One Nation-One Tax: Goods and Services Tax (GST)

Any product that you buy from the market has anMRP (Maximum Retail Price)printed on it. This MRP includes all the taxes to be levied on the product. Have you ever wondered why local taxes, on the same product, are levied at different rates across different states in India?

The reason is that in India taxation is very complex. There are countless Central and State taxes for different categories of goods and services. This complex system of taxation and differential creates a lot of problem not only for common man but Government and investors alike. To do away with innumerable taxes, the Government of India under the able leadership of Prime Minister Narendra Modi and Finance Minister Arun Jaitely have planned to replace all the indirect taxes on goods and services and bring into force one single tax called Goods and Services Tax (GST) from 1st July 2017. The GST bill has been introduced in the Parliament as 122nd amendment of the Constitution of India.

As a finance expert with intense acumen in business and economics, I feel obligated to inform my followers and readers about:

  • What is GST?
  • What are the key features of GST?
  • Why does India need GST?
  • Which are the different taxes being replaced by GST?
  • How will the GST impact the Indian economy in the long term?

GST has been rightly called as ‘Great Step Taken by the People of India’ by our PM Shri Narendra Modi in his landmark speech while addressing both the houses of Parliament in August 2016 before tabling the GST Bill. GST is being branded as the biggest constitutional reform or overhauling of Indirect taxes in independent India which will boost the Indian economy. It is a single, unified tax which justifies the adage ‘One Nation-One Tax’.

GST is set to replace the following Indirect taxes levied by both the State and Central government. 

  • Central Excise Duty, including
    • Levied under the Medicinal andToilet Preparation Act
    • Additional Duties of Excise (Goods of Special Importance)
    • Additional Duties of Excise (Textiles and Textile Products)
  • Service Tax
  • Central Surcharges and Cesses so far as they relate to supply of goods and services
  • State Surcharges and Cesses so far as they relate to supply of goods and services
  • Countervailing Duty
  • Special Countervailing Duty
  • State Value Added Tax (VAT)
  • Central Sales Tax (CST)
  • Entertainment Tax(except when levied by the local bodies)
  • Entry Tax (all forms)
  • Purchase Tax
  • Luxury Tax
  • Advertisement taxes
  • Taxes Applicable on Lotteries, betting and gambling

 

GST proposals have been drafted by the GST Council comprising of Central and State legislatures. The key features under the ambit of GST are:

  • has four tax slabs – 5%, 12%, 18%, and 28% along with cess on luxury and ‘sin’ goods such as tobacco and pan masala. Bidis will be exempt from cess.
    • essential goods will be taxed at lower slab while luxury goods will be taxed at a higher slab
    • services will be taxed at 18%
  • would not be applicable to:
    • Exports
    • Crude oil and its products such aspetrol, diesel, aviation turbine fuel and natural gas.
    • Alcoholliquor for human consumption
    • Furthermore, electricity has been kept out of GST
  • Central GST (CGST) and State GST (SGST) rates would ensure revenue neutrality between Centre and State
  • Integrated GST (IGST) would be levied on goods and services being supplied between states within India
    • IGST would be levied on destination state vis-à-vis the state of origin
    • IGST would be collected by the Centre and accounts will be settled periodically as per mutually agreed timeline
    • IGST has been designed in such a way that the flow of input tax credit from one state to another is smooth

There is a lot of excitement in the trade and industrycommunity and they seem to be eagerly waiting for GSTto come into force. Its simplified structure will positively impact all the aspects of the business operations in the country such as pricing of products and services, accounting and tax compliance. The common man on the street is also very excited as it is expected that commodities and products will become cheaper.

A study conducted by The National Council of Applied Economic Research(NCAER) at the behest of Finance Commission, financial experts and economist have all been suggestingthe manifold benefits of a very well implemented GST. The key benefits envisaged are:

  • Increase in GDP growth by 2-2.5%
  • Increase in exports between 10% to 14%
  • Increase in tax base, compliance and revenue collection
  • Increase Foreign Direct Investments (FDI) and Foreign Institutional Investments (FII)
  • Eliminate cascading effect of tax
  • Harmonize Central and State tax administrations
  • Help in cheaper and faster movement of goods across the country

As a finance expert, I will close this article by stating that GST is another shining jewel in Union government’s crown, which will make the system of taxation efficient, increase the tax base and volume of tax collected, improve the business culture in India, elevate India’s ranking in ease of doing businessand present India as a preferred investment destinationinternationally. I am also very excited about the smooth passage of GST bills in the Parliament and its successful roll out across the country on 1st July 2017.

 

                                                                                                                                   

CA Sunil Kumar Gupta

Business Expert, Economist, Author & Philanthropist

www.sunilkumargupta.com

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