GST: One Nation, One Tax
Sunday, April 30, 2017
When parliament of India passed constitutional amendment bill in 2016, it paved the way for GST. And after passing various GST bills in March -17, it cleared the way for implementation of the biggest tax reform in India post-independence. This long awaited tax reform, considered as core economic reform, creating one nation one tax regime and uniform market across the nation.
What is GST?
GST is goods and services tax. It is an indirect tax on manufacturing, services and consumption replacing all other indirect taxes.
Why GST is so important?
Current indirect tax structure of India had become so complex and cumbersome, the honest and transparent compliance is always challenging.
•There are various administrative issues like to file number of forms and returns which are lengthy and time consuming.
•Various state governments charge octroi and entry tax, which again are time consuming and wasting resources.
•There are cascading effects of taxation system i.e. tax on tax, whereby increasing the cost of production and making goods expensive.
•Half of the GDP is from service sector, the taxation of which is always matter of dispute between central and state governments.
So due to above various issues, there was requirement of new tax regime which would be simplify the process leading to greater tax compliance.
GST was first recommended by Kelkar committee in 2004 which was appointed to study tax reforms. Then government accepted the report and planned to start GST with target date of April 2010. Since it required constitutional amendment, it couldn’t be done due to lack of majority, consensus and political reasons.
Modi Govt. with its majority, statesmanship and long deliberations could succeed to bring all stakeholders on mutual agreement for necessary constitutional amendments which reaffirm the faith in the federal structure of India
What are the benefits of GST
GST will be single tax on supply of goods and services right from the manufacturer to consumer and credit for input taxes will make GST essentially tax only on value addition on each stage.
Following central and state taxes will be subsumed:
Central Taxes:
•Central Excise Duty
•Duties of Excise (Medicinal and Toilet Preparations)
•Additional Duties of Excise (Goods of Special Importance)
•Additional Duties of Excise (Textiles and Textile Products)
•Additional Duties of Customs (commonly known as CVD)
•Special Additional Duty of Customs (SAD)
•Service Tax
State Taxes:
•State VAT
•Central Sales Tax
•Purchase Tax
•Luxury Tax
•Entry Tax (All forms)
•Entertainment Tax (except those levied by the local bodies)
•Taxes on advertisements
•Taxes on lotteries, betting and gambling
GST is expected to give big push to make in India Program as:
•It will help to create a unified common national market for India, giving a boost to foreign investment and “Make in India” campaign;
•It Improves the overall investment climate in the country which will naturally benefit the development in the states;
•It will prevent 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;
•Average tax burden on companies is likely to come down which is expected to reduce prices and lower prices mean more consumption, which in turn means more production thereby helping in the growth of the industries . This will create India as a” Manufacturing hub”.
GST is expected to bring ease of Doing Business
•Simpler tax regime with fewer exemptions; reductions in the multiplicity of taxes that are at present governing our indirect tax system leading to simplification and uniformity;
•Reduction in compliance costs - No multiple record keeping for a variety of taxes - so lesser investment of resources and manpower in maintaining records;
•Simplified and automated procedures for various processes such as registration, returns, refunds, tax payments, etc.;
•All interaction to be through the common GSTN portal- so less public interface between the taxpayer and the tax administration;
•It will improve environment of compliance as all returns to be filed online, input credits to be verified online.
Ultimately it will benefit to Consumers as final price of goods is expected to be lower due to seamless flow of input tax credit between the manufacturer, retailer and service supplier.
As Indian economy is one of the largest in the world, billions of transactions are generated in a month. To control and administer such voluminous transactions won’t be possible without state of art IT system and best among peer. Govt. has established GST Network Company, with private/public partnership to get efficiency of private sector and control through govt. participation.
For administering the whole tax system, govt. has formed GST Council having state govt. and central govt. representatives headed by union finance minister. Currently, apart from exempted items, GST is fixed at 5%, 12%, 18% and 28% according to various categories of the goods and services. Also threshold of Rs20 lacs has been fixed for traders and providers for complying GST (subject to change and different conditions apply for different categories)
India is gearing for its biggest challenging tax reform to be implemented from July 1, 2017, I wish best luck for these great efforts and hope to see paradigm shift in tax culture and compliance for better India.
* This article is a compilation of information from various sources and major part is from www.cbec.in
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Salim Desai is Chief Financial Officer (CFO) with Al Razzi Holding Co KSC. He holds MBA, CMA, CIPA and also passed CPA. He is an expertise in Finance analysis and Investments and passionate educationist.
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