Wednesday 28 September 2016

GST Simplified

The introduction of Goods and Service Tax ( GST ) would be a significant step in the field of indirect taxation reforms in India. GST would mitigate double taxation by amalgamating central and state tax into a single tax. Currently goods and services sold in India are taxed at 25%- 30% from the source to consumer by state, central and local administration. Post GST, the tax on goods and services is expected to be 18%. The Cabinet Committee of Economic Affairs calls 18% GST as neutral rate and most state finance minister agree on the same. The Constitution 122nd Amendment Bill ( GST Bill ) is passed unanimously by LokSabha and RajyaSabha. With the Odisha assembly approving the Constitutional Amendment Bill for GST, the requirement of 50 percent of states and UTs ratifying it has been completed.

The idea of moving towards GST was first mooted by then Finance Minister P Chidambaram in his 2006-07 budget. It was proposed then that the GST would be implemented by 1st April 2010. But the loss in revenue faced by states was not compensated. Manufacturing states like Maharashtra, Gujarat, Tamil Nadu, Karnataka and big city corporations of Mumbai and Bengaluru will face revenue loss. But the Government of India have decided to compensate the losses by implementation of GST.
GST Timeline - Ernst & Young Report

Features of GST
  • GST would be applicable on supply of goods and services as against the present concept of tax on the manufacturing of goods or sale of goods or on provision of services.
  • GST would be a destination based tax as against present concept of origin based tax.
  • It would be a dual GST with the Centre and the States simultaneously levying it on common base. GST levied by central government would be CGST and state government would be SGST.
  • Goods flowing from one state to another would be levied on  Inter-state GST. The move would bring huge relief for e-commerce and logistics companies. IGST would be collected by centre to avoid cascading effect of tax.
  • For the initial period of two years or further extended on the recommendations of GST Council, a non-vatable additional tax of 1% would be levied on inter-state supply of goods.
  • CGST, SGST and IGST would be levied at the rate mutually agreed upon by the centre and state under the aegis of GST Council.

GST would replace these central taxes
1. Central Excise duty,
2. Duties of Excise ( Alcohol for medical use, Narcotic Drugs, Opium, Cocaine, Morphine ),
3. Additional Duties of Excise ( Textile products)
4. Service Tax
5. Countervailing Duty ( additional excise for anti-dumping )

GST would replace these state taxes :
1. State VAT
2. Central Sales Tax
3. Purchase Tax
4. Luxury Tax
5. Entry Tax
6. Entertainment Tax
7. Taxes on advertisements
8. Taxes on lotteries, betting and gambling.

  • GST would apply to all goods and services except Alcohol for human consumption, Electricity and Real Estate.
  • Tobacco and Tobacco products would continue to incur additional excise duty.
  • GST on petroleum products would be applicable from a date recommended by the GST council.
  • Tax payers below the turnover of 20 lakhs per annum would be exempted from GST. More details on compounding tax awaited from GST Council.

The Constitution (122nd Amendment) Bill, 2014 has been approved by Loksabha and the RajyaSabha. A GST Council would be constituted comprising the Union Finance Minister, the minister of state (revenue) and the state finance minister to discuss and recommend the GST rate, inclusions, threshold and exemptions.To ensure harmonisation between centre and state, decision in GST Council would be taken by a majority of not less than three-fourth of the total votes cast and the states taken together would have two-third veto power. More than 18 states have ratified the bill and even President Pranab Mukherjee have approved the GST Bill. Goods and Service Tax Network was set-up for robust IT backbone to enable swift tax eco-system.

Read More - GSTN - Building the World's Largest Tax System

- Chaitanya Kulkarni ( )