GST will have a boosting impact on economic growth

Introduction of Goods and Services Tax (GST) is the most important reform of indirect tax system in the country, made possible by Constitution (One Hundred and First Amendment) Act, 2016.

GST (“Goods and Service Tax) is a comprehensive tax levy on manufacture, sale and consumption of goods and service at a national level. Under the GST structure tax essentially ‘sticks’ on final consumption within the taxing jurisdiction.

Why GST
The taxation of goods and services in India has been characterized as a cascading and distortionary tax on production resulting in mis-allocation of resources and lower productivity and economic growth.

It also inhibits voluntary compliance. It is well recognized that this problem can be effectively addressed by shifting the tax burden from production and trade to final consumption.

A well designed destination-based value added tax on all goods and services is the most elegant method of eliminating distortions and taxing consumption.

The introduction of Goods and Services Tax (GST) would be a very significant step in the field of indirect tax reforms in India.

By amalgamating a large number ofCentral and State taxes into a single tax, it would mitigate cascading or double taxation in a major way and pave the way for a common national market.

From theconsumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated to be around 25%-30%.

No doubt that the Introduction of GST would also make Indian products competitive in the domestic and international markets.

GST is a tax on goods and services with value addition at each stage having comprehensive and continuous chain of set-of benefits from the producer’s/ service provider’s point up to the retailer’s level where only the final consumer should bear the tax.”

GST in the context of the federal structure which would optimize efficiency, equity and effectiveness. It is designed as a consumption type destination VAT based on invoice-credit method.

Need for GST
Indirect tax structure in India is highly complex with hidden costs for trade and industry. Non uniformity across the States, cascading of taxes due to ‘tax on tax’ and multiplicity of taxes in the current tax laws are huge deterrents for the businesses.

Introduction of a GST to replace the existing multiple tax structures of Centre and State taxes is not only desirable but imperative in the emerging economic environment.

Increasingly, services are used or consumed in production and distribution of goods and vice versa. Separate taxation of goods and services often requires splitting of transaction values into value of goods and services for taxation, which leads to greater complexities, administration and compliances costs.

Integration of various taxes into a GST system would make it possible to give full credit for inputs taxes collected. GST, being a destination-based consumption tax based on VAT principle, would also greatly help in removing economic distortions and will help in development of a common national market.

GST - Salient Features
It would be applicable to all transactions of goods and service.

It to be paid to the accounts of the Centre and the States separately.

The rules for taking and utilization of credit for the Central GST and the State GST would be aligned.

GST and the State GST would not be allowed except in the case of inter-State supply of goods.

The Centre and the States would have concurrent jurisdiction for the entire value chain and for all taxpayers on the basis of thresholds for goods and services prescribed for the States and the Centre.

The taxpayer would need to submit common format for periodical returns, to both the Central and to the concerned State GST authorities.

Central & State Taxes to be subsumed in GST
Each taxpayer would be allotted a PAN-linked taxpayer identification number with a total of 13/15 digits.

What will be out of GST?
Levies on petroleum products
Levies on alcoholic products
Taxes on lottery and betting
Basic customs duty and safeguard duties on import of goods into India
Entry taxes levied by municipalities or panchayats
Entertainment and Luxury taxes
Electricity duties/ taxes
Stamp duties on immovable properties
Taxes on vehicles

Issues
What preparations are required at the level of CG and SG for implementing GST?
Whether the Government machinery is in place for such a huge change?
Whether the tax-payers are ready for such a change?
What impact it can have on the revenue of the government?
How can the burden of tax, in general, fall under the GST?
In what respect, it will affect the manufacturers, traders and ultimate consumers?
How will GST benefit the small entrepreneurs and small traders?
Which type of administrative work will be involved in complying with the GST requirements?

