GST: Unified Tax Regime

GST Unified Tax Regime - Assam Exam

Much awaited Goods and Services Tax (GST) finally became a reality from 1st July, 2017, that would radically change the way manufacturer, service provider, trader and eventually the consumer, pay taxes to the exchequer, both at the state and Central level, through a single levy, subsuming a plethora of indirect taxes and making India unified market.   This is touted to be the biggest tax reform in the country.

 

What is GST?

GST is a unified taxation system which would end multiple taxation across the states and create a level playing field for businesses throughout the country, much like the developed nations. It is a multi-stage destination-based tax which will be collected at every stage, starting from procuring the raw material to selling the final product. The credit of taxes paid at the previous stage(s) will be available for set-off at the next stage of supply. Being destination or a consumption based, the GST will also end multiple taxes levied by Centre and the State Governments like Central Excise, Service Tax, VAT, Central Sales Tax, Octroi, Entry Tax, Luxury Tax and Entertainment Tax etc.  This will lower the overall tax burden on the consumer and will benefit the industry through better cash flows and working capital management. Currently, 17 State and Central levies are being applied on goods as they move from one State to the other.

  • It is a destination-based taxation system.
  • It is an indirect tax for the whole country on the lines of “One Nation One Tax” to make India a unified market.
  • It is a single tax on supply of Goods and Services in its entire product cycle or life cycle i.e. from manufacturer to the consumer.
  • It is calculated only in the “Value addition” at any stage of a goods or services.
  • The final consumer will pay only his part of the tax and not the entire supply chain which was the case earlier.
  • There is a provision of GST Councilto decide upon any matter related to GST whose chairman in the finance minister of India.

Taxes incorporated into the GST

At the State Level
  • State VAT
  • Central Sales Tax c. Luxury Tax
  • Entry Tax (all forms)
  • Entertainment and Amusement Tax (except when levied by the local bodies)
  • Taxes on advertisements
  • Purchase Tax
  • Taxes on lotteries, betting and gambling
  • State Surcharges and Cesses so far as they relate to supply of goods and services
At the Central level
  • Central Excise duty & Service Tax
  • Duties of Excise (Medicinal and Toilet Preparations)
  • Additional Duties of Excise (Goods of Special Importance)
  • Additional Duties of Excise (Textiles and Textile Products)
  • Additional Duties of Customs (CVD)
  • Special Additional Duty of Customs
  • Central Surcharges and Cesses so far as they relate to supply of goods and services.

 

The GST Regime

Mainly, there will be three types of taxes under the GST regime: Central Goods and Services Tax (CGST), State (or Union Territory) Goods and Services Tax (SGST) and Integrated Goods and Services Tax (IGST). Tax levied by the Centre on intra-State supply of goods or services would be called the CGST and that to be levied by the States and Union Territories(UTs) would be called the SGST respectively. The IGST would be levied and collected by the Centre on inter-State supply of goods and services. Four supplementary legislations approving these taxes, namely the Central GST Bill, the Integrated GST Bill, The GST (Compensation to States) Bill, and the Union Territory GST Bill were passed by the Lok Sabha in May this year, making the realisation of 1st July, 2017 deadline a reality.

All the matters related to the GST are dealt upon by the GST Council headed by the Union Finance Minister while all the State Finance Ministers are its Members. The GST Council also has a provision to adjudicate disputes arising out of its recommendation or implementation thereof.

 

Tax Rates

  • The GST Council has fixed four broad tax slabs under the new GST system - 5 per cent, 12 per cent, 18 per cent and 28 per cent.
  • On top of the highest slab, there is a cess on luxury and demerit goods to compensate the States for revenue loss in the first five years of GST implementation.
  • Most of the goods and services have been listed under the four slabs, but a few like gold and rough diamonds have exclusive tax rates.
  • Also, some items have been exempted from taxation.
  • The essential items have been kept in the lowest tax bracket, whereas luxury goods and tobacco products will invite higher tax.
  • Highest tax slab is pegged at 40%.
Commodity excluded from GST ( As of Now )
  • Potable alcohol
  • Five petroleum products viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel
  • Electricity

 

Benefits of GST

Different estimates peg the net advantage to the Gross Domestic Product, up to two percentage points.  The GST regime is also expected to result in better tax compliance, thereby increasing its revenue and narrowing the Budget deficit. All the imported goods will be charged Integrated Goods & Services Tax (IGST) which is equivalent to the Central GST + State GST. This will bring equality with taxation on local products.

