The Current Indirect tax regime is quite complex. Central and State Governments levy a large number of taxes such as Central Excise duty, Service Tax, VAT, Purchase Tax, Central Sales Tax, Entry Tax, Local Body Taxes, Octroi, Luxury Tax, etc. Each of these is an independent tax with separate compliance requirements and differing provisions. This creates complexity and makes it difficult for the taxpayers to adhere to the legal requirements. The different tax systems are also not interconnected, which provides various avenues for tax evasion. To simplify this tax regime, the Goods and Services Tax (GST) will be implemented across India from 1st July 2017. GST will be levied on the supply of goods or services or both (composite supply) and will be beneficial for all stakeholders viz. Citizens, Taxpayers, Industry and Government.
The simple GST regime will have uniform tax rates across States for both inter-state and intra- state transactions. This will promote compliance and ease of doing business. The uniform GST rates will reduce the incentives for evasion by eliminating rate arbitrage between neighboring States and that between intra- state and inter-State sales.
There are a number of questions in the minds of various stakeholders about the new GST system. For a broad understanding of the major features of GST please scroll down. The main advantages of GST will be:
1. Elimination of cascading:
GST will be collected at every stage of value addition and the credit of tax paid at the previous stage will be available to set off the tax to be paid at the next stage of transaction. This will eliminate cascading of taxes. This, in turn, will lower the cost of the goods and services for the consumer.
2. Creation of a common national market:
GST is expected to broaden the tax base, improve compliance through common and uniform procedures and tax-rates, promote make in India and boost our economy. GST will lead at one stroke to removal of inter-state economic barriers, thereby creating a common national market.
3. Easier compliance:
Harmonization of laws, procedures and rates of tax at Center and State level will make compliance easier and simple. In addition to common forms and formats, GST will also have a common compliance interface through the GSTN portal. This will result in efficiencies and synergies across the board. This will also remove disputes like the ones on entry tax and e-commerce taxation existing today. The overall outcome will be a reduction in compliance costs, alleviation of the need for multiple record keeping and filing returns for multiple taxes, thereby leading to cost saving for the trade and industry.
4. Boost to Make in India:
GST will give a major boost to the Government of India’s ‘Make in India’ initiative by making goods or services produced or provided in India competitive in the national and international markets. The currently prevalent Counter-veiling Duty (CVD) on imported goods will be replaced under GST regime by the integrated tax (IGST) which is simply the sum total of Central GST +State GST. This will bring parity in taxation on domestic and imported products, and thereby provide protection to domestic industry.
Under the GST regime, exports will be entirely zero rated, unlike the present system where refund of some taxes is not allowed due to fragmented nature of indirect taxes between the Center and the States. This means that ITC of tax paid on input supplies would be available to the exporter even though no tax is required to be paid on final export supplies. The exporters also have an option to pay IGST on export supplies and claim refund for the same for which a fast track mechanism has been provided. This will boost Indian exports thereby improving the balance of payments position.
5. Revenue buoyancy:
GST is expected to bring buoyancy to the Government Revenue by widening the tax base and improving taxpayer compliance. GST will also improve India’s ranking in the ‘Ease of Doing Business Index’. The introduction of GST is estimated to contribute 1.5% to 2% additional GDP growth.
6. Technology-driven tax administration:
Administration of GST being largely technology driven will not only expedite decision making, but will also usher in a new era of transparency. Under GST, the physical interface between the tax payer and tax administration will be greatly reduced as most of the compliance requirements such as registration, filing of returns, payment of taxes, etc. will be performed online.
The GST Network, a not-for-profit, non-government company promoted jointly by Central and State Governments, will provide shared IT infrastructure and services to both Central and State governments and also to the tax payers. It will provide a uniform interface for taxpayers across India. A robust IT back-bone which enables capture, processing and exchange information among st taxpayers, State & Central governments, Banks, RBI and other stakeholders will greatly smoothen the indirect tax administration and boost compliance.
8. Special benefits to small taxpayers:
The small tax payers have been provided special benefits in GST with regard to compliance levels as well as payment of tax. A small taxpayer having aggregate turnover of Rs. 20 lakhs (10 lakhs for North-Eastern States, Sikkim, Uttarakhand and Himachal Pradesh) need not register under GST. Those below the threshold limits may voluntarily register and pay the requisite GST and avail the input tax credit.
Taxpayers above the threshold limits of 20/10 lakhs, but up to an aggregate turnover of less than Rs.75 lakhs in the previous year (50 lakhs in North Eastern States, Sikkim and Himachal Pradesh) have the option of Composition levy Scheme with a single low tax rate linked to the turnover and simplified compliance requirements (quarterly return).
9. Boosting domestic demand:
Under GST, the average tax burden on the majority of goods is likely to come down, which will lead to reduction in prices, in turn resulting in more consumption. This will boost domestic demand, create more opportunities for domestic business and drive job creation.
The single biggest benefit of the GST would be transforming India into ‘One Nation, One Tax, One Market’. GST will unshackle Indian trade and industry and help realize our full economic potential.