Goodsand Service Tax (GST)GST Stands for Goods andServices Tax (GST).
The Act was passed in the Lok Sabha on 29th March,2017 and it came into effect from 1st July, 2017. It was termed as “One NationOne Tax”. GST was introduced as The Constitution (101st Amendment)Act 2017 following the passage of Constitution 122nd Amendment Bill.It is an Indirect Tax applicable throughout India which replaced multiple taxeslike Service Tax, Vat Tax etc levied by Central & State Governments ofIndia. In place of VAT, Service Tax etc the Government has come up with CentralGST & State GST.
India has chosen the Canadian model ofdual GST. The first country to implement GST was France in 1954. How does GST work?Before GST:Let’stake an example, suppose a manufacturer buys raw material from a vendor. Heneeds to pay a VAT (Value Added Tax-12.5%) along with the cost of the product.The manufacturer incurs some cost to produce the product. He then adds someprofit to it and sells it to wholesaler. The wholesaler again needs to pay tax(VAT+Excise Duty=12.
5%+12.5%=25%) on the product. The wholesaler again addssome profit on the product before selling the product to the retailer. The retaileragain needs to pay VAT (12.
5%) for this product. Then he adds some profitmargin and again sells it to customers. For the same product before reachingcustomers hands multiple taxes are levied and the cost of the product increasessignificantly.After GST:Supposesay the manufacturer after adding his profit sells the product to the wholesalerat Rs.150. The wholesaler then sells the product to the retailer at Rs.
165 afteradding a profit margin of 10%. The retailer again adds 10% as profit whichmakes the cost of the product Rs.181.5 and a 12% CGST + 12% SGST is added tothis product which makes the cost of the product stand at Rs.
227.67. So, by theimplementation of GST the cost of the product can be reduced. Before GST, taxon tax was calculated and tax was paid by all the purchasers including thefinal consumer.
But GST is payable at the final point of consumption. Thetaxation on tax is called the Cascading Effect of Taxes. History of GST in IndiaGoodsand Services Tax (GST) was first proposed in 1999 during a meeting between the thenPrime Minister of India Shri Atal Bihari Vajpayee along with his economicadvisory panel, which had included 3 former RBI governors, Shri IG Patel, ShriBimal Jalan and Shri C Rangarajan. Vajpayee set up a committee headed by thethen Finance Minister of West Bengal, Shri Asim Dasgupta in order to design aGST model. After the 2004 general elections, during the Congress-led UPAgovernment, the then Finance Minister Shri P Chidambaram in February 2006continued to work on the same project and proposed a GST rollout by the 1stApril 2010. Then, in 2014, when the NDA government was re-elected into power atthe centre, the GST Act was passed in the Lok Sabha on the 29th March,2017 and finally it came into effect from 1st July, 2017.Comparison of GST in other countrieswith IndiaThe Indian GST case is madefor tax collection, reduced corruption, easier inter-state movement of goodsetc. France was the first country to implement GST for reducing tax evasion.
Since then, about 160 countries have implemented GST with some countries settinga dual-GST model. India has chosen the Canadian model of dual GST. However, the one bigdifference between the Indian model of GST and in other countries is the dualGST model. Many countries in the world have a single unified GST system. Countrieslike Brazil and Canada have a dual GST system wherein GST is levied by both thecentral and state governments.
In India, a dual GST is proposed whereby aCentral Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST)will be levied on the taxable value of each and every transaction of supply ofgoods and services.GST – IT enabledFor the implementation ofGST in the country, the Central and State Governments have jointly registeredGoods and Services Tax Network (GSTN) as a not-for-profit, non-GovernmentCompany established to provide IT infrastructure and services to Central andState Governments, tax payers and for other stakeholders. The key objectives ofGSTN are to provide a standard and uniform interface to the taxpayers, andshared infrastructure and services to Central and State/UT governments.
Advantages1. Life gets simpler as GST will replace 17 indirect taxlevies and compliance costs shall also fall.2. Revenue will get a boost as input tax credit willencourage suppliers to pay taxes. 3.
A common market.4. Increased efficiency in Logistics.
5. Investment boost in the case of capital goods as inputtax credit is not available.6. Boost for E-Commerce sector, freeing up online staterestrictions.7. Make in India will get a boost since manufacturing shallbe more competitive with GST addressing cascading of tax, inter-state tax, highlogistics costs and fragmented market.8.
Also, imports would get more protection as GSTprovides for appropriate countervailing duty.9. Less developed states will get a lift- The current 2%inter-state levy means that production is kept within a state. Under the GSTnational market, this can be dispersed, creating opportunities for othersstates as well.
Disadvantages1. Increased costs due to software purchase.2. Being GST-compliant has some costs attached to it.3.
GST will mean an increase in operational costs for thebusiness.4. GST came into effect in the middle of the financialyear and so it will lead to disruption in the accounting procedures.5. GST is an online taxation system and so all the risksassociated with the online arena come into play.6. Micro Small and Medium Enterprises will have to face ahigher tax burden.
