GST SIMPLIFIED

INTRODUCTION

GST is the term commonly used for “Goods and Services Tax” and much hype was created when GST Bill, 2014 [The Constitution (122nd Amendment) Bill, 2014] was passed by the Rajya Sabha on 3 August 2016 and thereafter by the Lok Sabha on 8 August 2016. The bill has received assent from President Pranab Mukherjee on 8 September 2016. Thereafter, on 12th September the Union approved setting up of GST Council As per an official release, Finance Minister Arun Jaitley has called the first meeting of the GST Council on September 22 and 23 in New Delhi. The Council will be created as per Article 279A of the amended Constitution, with its office in New Delhi. The Council, headed by Finance Minister Arun Jaitley, will be responsible for taking all key decisions relating to the indirect tax levy, including rates and exemptions as well as the subsequent Centre, state and integrated GST laws.

The Goods and Service Tax is basically one indirect tax that will be levied on both goods and services (except for a list of exempted goods and services), at both the Central and state levels (Central GST and State GST respectively). In other words, the single GST will replace multiple taxes like CENVAT, central sales tax, state sales tax, and octroi tax. More than 150 countries (including all OECD countries except US) around the world follow this taxation structure.

Let’s consider an example:

For sale within a state, currently we pay VAT, Excise Duty and Sales Tax. But under the new system, we will only pay a State GST (SGST) and Central GST (CGST). For sale outside the state, we pay a Central Sales Tax, Excise and a whole host of other local taxes. Under the new GST system of taxation, we will pay a fixed Integrated GST (IGST) which will be collected by the Centre. For example, a phone manufactured in Tamil Nadu and sold in Punjab will cost the same anywhere, as it would – should the phone were to be sold within Tamil Nadu.

Under the current regime, hypothetically speaking, a 100 rupee phone manufactured in Chennai sent in a truck to Chandigarh through six states with each state levying tax plus the central taxes will cost 130 rupees by the time it reaches its destination. But Under GST, assuming the revenue neutral rate to be 18%, a 100 rupee phone manufactured in Chennai sent. in a truck to Chandigarh will cost just 118 rupees by the time it reaches because we will pay one Integrated GST (IGST) to the Central government.

So GST aims to make India one unified market, provided all states implement GST and all states comply with the same rates.

Need of GST Bill

Currently in India, there are parallel systems of indirect taxation at the state and Central levels. There are multiple points of taxation and a cascading of taxes, that is, tax on tax. Interstate commerce has also been hampered due to the dead-weight burden of Central sales tax and entry taxes. By minimising the cascading effect of multiple taxes, not only is GST expected to iron out the wrinkles in the existing tax system, it is hoped that it will spur much needed growth in the Indian economy.

Moving the Constitution (122nd Amendment) Bill, 2014 Finance Minister Arun Jaitley said, the merits of the system are that it will convert India into one economic market and will introduce a uniform tax across the country, check evasion of tax. This would also give a boost as far as growth rate is concerned.

CHARACTERISTICS OF GST BILL

Following are the features of the GST:

• Multiple taxation will be replaced by a single tax. Central taxes such as Central Excise duty, Additional Excise duty, Service tax, Additional Custom duty and Special Additional duty as well as state-level taxes such as VAT or sales tax, Central Sales tax, Entertainment tax, Entry tax, Purchase tax, Luxury tax and Octroi will subsume in GST. Tax structure will be easier to understand for common man.
• The power to make laws in respect of supplies in the course of inter-state trade or commerce will be vested only in the Union Government. States will have the right to levy GST on intra-state transactions, including on services.

Adoption of GST is an iconic example of cooperative federalism. While the states have agreed to give up their right to impose sales tax on goods (VAT), the Centre has given up its right to impose excise and services tax. In exchange, each of them will get a share of the unified GST collected nationally.

• Administration of GST will be the responsibility of the GST Council, which will be the apex policy making body for GST. Members of GST Council comprise Central and State ministers in charge of the finance portfolio.
• There will be a single document for tax purposes, and a single return filed with a central registry, from which the information will be split between the centre and the relevant states.
• Petroleum and petroleum products, i.e., crude, high speed diesel, motor spirit, aviation turbine fuel and natural gas, shall be subject to GST – date to be notified by the GST Council.
• Provision will be made for removing imposition of entry tax /Octroi across India.
• Entertainment tax, imposed by states on movie, theatre, etc., will be subsumed in GST, but taxes on entertainment at panchayat, municipality or district level will continue. GST may be levied on the sale of newspapers and advertisements. This would mean substantial incremental revenues for the Government.

ADVANTAGES

• The introduction of GST is expected to not only make the tax system simpler but also help increase tax compliance, boost tax revenues, reduce the tax outflow in the hands of the consumers and make exports competitive.
• It will convert India into one economic market and will also help to check evasion of tax. This would also give a boost as far as growth rate is concerned.
• Experts opine that the implementation of GST would push up the GDP by 1%-2%.
• It will create a transformational shift from a complex, multi-layered and cascading indirect tax system to a single unified indirect tax system that permits tax set off across the value chain, both for goods and services. Indian goods will become more competitive and in the long run, more profitable, as a result of lower cost of production as compared to imports.

By eliminating barriers such as entry taxes, GST will result in a unified national market for goods and services that will be accessible to the smallest entrepreneur. It could potentially make sourcing, distribution and warehousing of goods easier and faster between the Indian states. Also, as companies will no longer need to pay interstate

• taxes, implementation of GST will free up capital that they can now use in their business.

OPPOSITION FACED BY THE BILL

• Navaneetha Krishnan (AIADMK) opposed the Bill, saying this constitutional amendment Bill is not valid. It violates the states’ fiscal autonomy. It will give permanent revenue loss to Tamil Nadu. He further said, Tamil Nadu is a manufacturing state, the state will lose substantial revenue. As GST method of levying tax is destination-based, not origin-based. So we strongly oppose it.
• Sitaram Yechury of CPI(M) said a high GST tax rate will “economically cripple” the majority of Indians, as well as alter the federal structure of the constitution. He added the Kerala ‘fat tax’ will have to be abolished under the GST regime.
• Speaking on behalf of Congress, former Finance Minister P Chidambaram said his party supports “idea” of GST as well as the bill but the rate of tax must be changed by the approval of Parliament and not by the Executive. “When we say cap the tax rate, we are saying that it cannot be changed by the whims of the Executive. A rate must only be changed by Parliament approval. It cannot and ought not be changed at the whims of the executive. People of India want lower tax rate,” he said.
• Naresh Agrawal of Samajwadi Party said despite not wanting, his party is supporting the Bill because they do not want to be blamed for being an obstruction in the country’s progress. Alleging that the government’s intention is “bad” and to raise taxes, he said, “You are saying that we don’t want inflation in the country. Then why not set a low rate such as 18 per cent now itself?”

CONSEQUENCES

According to Livemint, if we assume the tax rate falls anywhere below the sector’s current 27 per cent, the automobile sector will clearly emerge as a big winner. With the 27 per cent entertainment tax going away, you can probably assume going o the movies will become cheaper. With movement of goods becoming smoother, the tax rate on things like cement is

likely to come down from 25 per cent. GST may bring down transaction cost for retail businesses thus help in reducing prices for consumers.

However, According to Economic Times, the cost of electronics like laptops and mobile phones could go up if you assume the GST rate at 18 per cent, as the duty on these manufactured goods currently stands at about 14 per cent. Aerated beverages and tobacco products could see prices increase by 20 per cent, according to Economic Times. Also, as services tax on flying ranges from six per cent to nine per cent, a higher GST could make flying more expensive.