GST in INDIA- An Overview

The One Hundred and Twenty Second Amendment Bill of the Constitution of India, officially known as The Constitution (One Hundred and First Amendment) Act, 2016, introduced a national Goods and Services Tax in India from 1 July 2017

The GST is a Value added Tax (VAT) proposed to be 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 most goods and services.

Goods & Services Tax (GST) is an indirect tax throughout India to replace taxes levied by the central and state governments. Goods and Services Tax (GST), India's biggest tax reform in 70 years of independence, was launched at midnight of 30th June 2017 by Prime Minister Narendra Modi at Parliament's historic Central Hall, in the presence of President Pranab Mukherjee. 

A single GST will replace several existing taxes & levies which include: central excise duty, services tax, additional customs duty, surcharges, state-level value added tax and Octroi Other levies which are currently applicable on inter-state transportation of goods are also likely to be done away with in GST regime.

The following taxes will be bound together by the GST:

Central Excise Duty
Commercial Tax
Value Added Tax (VAT)
Food Tax
Central Sales Tax (CST)
Entertainment Tax
Entry Tax
Purchase Tax
Luxury Tax
Advertisement tax
Service Tax
Customs Duty
GST will be levied on all transactions such as sale, transfer, purchase, barter, lease, or import of goods and/or services. India will adopt a dual GST model, meaning that taxation is administered by both the Union and State Governments. Transactions made within a single state will be levied with Central GST (CGST) by the Central Government and State GST (SGST) by the government of that state. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government. GST is a consumption based tax, therefore, taxes are paid to the state where the goods or services are consumed not the state in which they were produced. IGST complicates tax collection for State Governments by disabling them to collect the tax owed to them directly from the Central Government. 
Under the GST regime, the car manufacturer can offset his ‘raw material tax’ against the ‘output tax’  – the total tax burden on the auto company would then become Rs 30 (Rs 130-Rs 100). This continues along the value chain to the wholesaler and then the retailer who sells you your car.
Government was attempting to fix a single Revenue Neutral Rate (RNR) on the goods and services so that the total tax revenue of the State and the Central Government remain the same. However, due to practical considerations and keeping in view the social conditions of India, four GST slabs have been set at 5%, 12%, 18% and 28% for different items or services. There is also a special rate for precious metals. The rate of 18% would however be applicable for most goods and services.
Actually  the Government is trying to see that the new GST rates remain more or less similar to the effective tax rates of excise, service tax and VAT in the present time. Hence, the prices of most commodities would remain the same. However, the immediate impact of GST would be as following.
All the services would become more expensive immediately since the present Service Tax rate is only 15% which is now raised to 18% in GST.
Some goods would become cheaper due to lower rates levied on such items
Most goods would become more expensive since the GST rate of 18% or 24% is much more than the present VAT rates which is around 12-15 %. The dealers and retailers are NOT likely to pass on this extra rate immediately to the consumer and they would profit from the increase Input Credit Tax (ICT). However, soon the consumer would reap the benefit and the prices would come down.
Real Benefits of GST

The real benefits of GST to the consumer and businesses are long term and can be stated as following:-

1. Easier tax compliance - instead of having to deal with many different taxation laws and spending a lot of time in legal advise and compliance, businesses will now need to pay GST only. This is a big relief and it creates simplicity and predictability in business. The GST is being introduced to create a common market across states, not only to avoid enfeebled effect of indirect tax but also to improve tax compliance.

2. GST will lead a more transparent and neutral manner to raise revenue.

3. Price reduction as credit of input tax is available against output tax.

4. Simplified and cost saving system as procedural cost reduces due to uniform accounting for all types of taxes. Only three accounts; CGST, SGST, IGST have to be maintained.GST is structured to simplify the current indirect system. It is a long term strategy leading to a higher output, more employment opportunities, and economic boom.

5. GST is beneficial for both economy and corporations. The reduced tax burden on companies will reduce production cost making exporters more competitive.

6. 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.

7. 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. It can bring more transparency and better compliance. Number of departments will reduce which in turn may lead to less corruption

8. The tax structure will be made lean and simple

9. The entire Indian market will be a unified market which may translate into lower business costs. It can facilitate seamless movement of goods across states and reduce the transaction costs of businesses.

10. It is good for export oriented businesses. Because it is not applied for goods/services which are exported out of India.

11. In the long run, the lower tax burden could translate into lower prices on goods for consumers.

12. The Suppliers, manufacturers, wholesalers and retailers are able to recover GST incurred on input costs as tax credits. This reduces the cost of doing business, thus enabling fairer prices for consumers. Companies which are under unorganized sector will come under tax regime.More business entities will come under the tax system thus widening the tax base. This may lead to better and more tax revenue collections.

13. Reduced tax evasion - the difference between present system and GST is that the present system gave an incentive to evade taxes (because excise duty was a cost for traders, thereby making it attractive for them to purchase without invoice). With GST, this incentive will vanish. Therefore, tax evasion will fall.

14. More money to poor states - present taxation system was origin based, so tax collection used to go to manufacturing heavy states (Tamil Nadu, Gujarat etc.) Now, the tax collection of poor states (Bihar, Madhya Pradesh etc) will also rise. This gives an opportunity for all the poor states to develop.

15. Tax bias for location will go - many businesses create depots and godowns in different states simply because there is a difference in tax rates. Now that GST will come, this difference between states will vanish. It would help to remove the tax difference as a bias, thereby helping businesses.