For Central and State Governments
  • Simple and Easy to administer:Because multiple indirect taxes at the central and state levels are being replaced by a single tax “GST”. Moreover, backed with a robust end to end IT system, it would be easier to administer.
  • Better control on leakage:Because of better tax compliance, reduction of rent seeking, transparency in taxation due to IT use, an inbuilt mechanism in the design of GST that would incentivize tax compliance by traders.
  • Higher revenue efficiency:Since the cost of collection will decrease along with an increase in the ease of compliance, it will lead to higher tax revenue.
For the Consumer
  • The single and transparent tax will provide a lowering of inflation.
  • Relief in overall tax burden.
  • Tax democracy that is luxury items will be taxed more and basic goods will be tax-free.
For Businesses
  • Ease of doing business will increase due to easy tax compliance.
  • Uniformity of tax rate and structure, therefore, better future business decision making and investments by the corporates.
  • Removal of cascading effects of taxes.
  • Reduction in transactional cost will lead to improved competitiveness.
  • Gain to the manufacturer and exporters.
  • It is expected to raise India's GDP by 2% points.

 

Concerns in GST

  • Not all items are covered:Taxation for certain items such as Alcohol, Tobacco etc. are still not under the GST domain. States argue that including them would hamper their revenue and they would suffer a huge resource. However, some experts say that the real reason is the nexus of politicians with some business class and high profile lobbying.
  • Decision criteria for the tax bracket:There are apprehensions that how to decide about the items and the criteria that which item will fall into which tax bracket. It may lead to lobbying. As of now, the decision will be taken by the GST Council only and after due diligence and most probably by the consensus.
  • Multiple tax rates and brackets:The philosophical idea that GST means “One Nation one Tax” is currently diluted due to multiple tax rates and brackets. But then, since the target consumer of goods and services have different capabilities and therefore there must be a system similar to the democratic lines where higher value consumer pays more taxes.
  • Power to impose tax taken away by Central Government from the Parliament:The Central GST Bill, 2017 allows the central government to notify CGST rates, subject to a cap. This implies that the government may change rates subject to a cap of 20%, without requiring the approval of Parliament. Under the Constitution, the power to levy taxes is vested in Parliament and state legislatures. Though the proposal to set the rates through delegated legislation meets this requirement, the question is whether it is appropriate to do so without prior parliamentary scrutiny and approval.
  • Anti-Profiteering Clause: The government is planning to set up an authority to see if any reduction in tax rates after GST is passed on to the consumer by companies or not. The industry and businesses are not taking this idea kindly and they see it as a backdoor entry of inspector raj. Experts say that prices should be market determined and no government authority has the business of deciding prices for goods and services.
  • Confusion regarding the control over taxation:To avoid dual control, the GST council has reached a compromised formula. 90 percent of tax assesses with an annual turnover of Rs 1.5 crore or less, will be assessed by states and the rest by the Centre. For those with a turnover of over Rs 1.5 crore, the states and the Centre will share it equally. This ‘solution’ has its own set of issues.
  • The issue of casual taxable person:If a person registered in one state moves to another state for a short period for some business transaction, then that person would have to get himself registered in that state for that period.

 

SOME INTERESTING FACTS

  • France was the first country to introduce GST system in 1954.
  • More than 140 countries have implemented the GST.
  • Genesis of GST in India occurred during the tal Bihari Vajpayee Government when it set up the Asim Dasgupta committeeto design a model for GST.

 

 

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