By: Ayushi Raghuwanshi
The passing of the Goods & Services Tax bill has created history in the Indian taxation system. It is a significant breakthrough in the taxation system of India, being the single biggest tax reform. Change is fundamental to growth; the complexities involved in the indirect taxes both at the Central and State level demanded change which has now been brought about by GST. Besides simplifying taxation system, GST is expected to provide numerous benefits to the government, industry, common man, and the Indian economy at large in the long run.
The way for ONE NATION ONE TAX has been paved by GST; various indirect taxes at the central and the state level including excise duty, service tax, value-added-tax, octroi, entertainment tax, luxury tax and other local taxes have been subsumed by GST. GST is intended to expel the cascading impact of taxes (by making available input credit across the value chain), by presenting uniform tax rates across all the states, thereby simplifying administration of taxes.
WHAT IS GST?
The GST is a consolidated indirect tax based on a uniform rate fixed for both goods and services and it is payable at the final point of consumption. It is applicable throughout the country (except Jammu and Kashmir). Under this system, a single product will be taxed at the same rate in every corner of the country meaning that an air conditioner will be taxed the same in Punjab as well as Tamil Nadu, thus we also refer to GST bill as ONE NATION ONE TAX scheme.
The GST levied on the intra-State supply of goods or services by the Centre is Central GST (CGST) and that by the States is State GST (SGST). In the case of imports and inter-State supplies, an Integrated IGST (GST) shall be levied by the central government, proceeds of which will be shared by the central government and the recipient state government.
SIMPLIFYING THE TAX SYSTEM OF INDIA
The uniform pricing across the states will make the country a common market, unifying the country’s economy. Under GST, there is only one tax from manufacturer to consumer, providing transparency to the final consumer. The cascading effect is set aside by GST as credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially, a tax only on value addition at each stage. The consumer will no longer have to bear the burden of tax on tax and inflationary prices as a result of it. The filing of tax has become easier as multiple indirect taxes have been subsumed by the GST, which has significantly reduced the cost of tax compliance and the transaction costs.
In the case of inter-state transaction of goods and services, there was tax-avoidance and double taxation due to origin and destination based taxes, which will be in check by GST as it is a destination-based tax. Earlier, some goods were taxed both in the state of origin and the state of consumption while some skipped taxes in both, which will not happen in the current scenario as the tax has to be necessarily paid in the state of consumption. This will be an encouraging factor to the states which consume more but discouraging to the states which produce them. The exports are consequently zero-rated which is an impetus to increase the country’s exports.
The cost of manufacturing local goods and services will come down resulting from the subsuming of major Central and State taxes in GST and reduction in the time and costs of transportation will also give huge impetus to ‘MAKE IN INDIA’. This will increase the competitiveness of the Indian goods and services in the international market and give a boost to the Indian exports. Moreover, GST has a fast-track process for the refund of duties and taxes to exporters.
Seamless Flow of Goods
GST will have a very significant impact on the logistics sector. Everyone has witnessed the queues of the carrier vehicles at the inter-state check-posts for inspection and payment of taxes. GST will remove these barriers and revolutionise logistics with simplified and unified structure replacing the multiple taxes at various levels. The time for transit will be drastically reduced. There will be reduction in the costs of logistics as the operators will be able to rationalise and restructure the logistical infrastructure. There will be a massive reduction in the queues at the inter-state border check-posts and the cost of holding inventory will eventually come down as there will no longer be a need to hold stocks in warehouses.
Input Tax Credit
The input tax credit means the Goods and Services Tax charged on any supply of goods and/or services that are used or intended to be used, during furtherance of the business. Without input tax credit, there was a cascading effect of taxes, i.e., taxes were levied on the entire value of the intermediate goods and services. The goods and services will become cheaper with the input tax credit.
GST encourages better tax compliance. PAN and Aadhar will be required to file GST returns that will help the income tax department to track transactions, which it was unable to do until now. The dual monitoring structure of the GST, both at the centre and the state, will also assist in curbing tax evasion, so that even if one authority overlooks the matter, the other will prevent evasion.
Attract Investment in India
The tax transparency, ease of doing business, and the integration of the Indian economy into a single economy as achieved by GST, will attract more foreign direct investments in India.
Many countries are already familiar with GST and India has altogether entered the global regime with the passing of GST bill. India’s GST is a bit complicated and different from what is prevalent in other nations. India’s GST is different as the Centre and the State will jointly administer the dual GST. India is amongst the very few nations with dual GST regime alongside Canada and Brazil.
Boosting India’s GDP
The several benefits which GST offers – easing the cumbersome taxation system, helping smooth movement of goods across state borders, improving tax compliance, increasing revenues, boosting exports, attracting investments by improving ease of doing business, entering unified tax regime, etc. might go a long way in boosting India’s GDP over the long term.
GST has proposed to make the lives easier in every possible way and benefit the people and economy of India. GST has marked a new era in the Indian taxation system being the greatest reform since independence. With due implementation and the necessary corrective measures needed, if any, GST is set to achieve its purpose.
(Ayushi is currently a student at Amity Law School, Amity University, Rajasthan)