GST Tax Slabs Impact of GST on the price of goods Cheaper Goods Dearer Goods FMCG products like Bathing & Washing soaps, Hair oil, Detergent powder, Tissue papers, Napkins, Matchsticks, Kerosene, LPG, Agarbatti, Toothpaste etc. Stationery items like Pens, Books, Pencils School Bags, Printer, Papers etc. Healthcare items like Insulin, X-ray films for medical use, Diagnostic kits Glasses for corrective spectacles, Medicines for diabetes, cancer etc. Apparels like Silk, Woollen fabrics, Khadi yarn, Gandhi caps, Footwears below Rs 500, Apparels up to Rs 1,000 etc. Ghee, Cold drinks, Chocolate, Packaged chicken, Ice cream, Ayurvedic medicines, Movie tickets greater than Rs 100, AC restaurants, Electronic Home Appliances, Furniture, Cell phone bill, Insurance premiums, Bank services, credit card services, IPL tickets, AC train tickets, Business class air travels, Advertising services, Motorbikes with more than 350 cc engine, Telecom, Hotel room more than Rs 5,000, five-star hotel restaurants etc. How GST will impact the Indian Economy1.
Network of branches to be registeredseparatelyBefore the implementation ofGST, a bank or NBFC with its branches spread across India could delegate itscompliance on service tax through one a centralised registration. After GSTregulation, these institutions would be required to get a separate taxregistration for each of the states that they operate.As a destination-based tax, GSThas a multiple stage collection system. As such, the tax is collected at eachstage and the credit of the tax that was paid at the last stage is available asa set off at the later stage of the transaction. This transfers the taxincidence to different entities evenly, and helps the industry through betterand improved cash flows with better working capital management.
2. Leveraged andde-leveraged Input Tax Credit Earlier, banks and NBFCs had optedfor the reversal of the 50% of the Central Value Added Tax (CENVAT) credit thatthey availed against the inputs and input services. Under GST, the 50% of theCENVAT credit that was availed for inputs, input services and capital goods hadbeen reversed. This leaves banks and NBFCs with a decreased credit of up to 50%on capital goods, and in turn raises the cost of capital.3. Evaluation and adjudication The impact of GST on bankingservices and NBFCs will also be felt in terms of evaluation procedures. Servicetax was assessed by the particular regulators in the state where a branch isregistered. In addition, every branch of the concerned bank or NBFC had tovalidate its position for the chargeability in their respective state orprovince and provide a reason for utilising the input tax credit in thoseplaces.
The GST assessment will involvemore than one assessing authority, and each of them may have a differentjudgement for the same underlying issue. Although such contradictions canprolong the decision-making process for the financial institutions, the adverseeffects of evaluation by one authority can be offset through decisions made byanother assessor.4.
Generalservices Banks in India have been levyingservice tax on most transactions enabled by their systems. These include digitalfund transfers, issuance of ATM cards and chequebooks, and ATM withdrawalsbeyond a specific limit. With GST on financial services, these services will betaxed at the rate of 18% instead of the 15% service tax rate that was beingcharged earlier. Suppose you withdraw money from an ATM other than your bank’sATM after exceeding the free transaction limit. Then you are typically chargedRs 20 plus a service tax, which then comes to around Rs 23. With the impositionof GST, this amount shall go up to Rs 23.
60.However, deeper analysis revealsthat such an increase in cost should not be considered a negative GST impact onfinancial services sector. In the long run, banks will be able to transfer theadvantage of input tax credit to the customers. Furthermore, services likefixed deposits and other bank account deposits that were outside the circle ofservice tax will continue to remain outside the GST ambit.A major advantage of GST onfinancial services and other sectors is that it is a transparent tax and this hasreduced the number of indirect taxes. It integrates different taxes and ensuresthat the tax burden is fairly divided between different entities involved inthe system. Since GST is technology based, the advanced software systems usedin its calculation and filing works will reduce the chances of manual errorsand will lead to better decision making.Penalty shall be imposed foravoidance of GST on account of:1.
Any deficiency on the net tax payable.2. No GST return is made.3. A GST return is submitted without payment or a lesserpayment.4. Any refund paid to which there is no properentitlement.
5. Failure to register. ConclusionThe introduction of the Goods and Services Tax will be a revolutionarystep in the field of indirect tax reforms in India.
By integrating a largenumber of Central and State taxes into one single tax, GST is expected tosignificantly remove double taxation and make it overall easier for theindustries. For the end customer, the biggest benefit will be in terms ofreduction in the overall tax they have to pay on goods and services.Introduction of GST will also make Indian products competitive in the domestic aswell as international markets.
Lastly because of its transparent character, GSTshall be easier to administer. Once implemented, the proposed taxation system wouldhold great promises in terms of sustaining growth for the Indian economy infuture.