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(GIST OF YOJANA) GST – THE GAME CHANGER - September-2017

GST – THE GAME CHANGER

The genesis of the introduction of Goods and Services tax (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 endeavor for the introduction of the GST in the country whose culmination has been the introduction of the Constitution (l22nd Amendment) Bill in December, 2014. International experience clearly shows that health insurance can only function when the basic health infrastructure is in place and this is a function that the government alone can perform. There is no getting away from the fact that if Health for All is to be a reality, then government must find the necessary funds to enhance expenditure on the health sector while simultaneously reforming the sector to ensure greater efficiency.

Rao (2017) provides an idea of the extent of funding that is required for the purpose. As per her estimates, strengthening the delivery system would require 1 to 1.5 per cent of GDP as capital investment to ensure adequate health infrastructure, with another 1 per cent of GDP being required to provide free universal access to comprehensive primary care, secondary care and a select set of tertiary conditions for 60 per cent of the population. Additionally, atleast 2 per cent of GDP would be required towards capital investment to build required supporting infrastructure related to public sanitation, waste disposal, nutrition and housing.

Why GST?

A common refrain in the popular discussions is what is the need for the introduction of GST? To answer that question, it is important to understand the present indirect tax structure in our country. Presently, the 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) and the State Governments levy tax on retail sales (VAT), 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 setoff 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 number of returns, payments etc.

What is GST?

All the indirect taxes mentioned earlier are proposed to be subsumed in a single tax called the Goods and Services Tax (GST) which will be levied on 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 converged 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 GST) 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 creation of a single national market, common tax base and common tax laws for the Centre and States. GST is an example of how federal system of Government as laid down in our Constitution can actually be implemented in reality on ground in our country.

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.

Advantages of GST:

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 rates and across States;
• 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, refund of taxes, uniform formats of tax return, common tax base, 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 boost to Indian Exports;
• Simplified and automated procedures for various processes such as registration, returns, refunds, tax payments, etc;
• Average tax burden on 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 seamless flow of input tax credit between the manufacturer, retailer and service supplier;
• Reduction in prices of commodities and goods in long run due to reduction in cascading impact of taxation;
• 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;

Now the main thrust would be to create a nation-wide awareness among the stakeholders and public at large to remove their doubts/confusion and misgivings, if any, about the GST and its likely impact on businesses, prices especially of essential commodities and employment opportunities etc. Small businessmen and traders have to be fully briefed about the GST and related Legislations along with the procedure to file their tax returns on line and how to claim input tax credit wherever applicable among other.

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