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Maharashtra Industrial Policies

Goods and Services Tax in India

Goods and Services Tax

GST stands for “Goods and Services Tax”. It is a tax applied on both physical products (i.e. Cars, TV, Bread, Clothes etc) and on services (Mobile network, Banking, Air travel, Movies etc). Currently many different taxes are applied to manufactured goods – like excise duty, sales tax, VAT (some 10-12 more). And services face a Service tax (you see it on your restaurant bill). Businessmen pay different taxes depending on whether they are into manufacturing, selling, exporting / importing, providing a service. Now, business will just pay GST – no sales tax, excise or service tax.
GST is a value added tax that will replace all the indirect taxes i.e. VAT, CST, Service Tax, CAD (Current Account Deficit), SAD (Special Additional Duty), Excise, Entry Tax, Purchase Tax etc levied on goods and services by the Indian Central and State governments. It is aimed at being a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level.

The Government believes that GST will boost the nation’s economy and bring fresh investments. It is also believed that the new system will also generate Government revenues in a better way.
The basic idea for introducing GST is to create a single, cooperative and undivided Indian market to make the economy stronger and powerful. This might have a positive impact on GDP of India.
The introduction of Goods and Services Tax (GST) is one of the biggest tax reforms for India. GST is not just a tax change but it will benefit the economy as a whole and have far-reaching impact on businesses.

Main Advantages of GST:

  • A unified indirect tax system.
  • A simplified tax regime.
  • Reduction in manufacturing cost.
  • Removes cascading effect of taxes i.e. tax on tax. GST will make sure we won’t pay extra tax on an already taxed amount– a problem (known as cascading) that’s there is present tax structure.
  • Less complex Tax System
  •  Uniformity in Computing Taxes for Goods and Service: It will replace a number of other taxes like VAT, CST, Service Tax, CAD, SAD, Excise, Entry Tax, Purchase Tax etc.
  • Uniform Tax Regime:
    For both goods and services and less confusion in determining what constitutes a good or what is a service.
  • Elimination of Double Taxation:
    Double taxation means the consumer pays tax on an item, on which already government has collected tax from the manufacturer under some other head.
  • More Transparent Pricing:
    Currently hidden taxes actually push up the taxes on a majority of goods to anywhere in the 27% to 32% range. But with GST coming in, the % tax number is proposed to be much lesser – however the number has not been finalized yet.

Benefit of GST for the Centre and the States:

According to experts, by implementing the GST, India will gain $15 billion a year. This is because; it will promote more exports, create more employment opportunities and boost growth. It will divide the burden of tax between manufacturing and services.

Benefit of GST for Individuals, Companies, Traders and Retailers:

In the GST system, taxes for both Centre and State will be collected at the point of sale. Both will be charged on the manufacturing cost. Individuals will be benefited by this as prices are likely to come down and lower prices mean more consumption, and more consumption means more production, thereby helping in the growth of the companies.

  • GST is a transparent tax and also reduces number of indirect taxes. With GST implemented, a business premises can show the tax applied in the sales invoice.
  • GST will not be a cost to registered retailers, therefore there will be no hidden taxes and the cost of doing business will be lower.
  • Benefit people as prices will come down which in turn will help companies as consumption will increase.
  • There is no doubt that in production and distribution of goods, services are increasingly used or consumed and vice versa. Separate taxes for goods and services, which is the present taxation system, requires division of transaction values into value of goods and services for taxation, leading to greater complications, administration, including compliances costs. In the GST system, when all the taxes are integrated, it would make possible the taxation burden to be split equitably between manufacturing and services.
  • GST will be levied only at the final destination of consumption based on VAT principle and not at various points (from manufacturing to retail outlets). This will help in removing economic distortions and bring about development of a common national market.
  • It will also help to build a transparent and corruption free tax administration. Presently, a tax is levied on when a finished product moves out from a factory, which is paid by the manufacturer, and it is again levied at the retail outlet when sold.
  • Under this the same flat tax rate will be applicable on everything – from cars to watching movies. (This rate is yet not decided, could be 18-20%)

How GST will work:

The Goods and Services Tax   laws will put an end to multiple taxes like excise, CST, VAT, service tax which are levied on different products, starting from the source of manufacturing, till reaching the end consumer.

  • It will also stop distinguishing a good from a service and will tax both equally. The GST is a dual taxation proposed regime, where the only two components will be Central GST (CGST) and State GST (SGST). Under such nomenclature the total amount of GST for any goods or service will be distributed in both State and Central exchequers.

