GST: A Win-Win Situation

Major hurdle for the implementation of the much-awaited Goods and Services Tax (GST) was cleared when the GST Council finalised tax rates for most of the goods and services at its recent meeting. The all-powerful GST Council headed by Finance Minister Arun Jaitley and comprising state finance ministers as members chose the cooler climes of Srinagar for its latest sojourn when rest of the country had been reeling under an unprecedented heat wave.

All goods and services have been put in slabs of 5, 12, 18 and 28 per cent, with the exception of gold and precious metals, which will attract 3 per cent GST, and rough diamond at 0.25 per cent GST. Items like salt, milk, gur, egg, curd, unpacked foodgrain and paneer, fresh vegetables, unbranded atta, maida, besan, honey, besides education and health services, have all been exempted from GST. Tea, sugar, coffee beans, edible oil, packed paneer, milk powder, brooms, domestic LPG and kerosene have been put in the 5 per cent bracket.

According to the fitment of rates in various tax brackets, 81 per cent of the items will fall in/below 18 per cent slab. Only 19 per cent of the goods will attract GST above 18 per cent. Hair oil, soaps, jams, soups, ice cream, capital goods and computers will attract a 18 per cent levy. Those placed in the 28 per cent slab are custard powder, shampoo, perfume, make up items, chewing gum, motorcycle, cement and consumer durables. The single-biggest taxation reform since independence, the Goods and Services Tax (GST) will subsume 16 different taxes, including excise, service tax and VAT, and make India a= single market for seamless movement of goods and services.

After the GST Council finalised the rates Prime Minister Narendra Modi reviewed the preparedness for the new indirect tax regime — GST — which will be rolled out from next month. The meeting was attended by Finance Minister Arun Jaitley, Revenue Secretary Hasmukh Adhia and senior officers from the Central Board of Excise and Customs (CBEC). Modi said the roll-out of the GST regime from July 1 will be “a turning point” in the country’s economy.

Describing it as an “unprecedented” moment in the country’s history, he said the creation of the one-nation, one-market and one-tax system would greatly benefit the common man. He took stock of various elements involved in the roll-out and directed the officials that maximum attention be paid to cyber-security in IT systems linked to the GST. The GST, for whose roll-out a law was enacted last year, will overhaul the indirect tax regime in the country.

GST is estimated to boost GDP by 1-2 per cent and bring down inflation by 2 per cent over the long term. It is being seen as a win-win situation for the entire country as it brings benefits to all the stakeholders of industry, government and the consumer. It will lower the cost of goods and services, give a boost to the economy and make the products and services globally competitive. GST aims at making India a common market with common tax rates and procedures and remove the economic barriers thus paving the way for an integrated economy at the national level.

By subsuming most of the Central and State taxes into a single tax and by allowing a set-off of prior-stage taxes for the transactions across the entire value chain, it would mitigate the ill effects of cascading, improve competitiveness and improve liquidity of the businesses. GST is a destination based tax. It follows a multi-stage collection mechanism. In this, tax is collected at every stage and the credit of tax paid at the previous stage is available as a set off at the next stage of transaction. This shifts the tax incidence near to the consumer and benefits the industry through better cash flows and better working capital management.

Besides, it is largely technology driven and will, as such, reduce the human interface to a great extent and this would lead to speedy decisions. GST will give a major boost to the ‘Make in India’ initiative of the Government of India by making goods and services produced in India competitive in the National as well as International market. Also all imported goods will be charged integrated tax (IGST) which is equivalent to Central GST + State GST.

This will bring equality with taxation on local products. Under the GST regime, exports will be zerorated in entirety unlike the present system where refund of some taxes may not take place due to fragmented nature of indirect taxes between the Centre and the States. This will boost Indian exports in the international market thus improving the balance of payments position.

Exporters with clean track record will be rewarded by getting immediate refund of 90% of their claims arising on account of exports, within seven days. GST is expected to bring buoyancy to the government revenue by widening the tax base and improving the taxpayer compliance. GST is likely improve India’s ranking in the Ease of Doing Business Index and is estimated to increase the GDP growth by 1.5 to 2%. GST will bring more transparency to indirect tax laws.

Since the whole supply chain will be taxed at every stage with credit of taxes paid at the previous stage being available for set off at the next stage of supply, the economics and tax value of supplies will be easily distinguishable. This will help the industry to take credit and the government to verify the correctness of taxes paid and the consumer to know the exact amount of taxes paid.

The taxpayers would not be required to maintain records and show compliance with a myriad of indirect tax laws of the Central Government and the State Governments like Central Excise, Service Tax, VAT, Central Sales Tax, Octroi, Entry Tax, Luxury Tax, Entertainment Tax, etc. They would only need to maintain records and show compliance in respect of Central Goods and Services Tax Act and State (or Union Territory) Goods and Services Tax Act for all intra- State supplies (which are almost identical laws) and with Integrated Goods and Services Tax for all interState supplies (which also has most of its basic features derived from the CGST and the SGST Act).

The GST is said to be India’s biggest tax overhaul since independence in 1947. It will replace a slew of federal and state levies, transforming Asia’s third largest economy into a single market. Its implementation will mark the culmination of the concerted efforts of all stakeholders, including political parties, trade and industry bodies.

 

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