GST–One Nation One Tax, One Nation One Market, Rescripting a Narrative of India’s Historical Financial Reform
A much debated and much awaited Historical Indirect Tax reform for many years. As I pen down my thoughts on GST, I will take through my journey of compiling my viewpoints on GST, Give you all an In-depth Analysis. Before Plunging into the details, let me give you the meaning of GST—
GST—This is a value added tax (VAT) proposed to be a comprehensive Indirect Tax levy on Manufacture, sale and consumption of Goods and services at the national level. It will replace all Indirect Taxes levied on Indian Goods and Services by the Indian Central and State Governments. It is aimed at being comprehensive for most goods and services.
Let me give you all a brief description on Background—
Historical background of GST-France is the first country in the world, which has implemented GST in 1954. In India Finance Ministry has placed 122nd Constitution Amendment Bill in Lok Sabha in 19thDecember 2014. The Government of India has appointed various committees, task force to give their views to introduce a vibrant and modern Indirect Tax structure in India, let me give you a brief view on Various committees—Amaresh Baghchi Report, 1994 suggests that the introduction of “Value Added Tax (VAT)’, will act as soon as root for implementation of goods and services Tax in India. Ashim Dasgupta, 2000 empowered committee, w2hich introduced VAT, system in 2005, had replaced old age Taxation system in India. Another one in 2004, Vijay Kelkar Tax Force which was strongly recommended that the integration of indirect Taxes into the form of GST in India. There was an announcement of GST which was to be implemented by 1st April 2010, after successful implementation of VAT system in India and suggestion of various committees, and task forces on GST, the Union Government for the first time in Union- Budget2006-07, announced that the GST would be applicable from 1st April 2010.
The Government also formed various Joint Working Groups of State Finance Ministers to study the impact of GST on the revenue of various States. Various meetings reached on amicable formula for implementation of GST in India. Finance Ministers Task Force had submitted a report in December2009. In the same year Government, also had issued discussion Paper in November 2009. Constitution (115thAmendment) Bill introduced on 22ndMarch 2011 and the same was referred to Parliamentary Standing Committee on Finance for Discussion. Finance Minister in his speech announced that the GST will be rolled out by 2011.
The right time came—Constitution (122nd Amendment) Bill was introduced in the Parliament in December 2014. Some of the Relevant extract of speech of Honourable Finance Minister Shri Arun Jaitley while presenting the 122nd Constitutional Amendment Bill in Lok Sabha Highlighting the features of GST is as follows—
“The object behind the GST is to have a seamless transfer of Goods and services across the country. Let there be no Tax on Tax. On the destination Principle, the Tax is at the last stage. “
The Government of India has introduced Constitution (122nd Amendment Bill) on 19th December 2014, the Lok Sabha has passed the bill on the 6th May, 2015, but bill is pending in Rajya Sabha, but the Congress Party staged a walkout in Protest. The Bill was then sent to a Parliamentary committee for Review by the Rajya Sabha. The Congress has said that it favours the GST Bill, but wants the amendments made to it by the BJP Government to be vetted by a select Committee, where it has a majority. In the Lok Sabha, the Main Opposition Party walked out as the Bill was voted on clause by clause, objecting that the changes made by BJP have not been referred to a standing committee before being brought to the house. The bill which was conceived 12years ago, being a constitutional Amendment, must be passed by both the houses of Parliament by a Two-third Majority, and once passed, it needs ratification of more than half of the 29 States before its Scheduled rollouts in April 2016. It has been kept pending because there were some changes required in the basic bill and all the States were not in favour of Provisions of the Bill, particularly in sharing of the revenue collected through GST.
Mr. Arun Jaitley Union Finance Minister, vowed to compensate States for any revenue loss and assured that the new uniform Indirect Tax rate will be much less than 27%, recommended by an expert panel. He further added GST, which is proposed to be implemented by 1st April 2016, will subsume all Excise, Service Tax, State VAT, Entry Tax, Octroi, and other State levies. It would provide great relief to the already tired Taxpayers.