GST BENEFITS

To Trade
Reduction in multiplicity of taxes
Mitigation of cascading/ double taxation
More efficient neutralization of taxes especially for exports
Development of common national market
Simpler tax regime

To Consumers
Simpler Tax system
Reduction in prices of goods & services due to elimination of cascading
Uniform prices throughout the country
Transparency in taxation system
Increase in employment opportunities
Key features of constitution (101st amendment) act, 2016
Concurrent jurisdiction for levy & collection of GST by the Centre & the States – Article 246A

Centre to levy & collect IGST on supplies in the course of inter-State trade or commerce including imports – Article 269A

To be apportioned between Union & States on recommendations of the GST Council (GSTC)
Parliament to have powers to formulate principles for determining when a supply takes place in course of inter-State trade or commerce

Compensation for loss of revenue to States for five years on recommendation of GSTC – Clause 19
GST defined as any tax on supply of goods or services or both other than on alcohol for human consumption – Article 366 (12A)

Goods includes all materials, commodities & articles – Article 366 (12)

Services means anything other than goods – Article 366 (26A)

GST on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas & aviation turbine fuel to be levied from a later date on recommendations of GSTC

GSTC - Article 279A
To be constituted by the President within 60 days from the coming into force of the Constitution Amendment

Consists of Union FM & Union MOS (Rev)
Consists of Ministers in charge of Finance / Taxation of each State
Chairperson – Union FM
Vice Chairperson - to be chosen amongst the Ministers of State Government
Quorum is 50% of total members
Decisions by majority of 75% of weighted votes of members present & voting
GSTC - proposed Article 279A
Weightage of votes:
Centre – 1/3rd of total votes cast
States (all taken together) – 2/3rd of total votes cast
Council to be guided by need for
A harmonized structure of GST; and
A harmonized national market for goods & services
Council to make recommendations on
Taxes, etc. to be subsumed in GST
Exemptions & thresholds

GST rates
Band of GST rates
Model GST Law & procedures

GST COUNCIL
GST Council constituted w.e.f. 12.09.2016
Four Meetings held so far: Decisions
Threshold limit for exemption to be Rs. 20 Lakhs (Rs. 10 lakhs for special category States)
Compounding threshold limit to be Rs. 50 Lakhs – not available to manufacturers and service providers
Government may convert existing Area based exemption schemes into refund based scheme
Formula for calculating compensation finalized

Tax rates
Four tax rates namely 5%, 12%, 18% and 28%
Some goods and services would be exempt
Separate tax rate for precious metals
Cess over the peak rate of 28% on specified luxury and sin goods
FEATURES OF PROPOSED GST MODEL
Destination-based Consumption Taxation
Applies to all supplies of goods / services (as against manufacture, sale or provision of service) made for a consideration except –
Exempted goods / services – common list for CGST & SGST
Goods / services outside the purview of GST
Transactions below threshold limits
Dual GST having two concurrent components
Central GST (CGST) levied & collected by Centre
State GST (SGST) levied & collected by States
CGST & SGST on intra-State supplies of goods / services in India
IGST levied & collected by the Centre applicable to
Inter-State supplies of goods / services in India
Inter-State stock transfers of goods
Import of goods / services
Export of goods / services (if made on payment of GST under claim of rebate)
Export of goods / services – Zero rated
All goods or services likely to be covered under GST except:
Alcohol for human consumption - State Excise + VAT
Electricity - Electricity Duty
Sale / purchase of Real Estate - Stamp Duty + Property Taxes
Five specified petroleum Products – to be brought under GST from a later date on recommendation of GSTC
Tobacco Products – under GST + Central Excise
It is right phase for time bound and targeted GST reform will boost India’s growth and development.It make certainly a bright spot to India`s Economy growth in all areas. As we know that the Industrial sector plays an important role in realizing higher economic growth social harmony in the country. The landmark initiatives like Make in India, Digital India, Skill India, Smart India/Smart city mission, Start-up India, stand-up India, Ease of Doing Business initiatives, Agricultural reforms and Banking reforms are going to be the big boost to India`s economic growth.

By: T Anand
The writer is Director Sadhguru IAS Academy