Goods and Services Tax (India)

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Goods and Services Tax (GST) is a proposed system of indirect taxation in India merging most of the existing taxes into single system of taxation accordingly .

"Goods and Services Tax" would be a comprehensive indirect tax on manufacture, sale and consumption of goods and services throughout India, to replace taxes levied by the central and state governments. Goods and Services Tax would be levied and collected at each stage of sale or purchase of goods or services based on the input tax credit method. This method allows GST-registered businesses to claim tax credit to the value of GST they paid on purchase of goods or services as part of their normal commercial activity. Taxable goods and services are not distinguished from one another and are taxed at a single rate in a supply chain till the goods or services reach the consumer. Administrative responsibility would generally rest with a single authority to levy tax on goods and services.^[1] Exports would be zero-rated and imports would be levied the same taxes as domestic goods and services adhering to the destination principle.

The introduction of Goods and Services Tax (GST) would be a significant step in the reform of indirect taxation in India. Amalgamating several Central and State taxes into a single tax would mitigate cascading or double taxation, facilitating a common national market. The simplicity of the tax should lead to easier administration and enforcement. From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%,^[2] free movement of goods from one state to another without stopping at state borders for hours for payment of state tax or entry tax and reduction in paperwork to a large extent.

What changes there would be if India launches GST- “The tax rate under GST may be nominal or zero rated for the time being. It has been proposed to insulate the revenues of the States from the impact of GST, with the expectation that in due course, GST will be levied on petroleum and petroleum products.” The central government has assured states of compensation for any revenue losses incurred by them from the date of introduction of GST for a period of five years. ^[3]

As India is a federal republic GST would be implemented concurrently by the central government and by state governments.^[4]

History

The taxes which will be subsumed into GST include central excise duty, services tax, additional customs duty, surcharges and state-level value added tax.^[5] Other levies which are currently applicable on inter-state transportation of goods are also likely to be done away with in GST regime.^[6]

Constitutional amendment

The Constitution (One Hundred Twenty second Amendment) Bill, 2014 proposes a national Value added Tax to be implemented in India^[7] from 1 April 2017.^[8][9]

Legislation

The government is planning to introduce three bills for GST in the parliament in winter session 2016 viz. CGST law, IGST law and compensation law.^[10][11] There will be no GST on the sale and purchase of securities. That will continue to be governed by Securities Transaction Tax (STT).^[12]

GST council

GST threshold was set at ₹10 lakh (US$15,000) for the north-east and hill states and ₹20 lakh (US$30,000) for other states in the first GST council meet.^[13] Centre and states agreed that assessee upto ₹1.5 crore (US$220,000) will be assessed by states and above that will be assessed by centre and states.^[14]

GSTN

Goods and Services Tax Network (GSTN) is a not-for-profit, non-government firm that would provide IT infrastructure and services to the central and state governments, taxpayers and other stakeholders for implementation of the Goods and Services Tax (GST).^[15] It will be owned by three stakeholders—the centre, the states and the technology partner NSDL, then Central Board of Excise and Customs (CBEC) Chairman S Dutt Majumdar said while addressing a "National Conference on GST". On the possibility of rolling out GST, he said, "There was no need for alarm if GST was not rolled out in April 1, 2012".^[16]

Current vs Proposed regime of Indirect Tax in India

Current Indirect Tax Regime in India

Problems in the Present Structure

Present Indirect structure is marked with following problems:^[17]

Multiplicity of Taxes

Presently, the Constitution empowers the Central Government to levy excise duty on manufacturing and service tax on the supply of services. Further, it empowers the State Governments to levy sales tax or value added tax (VAT) on the sale of goods. This exclusive division of fiscal powers has led to a multiplicity of indirect taxes in the country. In addition, central sales tax (CST) is levied on inter-State sale of goods by the Central Government, but collected and retained by the exporting States. Further, many States levy an entry tax on the entry of goods in local areas. Taxes by Union Government, State Governments and the local governments have resulted in difficulties and harassment to the tax payer. He has to contact several authorities and maintain separate records for each of them.

Complex

The taxes are levied by central government as well as state government. So, a person has to maintain accounts which will comply with all the applicable laws. This multiplicity of taxes at the State and Central levels has resulted in a complex indirect tax structure in the country that is ridden with hidden costs for the trade and industry.

Cascading effects of taxes

In current indirect tax structure in India, there is cascading of taxes due to ‘tax on tax’. No credit of excise duty and service tax paid at the stage of manufacture is available to the traders while paying the State level sales tax or VAT, and vice versa. Further, no credit of State taxes paid in one State can be availed in other States. Hence, the prices of goods and services get artificially inflated to the extent of this ‘tax on tax’.

Multiple Compliance

A business person might have to comply with multiple compliance in terms of indirect taxes in India. Certain major compliance in different states with different set of laws is as under:

Tax Arbitrage

The problem of tax arbitrage for a single nation poses an invisible barrier for free trade. In many cases, a small difference in rate of tax can result in manifold implications and thus, can induce the business to move into a lower tax territory. As an example, the different rate of VAT as levied on sale of goods in different states is as under

Similarly, Entry tax also acts as barrier for free trade.

GST is seen as a solution to the above problems.

GST shall subsume the following taxes in the times to come once the law is in force:

The proposed GST regime shall have the following features:

• It shall be a destination based taxation
• It shall have a Dual Administration – Centre and state
• State wise determination of taxable person – no more centralized registration
• Seamless credit amongst goods and services

Tax-Rate under the proposed GST

As per the decisions made by all will of GST Council on November 3rd, 2016, The tax rates would be at 4 slabs of 5%, 12%, 18% and 28%.^[6] Luxury and demerit goods will be taxed at 28% plus cess.^[11]

Migration of the existing taxpayers to GST regime

All the existing taxpayers registered under VAT, Service Tax, and Excise are required to furnish the details at GST Common portal for the purpose of migrating themselves into GST regime. To begin with, the taxpayers registered under the State Vat Department needs to provide their details and period for furnishing these details are specified for every state.Once the taxpayers provide their details there will be no need for them to register again with the State or Center once the GST Act is implemented. Enrolment process for other existing taxpayers not registered with VAT will be started at a later date.^[18]

Renewed GST concerns

With heterogeneous State laws on VAT, the debate on the necessity for a GST has been reignited^[19]. The best GST systems across the world use a single GST, while India has opted for a dual-GST model. Critics claim that CGST, SGST and IGST are nothing but new names for Central Excise/Service Tax, VAT and CST, and hence GST brings nothing new to the table. The concept of value-added has never been utilized in the levy of service, as the Delhi High Court is attempting to prove in the case of Home Solution Retail, while under Central Excise the focus is on defining and refining the definition of manufacture, instead of focusing on value additions. The Revenue can be very stubborn when it comes to refunds, as the Maharashtra Government proves, and software entities that applied for refunds on excess service tax paid on inputs discovered.^[16]

The all-new Cenvat Credit Rules, 2014 do little to clarify eligibility for input credits, by using general terms such as "any goods which have no relationship whatsoever with the manufacture of a final product" and "services used primarily for personal use or consumption of any employee".^[20]

See also

• Goods and Services Tax (Australia)

References

External links

• GST GOV
• CBEC GST Law