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Goods and Services Tax (GST) – The Game Changer

The genesis of the introduction of GST in the country was laid down in the historic Budget Speech of 28th February 2006, wherein the then Finance Minister laid down 1st April, 2010 as the date for the introduction of GST in the country. Thereafter, there has been a constant endeavour for the introduction of the GST in the country whose culmination has been the introduction of the Constitution (122nd Amendment) Bill in December 2014.

Why GST? 

A common refrain in popular discussions is what is the need for the introduction of GST. The indirect tax structure in our country.

  • Central Government levies tax on manufacture (Central Excise duty)
  • provision of services (Service Tax)
  • interstate sale of goods (CST levied by the Centre but collected and appropriated by the States)
  • the State Governments levy tax on retail sales (VAT)
  • the entry of goods in the State (Entry Tax), Luxury Tax, Purchase Tax, etc.

It is clearly visible that there are multiplicities of taxes which are being levied on the same supply chain.

There is cascading of taxes, as taxes levied by the Central Government are not available as set off against the taxes being levied by the State governments.

Even certain taxes levied by State Governments are not allowed as set off for payment of other taxes being levied by them.

Further, a variety of VAT laws in the country with disparate tax rates and dissimilar tax practices divides the country into separate economic spheres. Creation of tariff and non-tariff barriers such as Octroi, entry Tax, Check posts etc. hinder the free flow of trade throughout the country. Besides that, the large number of taxes creates high compliance cost for the taxpayers in the form of a number of returns, payments etc.

What is GST? 

  • All the taxes mentioned above are proposed to be subsumed in a single tax called the Goods and Services Tax (GST) which will be levied on the supply of goods or services or both at each stage of supply chain starting from manufacture or import and till the last retail level.
  • So basically any tax that is presently being levied by the Central or State Government on the supply of goods or services is going to be converted into GST.
  • GST is proposed to be a dual levy where the Central Government will levy and collect Central GST (CGST) and the State will levy and collect State GST (SGST) on intra-state supply of goods or services.
  • The Centre will also levy and collect Integrated GST (IGST) on inter-state supply of goods or services. Thus GST is a unifier that is going to integrate various taxes being levied by the Centre and the State at present and provide a platform for forging an economic union of the country.
  • This tax reform will lead to the creation of a single national market, common tax base and common tax laws for the Centre and States. Another very significant feature of GST will be that input tax credit will be available at every stage of supply for the tax paid at the earlier stage of supply. This feature would mitigate cascading or double taxation in a major way.
  • This tax reform will be supported by extensive use of Information Technology [through Goods and Services Tax Network (GSTN)], which will lead to greater transparency in the tax burdenaccountability of the tax administrations of the Centre and the States and also improve compliance levels at a reduced cost of compliance for taxpayers.

Advantages for the Government: 

  • Will help to create a unified common national market for India, giving a boost to foreign investment and “Make in India” campaign;
  • Will mitigate cascading of taxes as Input Tax Credit will be available across goods and services at every stage of supply;
  • Harmonization of laws, procedures and rates of tax between Centre and States and across States;
  • Improved environment for compliance as all returns are to be filed online, input credits to be verified online, encouraging more paper trail of transactions at each level of the supply chain;
  • Similar uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate arbitrage between neighbouring States and that between intra and inter-state sales;
  • Common procedures for registration of taxpayers, a refund of taxes, uniform formats of tax return, common tax base, a common system of classification of goods and services will lend greater certainty to the taxation system;
  • Greater use of IT will reduce human interface between the taxpayer and the tax administration, which will go a long way in reducing corruption;
  • It will boost export and manufacturing activity, generate more employment and thus increase GDP with gainful employment leading to substantive economic growth;
  • Ultimately it will help in poverty eradication by generating more employment and more financial resources.

Advantages to Trade and Industry 

  • Simpler tax regime with fewer exemptions;
  • Increased ease of doing business;
  • Reduction in multiplicity of taxes that are at present governing our indirect tax system leading to simplification and uniformity;
  • Elimination of double taxation on certain sectors like works contract, software, hospitality sector;
  • Will mitigate cascading of taxes as Input Tax Credit will be available across goods and services at every stage of supply;
  • Reduction in compliance costs – No multiple record-keeping for a variety of taxes – so lesser investment of resources and manpower in maintaining records;
  • More efficient neutralization of taxes especially for exports thereby making our products more competitive in the international market and give a boost to Indian Exports;
  • Simplified and automated procedures for various processes such as registration, returns, refunds, tax payments, etc;
  • The average tax burden on the supply of goods or services is expected to come down which would lead to more consumption, which in turn means more production thereby helping in the growth of the industries manufacturing in India.

Advantages to Consumers

  • Final price of goods is expected to be transparent due to the seamless flow of input tax credit between the manufacturer, retailer and service supplier;
  • Reduction in prices of commodities and goods in the long run due to a reduction in the cascading impact of taxation;
  • A relatively large segment of small retailers will be either exempted from tax or will suffer very low tax rates under a compounding scheme – purchases from such entities will cost less for the consumers;
  • Poverty eradication by generating more employment and more financial resources.

Advantages to States 

  • Expansion of the tax base as they will be able to tax the entire supply chain from manufacturing to retail;
  • Power to tax services, which was hitherto with the Central Government only, will boost revenue and give States access to the fastest-growing sector of the economy;
  • GST being destination based consumption tax will favour consuming States;
  • Improve the overall investment climate in the country which will naturally benefit the development in the States;
  • Largely uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate arbitrage between neighbouring States and that between intra and inter-state sales;
  • Improved Compliance levels of the taxpayers will contribute greatly to improving the revenue collection of the States.

GST COUNCIL 

It is a constitutional body for making recommendations to the Union and State Government on issues related to Goods and Service Tax. The GST Council is chaired by the Union Finance Minister and other members are the Union State Minister of Revenue or Finance and Ministers in-charge of Finance or Taxation of all the States.

Implementation status of GST Council Decisions 

● The Council has met for 35 times and no occasion has arisen so far that required voting to decide any matter.

● Till its 34th meeting, GST Council has taken 1064 decisions which include 219 decisions taken by the GST Implementation Council (GIC).

1. 1006 decisions have been implemented and only a total of 58 decisions (of which 39 were unique issues) were under implementation.

2. In other words, 94.5% of the decisions of the GST Council have already been implemented, which is a significant achievement given the complicated nature and wide area of subjects/issues involved and the fact that all decisions were taken unanimously.