By Syashu Pesswani, University of Petroleum and Energy Studies, Dehradun.
President Pranab Mukherjee, with the press of a button at the midnight of July 1, 2017 in the Parliament’s Central Hall of India, switched to GST, the single biggest reform undertaken by the country in its 70 years of independence. It is basically established to subsume various indirect taxes levied at different levels, with the idea of reducing red-tape, plugging leakages and paving the way for a transparent indirect tax regime.
The Goods and Services Tax Bill or the GST Bill, also referred to as the Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, initiates a Value Added Tax implementation at a national level in India.
Goods and Services Tax is a comprehensive, multistage, destination based tax that will be levied on every value addition. In layman’s language, GST is one indirect tax for the whole nation, which will make India a unified common market.
GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
The history of this reformation goes way back to the year 2000, when PM Vajpayee set up a committee to draft the GST law; in the year 2004, the Kelkar task force concluded that GST must be implemented to improve the current tax structure; in the year 2006, the then Finance Minister proposed GST from April 1, 2010. In the year 2007, CST (Central Sales Tax) was phased out and rates were reduced from 4% to 3%; in 2008, the EC finalized the dual GST structure to have separate levy and legislation; in 2010, a project to computerize commercial taxes was introduced but the GST implementation was postponed. Introduction of a Constitutional Amendment Bill to enable the GST law came in 2011, the Standing Committee began the discussions on GST but stalled it over clause 279B, and in 2013, the Standing Committee tabled its report on GST. In 2014, the GST Bill was reintroduced in the Parliament by the then Finance Minister; in 2015, the GST Bill was passed by the Lok Sabha but was not passed in the Rajya Sabha; in 2016, an amended model of GST Law was passed in both the Houses and got the assent from the President, and finally the GST Law was implemented on July 1, 2017.
GST is administered in India as CGST: collected by the Central Government on an intra-state sale, SGST: collected by the State Government on an intra-state sale, and IGST: collected by the Central Government for inter-state sale. Comparing it with the older regime, if the transaction was for sale within the State, VAT along with central excise/service tax was levied, but now CGST and SGST are levied, where revenue is shared equally between the Centre and the State. If there is a sale to another State, Central Sales Tax + Excise/Service Tax was levied and now only one type of tax that is IGST is levied in case of inter-state sales; the Centre then shares the IGST revenue based on the destination of goods.
GST is a win-win situation for the entire country, There are numerous advantages attached to this new form of tax system in India for all the stakeholders of the industry, consumer and government. As for the people in business and industry, it will increase certainty and ease of doing business as GST insures that indirect tax rates and structures are common across the country therefore making it tax neutral to do business in India irrespective of the choice of place of doing business. It will minimize the cascading effect that would in turn reduce the hidden cost of business; reduction in transaction cost of doing business would lead to an improved competitiveness for the trade and industry. Under GST, there is only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer, the overall tax burden on most commodities has come down because of efficiency gains and prevention of leakages. GST is simpler and easier to administer for the Central and State Government as multiple indirect taxes at the Central and State levels are replaced by GST, that too backed with a robust end to end IT system. In this system, the cost of collection of tax revenue is reduced thereby ensuring higher revenue efficiency. Due to seamless transfer of input tax credit from one State to another to receive the full brunt of value addition, there is an in-built mechanism in the design of GST that would incentivize tax compliance by traders.
But the picture is not as rosy as it is portrayed by the government, as there are many loopholes in this system, therefore making it questionable whether this system will be able to serve the desired results. India has adopted dual GST instead of national GST, thus making the structure of GST fairly complicated in India. The Centre coordinates with 29 states and 7 union territories to implement such a tax regime, and this regime is likely to create economic as well as political issues. GST rates are 12% for concessional goods, 17-18% for standard goods and 40% for luxury goods which is much higher than the previous service tax rate that was 14%, therefore such initiative is likely to push inflation. As far as internet connectivity is concerned, India is still in the rising state and for the GST to succeed a strong IT network is required.
GST has ignored the emerging sector of e-commerce. E-commerce does not leave signs of the transaction outside the internet and has anonymity associated with it, therefore it becomes impossible to track the business transaction taking place through internet which can be business to business, business to customer, customer to customer. There is no clarity as to whether the product should be considered a service or a product under the concept of e-commerce. The GST system has not specified whether the telecommunication will be considered a good or a service.
More than 150 countries have adopted GST, the Government of India should research and study the GST regime set up by those countries and also their fallouts and make changes accordingly in the GST regime of India. The existing regime is a tepid attempt to rationalize indirect tax structure in India. The government should make an attempt to safeguard the vast poor population of India against the inflation due to implementation of GST. There is no doubt regarding the simplification of existing indirect tax system because of the implementation of GST and it will also help in removing inefficiencies created by the former disparate taxation system, but the desired results can only be achieved if there is clarity regarding all the sectors or issues like threshold limit, revenue rate, etc.