03/01/2021 Goods and Services Tax (GST)
Goods and Services Tax (GST)
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Introduction
The Goods and Services Tax (GST) is a value-added tax levied on most goods and
services sold for domestic consumption. The GST is paid by consumers, but it is remitted
to the government by the businesses selling the goods and services.
Main Features of GST
Applicable On supply side: GST is applicable on ‘supply’ of goods or services as
against the old concept on the manufacture of goods or on sale of goods or on
provision of services.
Destination based Taxation: GST is based on the principle of destination-based
consumption taxation as against the present principle of origin-based taxation.
Dual GST: It is a dual GST with the Centre and the States simultaneously levying
tax on a common base. GST to be levied by the Centre is called Central GST (CGST)
and that to be levied by the States is called State GST (SGST).
Import of goods or services would be treated as inter-state supplies and would
be subject to Integrated Goods & Services Tax (IGST) in addition to the
applicable customs duties.
GST rates to be mutually decided: CGST, SGST & IGST are levied at rates to be
mutually agreed upon by the Centre and the States. The rates are notified on the
recommendation of the GST Council.
Multiple Rates: Initially GST was levied at four rates viz. 5%, 12%, 16% and 28%.
The schedule or list of items that would fall under these multiple slabs are worked
out by the GST council.
Legislative Basis Of GST
In India, GST Bill was first introduced in 2014 as The Constitution (122nd
Amendment) Bill.
This got an approval in 2016 and was renumbered in the statute by Rajya Sabha as
The Constitution (101st Amendment) Act, 2016. Its provisions:
Central GST to cover Excise duty, Service tax etc, State GST to cover VAT,
luxury tax etc.
Integrated GST to cover inter-state trade. IGST per se is not a tax but a system
to coordinate state and union taxes.
Article 246A – States have power to tax goods and services.
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03/01/2021 Goods and Services Tax (GST)
GST Council
Article 279A - GST Council to be formed by the President to administer &
govern GST. It's Chairman is Union Finance Minister of India with ministers
nominated by the state governments as its members.
The council is devised in such a way that the centre will have 1/3rd voting
power and the states have 2/3rd.
The decisions are taken by 3/4th majority.
Reforms Brought About by GST
Creation of common national market: By amalgamating a large number
of Central and State taxes into a single tax.
Mitigation of cascading effect: GST mitigated ill effects of cascading or
double taxation in a major way and paved the way for a common national
market.
Reduction in Tax burden: From the consumers’ point of view, the biggest
advantage would be in terms of reduction in the overall tax burden on goods.
Making Indian products more competitive: Introduction of GST is
making Indian products more competitive in the domestic and international
markets owing to the full neutralization of input taxes across the value chain
of production.
Easier to administer: Because of the transparent and self-policing
character of GST, it would be easier to administer.
Advantages of GST
For the Government
Create a unified common market: Will help to create a unified common
national market for India. It will also give a boost to foreign investment and “Make
in India” campaign.
Streamline Taxation: Through harmonization of laws, procedures and rates of
tax between Centre and States and across States.
Increase tax Compliance: Improved environment for compliance as all returns
are to be filed online, input credits to be verified online, encouraging more paper
trail of transactions at each level of supply chain;
Discourage Tax evasion: 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.
For Overall Economy
Bring about certainty: 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 taxation system;
Reduce corruption: Greater use of IT will reduce human interface between the
taxpayer and the tax administration, which will go a long way in reducing
corruption;
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03/01/2021 Goods and Services Tax (GST)
Boost secondary sector: 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.
For the Trade and Industry
Simpler tax regime with fewer exemptions.
Increased ease of doing business.
Reduction in multiplicity of taxes.
Elimination of double taxation on certain sectors.
More efficient neutralization of taxes especially for exports
Making our products more competitive in the international market.
Simplified and automated procedures for registration, returns, refunds and tax
payments.
Decrease in average tax burden on supply of goods or services.
For Consumers
Transparent prices: Final price of goods is expected to be transparent due to
seamless flow of input tax credit between the manufacturer, retailer and service
supplier.
Price reduction: Reduction in prices of commodities and goods in long run due to
reduction in cascading impact of taxation;
Poverty eradication: By generating more employment and more financial
resources.
For the States
Expansion of the tax base: As states will be able to tax the entire supply chain
from manufacturing to retail.
More economical empowerment: 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.
Enhancing Investments: GST being destination based consumption tax will
favour consuming States. Improve the overall investment climate in the country
which will naturally benefit the development in the States.
Increase Compliance: Largely 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
Exemptions under GST
Custom duty will be still collected along with the levy of IGST on imported goods.
Petroleum and tobacco products are currently exempted.
Excise duty on liquor, stamp duty and electricity taxes are also exempted.
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03/01/2021 Goods and Services Tax (GST)
Challenges Of GST
SCGT and CGST input credit cannot be cross utilized.
Manufacturing states lose revenue on a bigger scale.
High rate to tax to compensate the revenue collected now from multiple taxes i.e
High Revenue Neutral Rate.
The reduction in the fiscal autonomy of the States.
Concerns raised by banks and insurance companies over the need for multiple
registrations under GST.
The levy of additional cess.
The capacity of State tax authorities, so far used to taxing goods and not services, to
deal with the latter is an unknown quantity.
The success of GST depends on political consensus, technology and the capacity of
tax officials to adapt to the new requirements.
Conclusion
Thus GST is a positive step towards shifting Indian economy from the informal to formal
economy. It is important to utilise experiences from global economies that have
implemented GST before us,to overcome the impending challenges.
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