Reactions from the Industry welcomed the passage of the bill and sounded confident that the deadline of 1st April 2016, will be met. GST is a comprehensive Indirect Tax levy on Manufacture, sale, and consumption of Goods as well as services at the National level. It will replace all Indirect Taxes levied on Goods and Services by the Indian Central and State Governments. It is aimed at being comprehensive for Goods and Services.
History of GST—A Brief overview—
As we all know in 2000, the Vajpayee Government started discussion on GST by setting up an empowered by Committee, headed by Asim Dasgupta, (Finance Minister of West Bengal). The Committee was given the Tax of designing the GST model and overseeing the IT back-end preparedness for its rollout. Later in 2006, Union Finance Minister Mr. P. Chidambaram, moved towards GST in his Budget, and proposed to introduce it by b1st April 2010. But in 2009, the empowered committee introduced the discussion paper. On the GST in November 2009. This shows the features of the proposed GST and has formed the basis for discussion between the Centre and the States so far.
How GST will affect Everyone in the Economy—
The Rajya Sabha has cleared a Constitutional Amendment to bring about a system of Goods and services Tax (GST) in India. It is perhaps the most important Economic reform, on the Narendra Modi’s Government’s agenda.This is one reform which will affect every one of us.
How is the India’s Tax system structured at Present?
As we all know Constitution divides taxation powers between centre and states. Both levels of Government have some exclusive areas where they can levy tax. Income Tax, which includes tax on company Profits.is the exclusive of the domain of the Central Government. These Taxes are referred to as direct taxes. Indirect Taxes are Taxes levied on Manufacture of Goods, Provision of Services, and consumption. In India, generally speaking, Indirect Taxes levied on Manufacture of goods and services, are exclusive domain of the Central Government.
What the Issues/Problems faced in the Current taxation structure?
The Cental Government, therefore levies its indirect tax called central excise at the factory Gate. If there is a shirt Manufacturer what we find is that before it reaches the outlet, and is bought by a consumer. The State Government, at this stage, levies a Tax on consumption dubbed VAT. So, we have a tax at the factory gate which adds to the cost of the shirt and another tax on the final price. Since States have their exclusive domain on consumption Tax within their borders, they treat goods coming from other states as ‘imports’. For Example, if a shirt maker in Madhya Pradesh buys a dye in UP State, he will end up paying a central excise in UP state on that Product. On this cost Madhya Pradesh Government would levy its Tax if the shirt is sold in the State. If the Shirt is sent across Madhya Pradesh’s border, and sold in Delhi, an “Export Tax”, called central sales Tax is collected by Madhya Pradesh. As we see in the above explanation, it looks very complicated, though India is Politically one country, but Economically it is fragmented.There are Multiple taxes, when there is commerce across state Borders. Consequently, we find that it increases costs, for everyone and makes economic activity within India for Indians complicated.
How will GST Benefit Consumers?
Asconsumers, I don’t have any idea about the extent of Taxes we pay on Goods. If we get a bill, after buying merchandise which gives the extent of VAT we have paid, it is an understatement of the actual Tax we have paid. Remember, well before Merchandise reached the retail outlet, the Central Government has collected excise duty. The extent of excise duty is not mentioned in the bill. So, it is assumed we all pay over 20% tax for most merchandise we buy.
Firstly, all Taxes will be collected at the point of Consumption. It means that if a product is taxed at 18%, it will include both central Governments taxes and state Governments taxes. Transparency and Accountability in taxation should deter Governments indiscriminately increasing taxes as there is bound to be public backlash. Secondly, once barriers between states are removed, we as consumers will not end up paying “Tax on Tax”, which is what happens when goods move across State borders.
Unlocking GST—Proposed GST Regime—
- GST will vary from 5% to 28%
- Small entrepreneurs with Turnover less than 20 Lac are exempted from GST
- The Losses of States due to GST will be compensated by Centre.
- Fresh Milk, Fruits, and Vegetables have been exempted from GST.
- One Nation, One Tax Regime
- All the Goods and Services will be Taxed at par post GST.
