GST will completely transform India's tax structure
August, 04th 2016
I would like to mention three points in reply to your question. First, the GST changes, completely transforms the fiscal architecture of modern India with regard to matters of taxation. After independence this is the biggest tax reform and why I say that it is changing the fiscal architecture is that because earlier the constitution had assigned the central excise and the service tax which the centre was imposing and collecting and the sales tax which became later on the VAT which the states were collecting, now both these indirect forms of taxations are merged, the constitution makes a provision whereby these the two tax structures, these two tax systems are merged so therefore it completely transforms the fiscal architecture.
Secondly, in a way it restores a kind of a fiscal balance between the states and the centre because service tax in particular which was collected by the centre which was actually levied and collected by the centre now the states get also equal power to levy and collect service tax. Earlier a part of the service tax collected by the centre was devolved to the states as a part of the finance commission recommendations but now the states have the power to levy and collect service tax.
Third, and perhaps very important is that GST will completely transform the way the business is done in India, the way industries run in India, it will bring in lot of efficiency into the Indian economy by way of reducing transaction costs, by way of, over a period of time, lowering the tax rates and rationalising the tax rates and also by way of faster movement of goods across the country. When I say it will reduce transaction costs, let me give one example, according to some estimates today when a truck moves from one location to another location in the country, on an average it takes about 48 hours at various check posts, under GST you have one India, one tax, the entire India becomes a common market and therefore....
ET Now: What kind of tax buoyancy do you expect from the GST and also how much of the unorganised sector will be brought into the GST fold?
Shaktikanta Das : There will be first threshold level below which, you know, under GST they would perhaps get a facility to pay a kind of a lump sum tax amount but this is a matter which the GST council will decide and this is a matter which has to be worked out as a part of the GST legislation. But so far as unorganised sector is concerned, naturally the very small players who are running petty shops or small vegetable shops they are the end sellers so there the impact will not be much but let me also mention that in GST if you are a part of the value chain and value chain includes not only the manufacturing value chain it also includes the business, the trading value chain, if you are a part of the value chain unless you pay GST you do not get the benefit of the input tax credit so therefore your cost and your selling price will be higher and naturally you will become uncompetitive in the market. So to be competitive in the market, to succeed and to survive in a GST regime everybody has to come into the tax net and that will bring lot of buoyancy in the tax collections.
ET Now: The centre at best can pass the CGST and IGST by December, is that a fair assumption and do you believe that we can realistically then meet the April 1st, 2017 deadline?
Shaktikanta Das: I think let us go step by step. Let the GST amendment to the constitution, let it get notified, let the GST council be constituted and then I think the GST council will take a call with regard to the specific timelines and with regard to the date of implementation. But let me say that it is in government's interest, it is in everybody's interest, including the states, to implement GST as early as possible.