Some of Disadvantages/Cons of GST in India:

  • Some Economists say that GST in India would impact negatively on the real estate market. It would add up to 8 percent to the cost of new homes and reduce demand by about 12 percent.
  • Some Economists says that CGST (Central GST), SGST (State GST) are nothing but new names for Central Excise/Service Tax, VAT and CST.
  • However, since effective tax rates will change, prices could change. Some things are expected to get expensive (Cigarettes, Trucks, Mobile Phone Bills, Clothes, Jewellery) and some cheaper (Cars, Two-Wheelers, Paint, Cement, Movie Tickets, Electronics).
  • Prices for same things will be same in all states– so Cars for eg. won’t be cheaper in states where the factory is located.

Some of Disadvantages/Cons of GST in India:

  • Some Economists say that GST in India would impact negatively on the real estate market. It would add up to 8 percent to the cost of new homes and reduce demand by about 12 percent.
  • Some Economists says that CGST (Central GST), SGST (State GST) are nothing but new names for Central Excise/Service Tax, VAT and CST.
  • However, since effective tax rates will change, prices could change. Some things are expected to get expensive (Cigarettes, Trucks, Mobile Phone Bills, Clothes, Jewellery) and some cheaper (Cars, Two-Wheelers, Paint, Cement, Movie Tickets, Electronics).
  • Prices for same things will be same in all states– so Cars for eg. won’t be cheaper in states where the factory is located.
  • Further, the threshold limit of turnover for dealers under GST is another bone of contention between the government and the Empowered Committee, aiming to broaden the tax base under GST.Another factor that will impact the success of GST is the robust IT backbone connecting all state governments, trade and industry, banks and other stakeholders on a real-time basis. The government has already incorporated a SPV viz. – Goods and Services Tax Network (GSTN), which has to develop a GST portal – front-end system for trade and industry and back-end system for all government agencies. GSTN will ensure technology support for registration, return filing, tax payment, IGST settlement, MIS and other dashboards on GST portal to all the stakeholders.
    GST is quite different from the existing indirect taxation system in the country. For effective implementation of GST, tax administration staff – both at central and state levels – would require to be trained properly in terms of concept, legislation and procedure. The tax administration staff would also need to change their mindset, approach and attitude towards the tax payers. And for this, they would have to ‘learn, unlearn, and relearn’ the GST not only in letter but in spirit too.As per the Constitutional Amendment Bill placed in the Lok Sabha, it was proposed that states would be allowed to levy an additional 1 percent non-vatable tax on inter-state supply of goods for the initial two years, in order to compensate the states for loss of revenue while moving to GST. This was supported by a few states, while a few others criticised the same. However, recently the Empowered Committee recommended abolition of the additional tax. There is no clarity on the same yet.

    The taxing events of ‘manufacture under central excise’, ‘sale under VAT’ and ‘provision of service under service tax’ will converge into one taxing event of ‘supply’ under GST, i.e. GST will be levied on the event of supply of goods or services. The ‘Place of Supply Rules’ will thus form an important factor to determine the place of provision of goods or services.

    What change is expected in the Budget:
    The bill is pending to be passed in the State Assemblies and no concrete instructions have been issued on the structure, draft, scheduling of implementation and procedural aspects of the law rendering lack of clarity among the stakeholders. Therefore, it is imperative that the government provides a clear line of sight in the upcoming budget for the draft structure of the statute enabling the industry to commence preparation for the same.

    The Impact of GST on Indian Economy:
    GST will be a welcome change for the economy since it is expected to simplify the indirect tax structure in India. However, it is expected to have far-reaching impact on businesses. While the Constitution Amendment Bill has not yet been passed, at this stage, the businesses should prepare for GST by undertaking GST impact assessment study and have a high-level plan for the GST transition.

    A study by the National Council of Applied Economic Research (NCAER) had estimated that roll out of GST would boost the India’s GDP growth by 1 percent to 2 percent. Crisil had also reported that GST is the best way to mobilise revenue and reduce the fiscal deficit. GST has been commonly accepted by more than 140 countries in the world. Looking at the magnitude, GST is going to impact all sections of the society – from small time businessmen to huge conglomerates and from a developing state to a developed state in this country. The implementation of GST will give a boost to the growth engine pursued by the government.

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