- GST will further breakdown into CGST(Central), SGST(State), & IGST(Both).
- Online Entry of every Transaction
Now Friends, let me give you all the Benefits of GST—
- Tracing of Transactions
- 2% Increase in GDP
- Taxation will be easier and effective
- One Product, Different state, one Tax, one price
There will be three kinds of GST,
CGST—Collected by centre
SGST—Collected by State
IGST—Applicable on inter-state sales. It will help in smooth transfer between the Centre and states.
What are the GST proposed rates?
Though GST rates are yet to been proposed by the Lok Sabha—The Proposed rates are
5% to 28 %
Expect Reduction in Prices of:
FMCG Goods such as Shampoos, chocolates
Increase in Prices of:
GST being an Indirect Tax, it will be ultimately borne by the end consumers, just like in the current Process, GST will be paid by all manufacturers, sellers, and service providers such as Telecom providers, consultants, Chartered Accountants etc
What we find GST which is a Unifying Tax structure which will result in better compliance but for some time will offset for Revenue Losses, and it will also turn into Investment Base Under GST.
Key Takeaways from my Understanding, in a simplified form—
- It will simplify Taxation process
- GST will beneficial for BIG BASKET
- It will help gain a lot in Logistics
- GST will have a marginal impact on import earnings
- Multi-slab Tax to avoid Higher Inflation
- 70% Tradershave registered under GST
- GST will be Non- Inflationary and Revenue Neutral
- Yes, I accept Beaucratic proceedures needs to be dealt with in strict accordance.
- Manner of Rollout to be seen
- Better compliance will offset Revenue Losses
- GST network to b Tweaked after 3 to 4 months
- Vendors should not worry for cash flows
- TDS is a deferment welcome move.
- No Tax on used cars, except on Margins of Profit
- No measures of E-comm, TCS from september1.
- E-commerce sellers can file their GST Via clearTax- which has collaborated with online Fashion Market Pvt Ltd., which will help the sellers with Automated Tax filing
- Small business with Turnover less than Rs. 20 Lac don’t have to register themselves under GST, step is taken as to provide time
- To deduct Tax at Source/E-commerce firms and suppliers, to prepare for Historic tax reform.
- GST Network portal started accepting Registration- TDS, TCS deductors
- According to me, this is the biggest Indirect Tax reform since Independence, GST will subsume lot of levies, Excise, Service &VAT.It will create Uniform Market for easy Transfer.
Our Union Finance Minister Mr. Jaitley on GST—clearly stresses for Rollout, especially on 30th ju7ne Midnight, rollout for GST, anall-Party consensus is required, now at the 11th hour Congress they want to boycott.
The Checklist for GST—
- As the countdown has started 1. Migration to GST and getting into GST portal.
- Collect GSTIN invoices for billing
- Collect GSTIN Vendors, suppliers
- GST billing-Get it ready for centre and state, need to Upload Invoices to GST Network.
- Invest in GST billing software
- Upload GST invoices to GST Network
- Paying the Tax which is overdue.
- Get GST Bill ready, Businesses need to fix Tax rates on.
As I conclude my thoughts, it’s a Historic and Momentous moment, where India is all set to experience the biggest Tax reform of all time, India is ready to accept the change in its tax regime, India is set get GST, India will begin the second half of 2017, with all new tax regime as the Good and service tax will be implemented by July 1st midnight.
Friends, as we all know we became a Political Union in 1947, by Midnight today, we will become an Economic Union after the rollout of GST. It’s a Historic Transformation of Nation from Policy paralysis of last 10years, to policy implementation for Nation Empowering every Farmer, every youth, rather every citizen of India, three years of Hard work of Political, Administrative machinery, GST Council, will see a great sunshine in the history of independent India. We all shall feel proud and blessed to have our Leader at the helm of affairs in The Centre PM Modi, took Economy on a Fastest Growing Path
INDIA Vikas Ki Aur, request everyone of you to kindly go through my chain of Tweets #GSTforIndia, and give your valuable inputs for furthering my skills.
Dr. Sukanya Iyer