax of 1% on supply of goods.
World over in almost 150 countries there is GST or VAT, which means tax on goods and services. Under the GST scheme, no distinction is made between goods and services for levying of tax. In other words, goods and services attract the same rate of tax. GST is a multi-tier tax where ultimate burden of tax fall on the consumer of goods/services. It is called as value added tax because at every stage, tax is being paid on the value addition. Under the GST scheme, a person who was liable to pay tax on his output, whether for provision of service or sale of goods, is entitled to get input tax credit (ITC) on the tax paid on its inputs.
OBJECTIVES OF GST:- One of the main objective of Goods & Service Tax(GST) would be to eliminate the cascading effects of taxes on production and distribution cost of goods and services. The exclusion of cascading effects i.e. tax on tax will significantly improve the competitiveness of original goods and services in market which leads to beneficial impact to the GDP growth of the country. It is felt that GST would serve a superior reason to achieve the objective of streamlining indirect tax regime in India which can remove cascading effects in supply chain till the level of final consumers.
BENEFITS OF GST:-
- GST will end cascading effects :- This will be the major contribution of GST for the business and commerce. At present, there are different state level and centre level indirect tax levies that are compulsory one after another on the supply chain till the time of its final consumption.
- Growth of Revenue in States and Union :- It is expected that the introduction of GST will increase the tax base but lowers down the tax rates and also removes the multiple point taxation. This will lead to higher amount of revenue to both the states and the union.
- Reduces transaction costs and unnecessary wastages :- If government works in an efficient mode, it may be also possible that a single registration and a single compliance will suffice for both SGST and CGST provided government produces effective IT infrastructure and integration of states level with the union.
- Eliminates the multiplicity of taxation :- One of the great advantages that a taxpayer can expect from GST is elimination of multiplicity of taxation. The reduction in the number of taxation applicable in a chain of transaction will help to reduce the paper work and clean up the current mess that is brought by existing indirect taxation laws.
- One Point Single Tax :- Another feature that GST will hold is it will be ‘one point single taxation’. This also gives a lot of comforts and confidence to business community that they would focus on business rather than worrying about their taxation that may crop at later stages. This will help the business community to decide their supply chain, pricing modalities and in the long run helps the consumers being goods competitive as price will no longer be the function of tax components but function of sheer business intelligence and innovation.
- Reduces average tax burdens :- Under GST mechanism, the cost of tax that consumers have to bear will be certain and it is expected that GST would reduce the average tax burdens on the consumers.
- Reduces the corruption :- It is one of the major problems that India is overwhelmed with. We cannot expect anything substantial unless there exists a political will to root it out. This will be a step towards corruption free Indian Revenue Services.
- Present CST will be removed and need not to be paid. At present there is no input tax credit available for CST.
- There are many indirect taxes in state and central level currently, which will be included by GST. i.e. you need to pay a single GST instead of all of them.
- Uniformity of tax rates across the states
- Ensure better compliance due to aggregate tax rate reduces.
- By reducing the tax burden the competitiveness of Indian products in international market is expected to increase and there by development of the nation.
- Prices of goods are expected to reduce in the long run as the benefits of less tax burden would be passed on to the consumer.
Other features of the GST model
- The GST shall have two components: one levied by the Centre (referred to as Central GST or CGST), and the other levied by the States (referred to as State GST or SGST). Rates for Central GST and State GST would be approved appropriately, reflecting revenue considerations and acceptability.
- The CGST and the SGST would be applicable to all transactions of goods and services made for a consideration except the exempted goods and services.
- The CGST and SGST are to be paid to the accounts of the Centre and the States respectively.
- Since the CGST and SGST are to be treated individually, taxes paid against the CGST shall be allowed to be taken as input tax credit (ITC) for the CGST only and could be utilized only against the payment of CGST.
- Cross utilization of ITC between the CGST and the SGST would not be permitted except in the case of inter-State supply of goods and services.
- Ideally, the problem related to credit accumulation on account of refund of GST should be avoided by both the Centre and the States except in the cases such as exports, purchase of capital goods, input tax at higher rate than output tax et
- To the extent feasible to the government, uniform procedure for collection of both CGST and SGST would be prescribed in the respective legislation for CGST and SGST.
- The States are also of the view that Composition/Compounding Scheme for the purpose of GST should have an upper ceiling on gross annual turnover and a floor tax rate with respect to gross annual turnover.
- The taxpayer would need to submit periodical returns, in common format as far as possible, to both the CGST authority and to the concerned SGST authorities.
Indirect taxes that will be included under GST :- The following indirect taxes from state and central level is expected to be integrated with GST
- VAT/Sales Tax
- Entertainment Tax (unless it is levied by local bodies)
- Luxury Tax
- Taxes on lottery, betting and gambling.
- State cess and surcharges in so far as they relate to supply of goods and services.
- Entry tax not on in lieu of octroi.
- Central Excise Duty.
- Additional Excise Duty.
- The Excise Duty levied under the medical and Toiletries Preparation Act
- Service Tax.
- Additional Customs Duty, commonly known as countervailing Duty (CVD)
- Special Additional duty of customs(SAD)
The above taxes dissolve under GST; instead all of these, only CGST & SGST exists.
Impact of Goods and Service Tax :-
- Food Industry : The application of GST to food items will have a significant impact on those who are living under subsistence level. But at the same time, a complete exemption for food items would drastically shrink the tax base. Food includes grains and cereals, meat, fish and poultry, milk and dairy products, fruits and vegetables, candy and confectionary, snacks, prepared meals for home consumption, restaurant meals and beverages. Even if the food is within the scope of GST, such sales would largely remain exempt due to small business registration threshold. Given the exemption of food from CENVAT and 4% VAT on food item, the GST under a single rate would lead to a doubling of tax burden on food.
- Housing and Construction Industry : In India, construction and Housing sector need to be included in the GST tax base because construction sector is a significant contributor to the national economy.
- FMCG Sector : Despite of the economic slowdown, India’s Fast Moving Consumer Goods (FMCG) has grown consistently during the past three, four years. Implementation of proposed GST and opening of Foreign Direct Investment (F.D.I.) are expected to fuel the growth and raise industry’s size.
- Rail Sector : There have been suggestions for including the rail sector under the GST umbrella to bring about significant tax gains and widen the tax net so as to keep overall GST rate low. This will have the added benefit of ensuring that all inter–state transportation of goods can be tracked through the proposed Information technology (IT) network.
- Financial Services : In most of the countries GST is not charged on the financial services. Example, In New Zealand most of the services covered except financial services as GST. Under the service tax, India has followed the approach of bringing virtually all financial services within the ambit of tax where consideration for them is in the form of an explicit fee. GST also include financial services on the above grounds only.
- Information Technology enabled services : To be in sync with the best International practices, domestic supply of software should also attract G.S.T. on the basis of mode of transaction. Hence if the software is transferred through electronic form, it should be considered as Intellectual Property and regarded as a service. And if the software is transmitted on media or any other tangible property, then it should be treated as goods and subject to G.S.T. Implementation of GST will also help in uniform, simplified and single point Taxation and thereby reduced prices.
- Impact on Small Enterprises : There will be three categories of Small Enterprises in the GST regime. (a) Those below threshold need not register for the GST (b) Those between the threshold and composition turnovers will have the option to pay a turnover based tax or opt to join the GST regime, (c) Those above threshold limit will need to be within framework of GST. Possible downward changes in the threshold in some States consequent to the introduction of GST may result in obligation being created for some dealers. In this case considerable assistance is desired. In respect of Central GST, the position is slightly more complex.