What is GST and why we should care ?

GST stands for Goods and Services Tax and is proposed to be comprehensive indirect tax on the supply of goods and services, right from the manufacturer to the consumer. The Central taxes like Central Excise duty, Central Sales tax, Custom duties will all be subsumed in GST. The State level taxes like VAT tax, Entertainment tax, taxes on lottery, Betting and Gambling, Entry tax, Luxury tax, taxes on Advertisement and taxes on interstate transformation of goods all will be subsumed with GST. Credits of input-taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will bear only the GST charged by the last dealer in the supply chain, with set off benefits at all the previous stages.

ADMINISTRATION

In keeping with the federal structure of India, GST will be levied concurrently by the Centre(CGST) and the States(SGST). It is expected that the base and other essential design features would be common between CGST and SGST. Both CGST and SGST would be levied on the basis of the destination principle. The exports would be zero rated, and imports would attract tax in the same manner as domestic goods and services. Inter-State supplies within India would attract an integrated GST(aggregate of CGST and SGST of the destination state). In addition to the integrated GST, in respect of supply of goods, an additional tax of up to 1% has been proposed to be assigned to origin states. This tax is proposed to be levied for the first two years or a longer period as recommended by the GST council.

PARLIAMENTARY BRIEF

GST Bill was passed by Lok Sabha on 6 May,2015 and by the Rajya Sabha on 3 August,2016 with amendments. The amended Bill was passed on 8 August,2016. The Bill, after ratification by the States, received assent from President of India on 8 September,2016 and was notified in the Gazette of India on the same date. The Government is expecting to implement GST from 1 July,2017. Recently on 29 March,2017, the Government has passed four supplementary legislations- Central GST Bill 2017, Integrated GST Bill 2017, GST(compensation to states) Bill 2017 and UT GST Bill 2017. A fifth bill will be passed by the State Assemblies for the legislation process to complete the roll out of the GST regime.

ADVANTAGES

Since GST replaces many cascading taxes, the common man may benefit after implementing it. But it all depends upon at what rate the GST is going to be fixed at. Below are the expected Benefits of GST Bill implementation-

• All present indirect taxes will be subsumed in GST and hence compliance costs will fall.
• The entire Indian market will be a unified market which may translate into lower business costs.
• It can bring more transparency and better compliance.
• Number of tax departments will reduce leading to less corruption.
• Tax revenue will increase as more business entities will come under the tax system thus widening the tax base.
• In the long run, the lower tax burden could translate into lower prices of goods for consumers.
• GDP will increase with the elimination of tax cascading.
• State restrictions and levies have complicated E-commerce. Some sellers do not even ship to particular states. All this will end with GST.
• It is good for export oriented businesses because it is not applied for goods/services which are exported out of India.

DISADVANTAGES

Although, GST is being seen as a big move towards reforms of Indian economy, yet there are few aspects which might come as hurdles in its implementation. Where a majority of corporate world  is rejoining, there are few who do not feel  happy a lot as below-

• With GST implementation, the expected growth in Aviation industry will decline and the flying will become expensive.
• GST will make insurance products dearer. Life, health and motor insurances will begin to cost more.
• The GST will lead to increasing cost of operations at most effective delivery centres of  IT companies.
• With the implementation of GST, a moderate increase in the cost of financial services is expected.
• Although, key petroleum products have been kept out of GST, compliance costs are likely to rise because of dual indirect tax mechanism.

CHALLENGES

GST Bill has been passed in both the houses of the parliament, but still some challenges are likely to be there in its implementation-

• A lot of changes has to be made at the administration level and information technology integration.
• Sound IT infrastructure is needed.
• The State Governments have to be compensated for the loss of revenue.
• GST, being a consumption-based tax, States with higher consumption of goods and services will have better revenues. So the cooperation from State Governments would be one of the key factors for the successful implementation of GST.

France was the first country to introduce this system in 1954. Nearly 140 countries are following this tax system. The Government of India is expecting to implement it from 1 July,2017. The new GST in India will be the biggest tax reform in India after Independence.