Benefit the Centre and the States

Government of India will gain $15 billion a year contributing to rise of GDP between 0.9% and 1.5% as this measure will promote more exports and boost employment. 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.
Besides, a simple tax system is very welcoming for all foreign investors looking to set up factories in India.
Impact of GST on small businesses (Start up)

1. Simple taxation: Currently, a startup spends a lot of time and energy to manage the various taxes at various points. Adhering to different regulations at different States make the process very complex. GST will simplify the process by integrating all taxes, making the process of paying tax simpler

2. Ease of registration: Any new business needs to have a VAT registration from sales tax department. A business operating in many States has to face a lot of issues regarding the different procedures and fees in each state. GST will bring about a uniformity in process and centralised registration that will make starting business and expanding in different States much simpler.

3.Higher Exemption : As per the current indirect tax structure, any business with a turnover of more than Rs five lakh has to get VAT registration and pay VAT. GST will make this limit higher, to upto Rs 10 lakh and, further to it, businesses with turnover between Rs 10 and 50 lakh will be taxed at a lower rates. This will bring rejoice to newly established start up and small businesses.

4. Businesses in both sales and services: Businesses like restaurants, which fall under both sales and service taxation, have to calculate the VAT and service tax on both items separately. This makes the calculations process very complex. GST will not distinguish between sales and services, and thus the tax calculation will be done on total.

5. Saving in logistics cost and time : Many transport vehicles get delayed during movement across States due to small border tax and check post issues. Interstate movement will become cheaper and less time consuming, as these taxes will be eliminated. The whole Indian market opens up for manufacturers as interstate supply becomes tax-neutral. This will also bring down costs associated with maintaining high stocks, as there will be undisrupted movement of goods. As per a CRISIL analysis, GST can reduce logistics costs of companies producing non-bulk goods (comprising all goods besides the primary bulk commodities transported by railways – coal, iron ore, cement, steel, food grains, fertilizers) by as much as 20 percent.

Impact of GST on consumers/common man

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.

In the long run, the lower tax burden could translate into lower prices on goods for consumers. The tax structure will be made lean and simple.
All Indirect taxes will cut down to one tax , good for common man to understand and to follow .It can bring more transparency
Fall in Prices of some of Goods: removing such layered taxation, prices of some goods are likely to come down. However, this benefit generally doesn't reach the ultimate consumer as sellers tend to raise underlying prices and increase their profit which offsets the gain due to lower taxes

No Tax is perfect . There are demerits of GST too .
The GST's biggest downside is that it hits poor people hardest because it takes a higher percentage of low incomes than of high incomes. while explaining a like situation- Grattan Institute chief John Daley says governments "probably have to overcompensate" households if they are ever to win support for changes to the GST. 
The ‘Indian’ version of GST is not an ideal one. for various reasons including the below mentioned :-

Taxation of Free Supplies:
 The step to tax the free supplies cannot say to be an ideal step, as it would have severe consequences. E.g. this will even cover the social cause or goods distributed for free to poor or the needy person.Maybe the government has failed t examine the consequence of including the free supplies under the tax net.

Higher Tax Burden for Manufacturing SMEs 
Small businesses in the manufacturing sector will bear most of the brunt of GST implementation. Under the existing excise laws, only manufacturing business with a turnover more than Rs. 1.50 crores have to pay excise duty. However, under GST the turnover limit has been reduced to Rs. 20 lakh thus increasing the tax burden for many manufacturing SMEs.

Increase in Operating Costs
Most small businesses do not employ professionals and prefer to pay taxes and file returns on their own to save costs. For GST though, as it is a completely new tax system, they will require professional assistance. While this will benefit the professionals, the small businesses will have to bear the additional costs of hiring experts.

Also, businesses will need to train their employees in GST compliance increasing their overhead expenses.

Change in Business Software
Most businesses use accounting software or ERPs for filing tax returns which have excise, VAT, and service tax already incorporated in them. The change to GST will require them to change their ERPs, too, leading to increased costs of purchasing new software and training employees.

GST Will be Implemented During the Middle of the Year

The tentative GST implementation date is 1st July 2017. So, for the fiscal yea, 2017-18 business will follow the old tax structure for the first 3 months, and GST for the rest of the time. It is impossible to cross over from one tax structure to the other in just a day, and hence businesses will end up running both tax systems in parallel, resulting in more confusion and compliance issues.

Increase in Taxes will Increase Prices

Currently, some sectors like the textile industry are exempted from taxes or pay low tax. GST has only 4 proposed tax rates of 5%,12%,18%, 28%. Thus, for many sectors the tax burden will increase which in turn will increase the price of the final goods.

Petroleum Products & Liquor Are Not Part of GST Yet
Petroleum products are being kept outside the scope of GST as of now. States will levy their own taxes on this sector. Tax credit for inputs will therefore not be available to related industries like the plastic industry which are heavily dependent on petroleum products. Petrol and diesel are required to run factory machinery and unavailability of input tax credit on petroleum products will most probably push up the final price of all manufactured goods.  

Registration in Multiple States

GST requires businesses to register in all the states they are operating in. This will increase the burden of compliances.

Problems Faced by E-commerce

Nowadays, many SMEs operate through their own online shopping websites or through third party websites to sell to different parts of India. Under GST, they will be required to register for all the states. Not only that, they will not be eligible for composition scheme and will be required to pay taxes like any large organisation. E-commerce facilitators are now required to collect TCS under GST which will lead to increased complications and compliances.

Composition Scheme is Not Available for Many Businesses

Composition scheme is available for only businesses selling goods. It is not available to service providers or for online sellers. This sets SMEs at par with large organisations in an unfair move.

No Anti-Inflationary Measures
Every country that follows GST experienced a hike in inflation when they first introduced it. They countered the inflation by keeping tabs on prices and initiating anti-profiteering measures at the retail level to protect consumers from price swindling.

In conclusion we can say that the GST  Act of today needs amendments at various levels immediately  - and till amendments are made special notifications be issued y the Government of India for ratification of such enactment.



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1980 Dr. Gautam Ghosh.