Goods and Services Tax is implemented with effect from 1st July, 2017 and which is welcomed by all the stakeholders, Central and State Governments, Industry and Trade and ultimately the customer who expect the prices to come down when the manufacturers/traders pass on the benefits.
It is also keenly welcomed by legal, Accounting and Audit professionals who see a great opportunity for their profession.
Why GST needs to be introduced in India:
The present design of CENVAT at the Centre and State VATs remained dictated by the constraints imposed by the Constitution, which allows neither the Centre nor the States to levy taxes on comprehensive basis of all goods and services which are provided to the ultimate end customer. The Centre is constrained from levy of tax on goods beyond the point of manufacturing and the States in extending the tax to services whereby all the goods and services in use are not taxed under a common tax base. Besides, complexities have increased when service tax was introduced on the services which are malleable in nature and can often package into composite bundles that include services as well as material which has both taxable as well as non-taxable elements. This division of tax powers makes both the CENVAT and State VATs partial in nature and contributes to their inefficiency and complexity for having the taxation effectively administered. Also even now, there are several taxes which are in the nature of indirect tax on goods and services viz., luxury tax, entry tax and entertainment tax yet to be subsumed in the VAT or CENVAT. Moreover, under the present State level VAT scheme, CENVAT load on goods remains included under State VAT and contributing to the cascading effect on account of CENVAT element. Goods are getting cover of services, their classification becoming more challenging for tax authorities as well as assesses, example software. In markets today, goods, services and other types of supplies are being packaged as composite bundles and offered for sale to consumers under a variety of supply chain arrangements. Under the current division of tax powers, neither the Centre nor the States can apply the tax to such bundles in a seamless manner. Each can tax only parts of the bundle creating the possibility of gaps or overlaps in taxation. Therefore, a comprehensive tax regime on goods and services, namely GST should be introduced, taxable on supply as a destination based tax.
GST would replace the following levy:
- Excise and Service Tax collected and levied by the Centre
- Central Excise duty
- Duties of Excise (Medical and Toilet preparations)
- Additional Duties of Excise (Goods of Special Importance)
- Additional Duties of Excise (Textiles & Textile products)
- Additional Duties of Customs (SAD)
- Service Tax
- Central Surcharges and Cess
Value Added Tax and CST - Central Sales Tax collected and levied by the State
- State VAT
- Central Sales Tax
- Luxury Tax
- Entry Tax
- Entertainment and amusement tax
- Taxes on advertisements
- Purchase Tax
- Taxes on lotteries, betting and gambling
- State surcharges and levies
GST would result in free flow of tax credit for intra and inter-State levels. GST would be a dual levy with the Centre and State levying it on a common tax base.
The levy by Centre would be CGST - Central GST and by State it would be SGST - State GST. Similarly, there will be IGST - Integrated GST on interstate supply of goods & services which will be levied and administered by the Central Government.
Major advantages of GST are:
- Maintenance of uninterrupted ITC chain on inter-state transactions
- No upfront payment of tax or substantial blockage of funds for the inter-state seller or buyer
- No refund claim in exporting State, as ITC is used up while paying the tax
- Self-monitoring model
- Ensures tax neutrality while keeping the tax regime simple
- Simple accounting with no additional tax burden on the taxpayer
- Would facilitate in ensuring high level of compliance and thus higher collection efficiency. Model can handle ‘Business to Business’ as well as “Business to Customer” transactions
Under GST, imports will be treated as inter-state supplies and IGST will be levied.
Incidence of taxation will follow the destination principle and SGST will accrue to the State where imports are consumed.
The taxable event under the present laws:
Excise duty will be levied on manufacture and payment will be made at factory/depot at the time of removal.
Service Tax will be levied on services rendered and payment will be made on invoice.
VAT/CST will be levied on transfer of property at the time of invoice.
Taxable event under GST shall be supply of goods and or services and supply includes all forms of supply of goods or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration and includes import of goods and service.
Inter-state stock transfers will be taxable as registration in each State is mandatory even if there is no consideration and sale is not concluded.
Hire purchase will be treated as supply of goods.
Transfer of right to use shall be treated as supply of supply of service.
Works contract and catering service shall be treated as supply of service.
Input tax means tax charged on the supply of goods and services which are intended to be used, in the course or furtherance of business.
Input tax credit of CGST, IGST and SGST can be utilized in discharging the liability of IGST.
Input tax credit of IGST and CGST can be utilized for CGST and IGST and SGST can be utilized for SGST liability.
However, there is no cross utilization of SGST liability against CGST liability or vice versa.
Government both at the Centre and State are keen in arresting the revenue leakages and GST would ensure the same.
The Centre and States would gain revenue due to widening of tax base, improved trade volumes and widening of tax compliance.
GST would be transparent and easier to administer.
Industry and trade are concerned about uninterrupted/seamless flow of input tax credit which would help them in bringing the cost of the product which GST would ensure.
To the ultimate customer, the biggest gain would be reduction in the overall tax burden for the goods and service they avail.
Exports would become cheaper and make our products competitive in the international market. Exports would be zero rated and credit of input tax is available.
Logistics business will be big growth driver and will generate huge employment opportunities in the rural India bringing down the cost of warehousing and transportation once GST is implemented.
GST will be great reform in the indirect taxes of our country which will amalgamate a large number of Central and State taxes into a single tax allowing set off prior stage taxes, which would mitigate the ill effects of cascading and pave the way for a common national market with uniform pricing.
This will also ensure achieving the objective of Make in India and Manufacture in India which in turn will create huge employment opportunities and would instantly spur economic growth once GST is implemented.