GST Goods and Services Tax in India

The Goods and Service Tax, also known as GST, is being imposed in India. The main objective behind GST is to grow the country’s economy by applying it on all goods and services purchased by consumers, and the revenue hence obtained will be progressed to the government. It has been implied by many countries in the past, at varying rate slabs.

GST was first announced in India by Arun Jaitley, the Union Finance Minister, as The Constitution (122nd Amendment) (GST) Bill, 2014. The GST Regime in India has been proposed to be levied on the manufacturing, sale, and consumption of goods and services throughout the country. It is a comprehensive indirect tax system which will replace the current taxation applied by the State and Central governments. It has been formulated to establish a pan-India taxation system and put an end to the existing segmented & multiple taxes charged by the States and the Centre on goods and services.

What is GST?

In order to understand GST in depth, it is essential to throw some light on the tax system which existed prior to GST. In the current taxation system, consumers are paying several indirect taxes such as VAT, Excise Duty, Service Tax etc. this is because the Central government imposes a tax on the manufacturers, while the State governments impose different tax rates on the sale of good & services in their state. As a result, consumers are overburdened with taxes. As a result, the current taxation system implies a high tax rate, since it includes these indirect taxes along with different tax rates for different states, which hikes the tax levied on goods transported between states. It is heavily burdened with multiple taxes.

Benefits Of GST

The reform brought in with GST will reduce this complexity by establishing a uniform market all over the nation. It will absorb various indirect taxes, comprising of service tax, central excise duty, state-level VAT, surcharges, etc. As a result, it will construct a common market backed by neutral tax rates. Many hidden costs are incurred while doing business; these will be filtered with the introduction of Goods Service Tax. GST will also increase the transparency of the whole taxation system, as it will make all the relevant work available online. Lastly, this reform in taxation and the improvements induced by it, will lead to further developments in trade business.

How GST Works?

The taxes which will be bound together by GST are: Service Tax, Value Added Tax (VAT), Central Excise Duty, Central Sales Tax (CST), Countervailing Duty, Octroi, Special Countervailing Duty, Entertainment Tax, Purchase Tax, Entry Tax, Advertisement taxes, Luxury Tax, and taxes applicable on lotteries. GST will also levy taxes on the inter-state transaction of goods and services. Furthermore, it will collect another 1% tax on goods supplied for trade among different states, this tax will be levied by the Government of India for two years and will then be forwarded to the states from where the supply originated. In this way, it will filter the hidden costs incurred during business.

A dual GST model is being adopted by India, under which taxation will be administered by both State and Union Governments. For the purpose of formulating a flawless and harmonized model, a GST Council has been formed. The GST Council is a joint forum of the centre and state governments with Arun Jaitley in the position of its chairman. They are meeting regularly to improvise and make recommendations to the respective governments regarding the reform.

Goods and Services Tax Act

The Good and service Tax Act is a boon for the country like India. People were always overburdened with tax burdens. Goods Service Tax has given them relief in numerous ways. In order to impose taxes on goods and services at the national level, this act bestows the power of the Parliament and the State legislatures.

Process of GST Bill Approval

On August 3, 2016, Rajya Sabha cleared the Constitution Amendment Bill for Goods and Services Tax (GST).

An amendment bill was passed in order to introduce modifications in the Constitution of India for allowing the Centre and the State both to levy goods and service tax. This constitution amendment bill was firstly introduced in the Lok Sabha in March 2011. Regularly, the reports were submitted there, regarding the amendment of the bill. But unfortunately, the Bill lapsed in 2014 because the term of Lok Sabha ended then. Then on May 6, 2015, the bill was passed again, and reports were again presented and commissioned.

The process doesn’t stop here. After getting the reports presented, clearance of the Bill from Rajya Sabha is also needed. Then Lok Sabha will again authorize the Bill. For proper implementation, confirmation of at least 15 other states is necessary. Once the process got sanctioned, a GST Council will be constituted by the President in which Minister of State in charge of Revenue, Minister in charge of Finance/Taxation, Finance Minister, and other ministers nominated by states. All the recommendations regarding exemptions to GST and their threshold, laws governing the GST levies, taxes to be absorbed and done away with, actual GST rates and discounts, etc. will be done by the council then. After all these recommendations and changes, the final draft is made which is already available in the public domain. This final draft is for public review.

After this whole processing, the President approves the Goods Service, Tax Bill. A legislation will be passed by the Parliament on Central and integrated GST. After that, on the State GST, legislation will be passed by all the states and union territories.

After all the legislation got approval, among all the states & centre, a synchronized implementation of the Acts will be negotiated. Now Goods and Services Tax will be officially active.

Key Points of GST Bill

To end the multiple tax system, the Goods and Services Tax (GST) was being introduced, which is officially known as The Constitution (One Hundred and Twenty Second Amendment) Bill.

