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Knowing about goods and service tax
September, 17th 2014

Simply put, goods and services tax is a tax levied on goods and services imposed at each point of sale or rendering of service. Such GST could be on entire goods and services or there could be some exempted class of goods or services or a negative list of goods and services on which GST is not levied. GST is an indirect tax in lieu of tax on goods (excise) and tax on service (service tax). The GST is just like State level VAT which is levied as tax on sale of goods. GST will be a national level value added tax applicable on goods and services.

A major change in administering GST will be that the tax incidence is at the point of sale as against the present system of point of origin. According to the Task Force under the 13th Finance Commission, GST, as a well designed value added tax on all goods and services, is the most elegant method to eliminate distortions and to tax consumption.

Taxes to be subsumed in GST

Following taxes/duties/levies may be subsumed in GST -

Central Taxes/Levies

State Taxes/Levies

Central excise duty under Central Excise Act, 1944

Sales Tax/Value Added Tax (VAT)

Additional excise duties - Under Additional Duties of Excise (Goods of Special Importance Act, 1957

Entertainment tax

Excise Duty under Medicinal and Toiletries Preparation Act, 1955

State excise duty

Service Tax under Finance Act, 1994

Luxury tax

Additional customs duty (countervailing duty -CVD)

Taxes on lottery, betting and gambling

Special Additional Duty of Customs (SAD)

Entry tax (not in lieu of octroi)

Surcharges (e.g. national calamity contingent duty)

Purchase tax

Cesses (e.g., education cess, Cess on rubber, Cess on tea etc)

State Cesses

Central Sales tax (to be phased out)

State Surcharges

Benefits of GST

Benefits of GST shall accrue to both - trade and industry as well as Government. Trade and industry shall benefit in terms of easy compliance, removal of cascading effect of taxes and enhanced competitiveness. The Government shall have better control on leakages, higher revenue efficiency, consolidation of tax base and it may be easier to administer and monitor the law. Consumers will also benefit from likely reduced prices and single transparent tax structure.

Steps involved in GST introduction

Following steps are needed on political, administrative and technological fronts -

  • Constitutional amendments (pending in Parliament; Standing Committee Report submitted)
  • Drafting of GST law (process started)
  • Strong political commitment (looks a distant reality in present political set up).
  • Arriving at common/general consensus including political agreement (efforts are on)
  • Setting up a high level committee for monitoring the project of GST (Empowered committee is in place).
  • Preparing a blueprint/road map for GST (not clear so far)
  • Creating a conducive environment for GST (slow efforts)
  • Centre-States coordination (efforts on, onus on Empowered Committee)
  • Consolidation of Central Excise, Service Tax and VAT on imports/exports
  • Identification of issues to be resolved (almost done)
  • Interaction with trade and industry and others stock holders concerned (being held)
  • Building up GST infrastructure and administrative machinery
  • Adequate reinvestment administration, training and public education programme.
  • Establishment of information technology systems, software and enabling environment (GSTN is under process)

2014-15 Budget

Interim Budget 2014-15

According to Interim Budget 2014-15 speech of Finance Minister, it can be hoped that Goods and Services Tax (GST) and reforms in Income Tax (Direct Tax Code) shall be the focus of new Government as there was an appeal to all parties to get these through in future. The Government admitted that it was not able to introduce GST but blamed it on opposition parties to have blocked the agreement on this major tax reform. However, he appealed to all parties to get GST passed in 2014-15. In ultimate outcome, GST reform remains an unfulfilled promise and a broken dream.

Union Budget 2014-15 (Main)

It has been stated that the question of whether to introduce Goods and Service Tax (GST) should be introduced or not must now come to an end. It is hoped that Government would be able to find a solution to issues of surrendering tax jurisdiction by states and compensation so that a solution is found in the course of year itself and legislative scheme is introduced which enable the introduction of GST. The budget states that this will streamline the tax administration, avoid harassment of business and result in higher revenue collection, both for the centre and the states. The aim has been to prepare the indirect tax regime for a smooth transition to goods and Service Tax.

Though no clear cut time lines have been set, it is targeted that GST may be introduced in India in 2015-16. The Government has also emphasized on settling the compensation issue of states arising out of Central Sales Tax (CST).

Conclusion

GST is expected to play a key role in bringing about more transparency into the tax system. Instead of fiscal concessions, concessions to select industries on grounds such as environmental protection etc. could be provided in a transparent manner through cash refunds or otherwise. While unified rate may be there, states may be allowed to charge rates most suitable to them such as on alcohol, petroleum products, etc. A very strong infrastructure network would be required to administer GST which would include facility for online payment of tax and e-filing of returns. The GST as a new levy could be a very effective tool and break­through in indirect tax reforms, provided it is made simple and assessee-friendly - not like the present tax system.

Not only GST is expected to change the complexion of indirect taxation in India, it will also bring down the prices of goods and services across the board. The consensus among the states (>30) and between the Centre and states hold the key. Once consensus is reached, GST may see the light of the day in a year's time, even during any time of the year, it being a transaction based tax.

While there is no doubt that GST must see the light of the day, the sooner the better, it should also address the problems in present day taxation i.e., it should seek to achieve rationalization, boost transparency, offer flexibility to Union and states and broaden the much needed tax base. If GST comes into operation, it would achieve the status of integrated and most comprehensive set off tax structure in India leading to enhanced economic activities and tax buoyancy. GST would offer a complete set off and there will be no tax cascading effect as there will be no tax on tax, an ideal proposition for all. Even the Government won't mind as tax revenues would go up substantially (VAT is a live case).

It is felt that GST may seem to be a reality by 2015-2016. The key lies in broad consensus, on simple tax law and commitment of States to a comprehensive tax law which may be a watershed tax reform of the century which our generation will witness. The GST should be a win-win proposition for all - Government, trade, industry and consumers.

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