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Liberation from 29 different tax regimes
August, 16th 2016

After almost 13 years of being ‘work in progress’ the political consensus on the proposed Goods and Services Tax (GST) regime came this month, with the target rollout date of April 1, 2017.

Prime Minister Narendra Modi said GST will help “the country begin its march towards freedom from tax terrorism.”

Freedom from tax terrorism? Yes, since GST is a single tax on supply of goods and services, right from the manufacturer to the consumers. But, as is the case with anything new, there is anxiety among the common man as well. Can GST be called ‘freedom from taxes’? Will it bring down the monthly bills? Will kuchcha bills become a thing of the past, as Modi promised?

Tax liberation

Mahesh Jaising, Partner, BMR & Associates LLP, says: “Implementation of GST would not mean freedom from taxes, but definitely liberation of taxes. With multiple level of taxes being subsumed under the GST, the cascading effects of taxes is eliminated and the GST regime itself addresses myriad tax issues, for instance dual levy of taxation.”

While there is a consensus among all — politicos, industry, and tax experts — that initially GST will be inflationary and the cost of some services may go up, they also point out that this could just be early hiccups and, once the dust settles, the tax regime will be advantageous for the consumer. For example, electricity is expected to be outside the purview of GST, so the current State duty on the bills will continue.

“What needs to be appreciated is the higher sense of simplicity that GST will bring in as opposed to the current multiplicity of taxes. GST is a much fairer and uniform taxation system,” says Ajay S Shriram, Chairman and Senior Managing Director, DCM Shriram, and former CII president. “Today you have 29 mini-Indias within one India in terms of common market. With GST you will have one common market,” he says.

“As GST will make inter-State supply of goods hasslefree and, therefore, save time, it will definitely help everyone in the value chain. For the industry, according to estimates, it will result in savings of almost 5-8 per cent. This will not only reduce the cost of production, but increase efficiency and even benefit the consumers.”

According to Jaising, GST contemplates a seamless flow of credits, with traders specifically being able to avail credit (with excise duty and service tax presently being a cost today).

If the standard GST rate of 18 per cent as recommended vide the Revenue Neutral Report is adopted, the prices of most consumer goods (currently attracting VAT at 14-14.5 per cent in addition to excise duty) should come down. On the contrary, GST on services would be higher than the present rate of service tax of 15 per cent and, as such, services such as telecommunication, insurance and banking would become costlier, he adds.

State demand

While the debate on the three enabling legislations — Central GST, State GST and Integrated GST — is yet to start, indications are that the Centre may accept the demand of the States that small traders should be under their administrative control.

For the consumer, in the long run, GST is meant to ease the overall tax burden.

There will be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid and prevention of leakages.

With this, the overall tax on most commodities will come down.

 
 
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