  • Throughout a particular country, this indirect & uniform tax is levied on the goods and services. Using single comprehensive tax, several developed countries add a tax on the sale, manufacture, and consumption.
  • In order to introduce goods and service tax (GST), the bill amends the constitution.
  • To make the laws on GST, Parliament and state legislatures have the concurrent powers. On the interstate supply of goods and services, and imports, only the centre have the power to levy integrated GST.
  • Each type of Surcharge on supply of goods, special ad-on duty of customs, cesses, central excise duty and add-on duties of customs and excise would be replaced by Central Taxes GST.
  • State Tax, GST will replace the entry tax, Entertainment tax, purchase tax, central sales tax, VAT, etc.
  • To eliminate the excessive taxation is the primary objectives of GST
  • The 2011 bill provision has been deleted by the 2014 bill, which had imposed certain restrictions on the states. The restrictions were on taxation of the products that are important for interstate exchanges.
  • From the purview of GST, alcohol has been exempted for human consumption. It will be applied to five petroleum products as well, but on a later date.
  • Period of levy of additional tax, rates of tax, the principles of supply, special provisions of certain states etc. will be recommended by GST Council. The Council will consist of the Union Minister of State for Revenue, Union Finance Minister and state Finance Ministers.
  • On the interstate supply of goods for two or more years, the Centre has the power to impose an additional tax up to 1 %. The tax will be accrued to the states from where the supply of goods will be originated.
  • If any state finds any loss of revenue from the introduction of GST, then Parliament may provide the compensation to that states, up to a five year period.

Deep Evalution

GST is a huge reform, and it will affect various aspects of Indian economy and business. It is expected to have certain impacts on every sector, few of which could be temporary and others permanent. Automobiles, Textiles, Hotels, Logistics, FMCG, Pharmaceuticals, Telecom; all are expected to be affected, some positively while some negatively.

Having talked about the features of the GST regime in brief, it is clear that the Goods Service Tax will bring with it a huge transformation which is expected to improve the current taxation by making it more efficient and transparent. However, it is worth noting that every big initiative is accompanied with several disadvantages along with the advantages! As mentioned in the previous paragraph, it will make adverse effects on a few sectors while benefitting the rest! This is due to the ‘minimal exemption’ list that GST is aiming to maintain. Several sectors constitute of products that are currently exempted from taxation, which might not be the case with the introduction of GST. On the other side, it is aiming to imposing lower taxes on more products instead of having high taxes on limited products. Another disadvantage of this regime is stamp duty which will not be a part of GST and will be imposed by states only. In addition to these, its non-applicability on liquor used for human consumption, will not help in lowering the alcohol rates.

Analysis of GST

  • It creates a harmonized system of taxation by taking all the indirect taxes under one tax bracket. It has broadened the tax base and addressed challenges with the current indirect tax regime.
  • The additional tax levied on goods that are transported across inter states i.e. 1%, harms the objective of creating a harmonized national market for goods and services.
  • The whole provisions of this bill do not completely confirm to an ideal GST regime.  Levy of GST on five petroleum products could lead to tax duplication and cascading of taxes.
  • As the Inter-state trade of goods is more expensive than intra-state trade, the burden gets double on the consumers. This will definitely give push to cascading effect of tax and will continue as well.
  • Although, the Bill permits the centre to levy and collect GST of inter-state trade and commerce for the ease of transactions and least burden. Yet, many difficulties may be faced by the consumers.  In place of this, a modified bank model can be adopted for interstate transactions for the ease of tax compliance and administrative burden.

Impact of GST

  • The Goods and Services Tax (GST) is leaving a great impact on the economical condition of India. As, the whole business world is getting affected with it. It has changed the traditional pattern of pricing of the products and services.
  • The GST deeply impacts the tax system of India as well by reducing down the negative effect of the taxes on the price of different goods and services. It impacts the tax computation, credit utilization, and tax structure and tax frequency, and in this way, it is bringing changes to the entire indirect system.
  • The supply chain has been optimized with the help of GST.
  • The introduction of the GST is truly a positive wave initialized by the Government of India. Because of this, a single national market has been created as all the central and state taxes get merged into one single tax. Yes, it’s true that the implementation will take time, but it will result in better India with maximum employment opportunities and economic benefits.

Conclusion

From a broad overview, the GST regime is a huge development in India. It will make life simpler for the indirect taxpayers, and give the revenues an evident boost as the tax credit will motivate suppliers to pay their taxes and the number of tax exempted products will reduce. It will also boost the investments by reducing the cost of capital goods, as it will impose a full input tax credit. Tax will only be paid for the value added, and this will reduce the amalgamation of taxes, making the product costlier for the consumers. It will result in more development for the smaller states, as the taxes collected per state will not be limited to themselves, they will be dispersed, and thus, will create an opportunity for others.

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