GST and its impact on rollout

What is GST?

GST refers to “Goods and Services Tax”. It is an indirect tax which is levied on manufacture, sale & consumption of Goods & Services. All the indirect taxes which are levied at the national level will be consolidated in a single tax with a few exceptions.

GST is levied at every stage of the production- distribution chain with set offs in respect of tax paid at earlier stages. It focuses on final consumption by the consumer.

Illustration on Basic Impact: Base price of a Product X is Rs. 1000. Excise duty is @12%. VAT is levied @ 12.5%. CGST & SGST are charged @ 8% each.

Present Scenario

Base Price = Rs. 1000
Add: Excise Duty @12% = Rs. 120
Total: = Rs. 1120
Add: VAT @ 12.5% = Rs. 140
Total: = Rs. 1260

Proposed Scenario
Base Price = Rs. 1000
Add: CGST @8% = Rs. 80
Add: SGST @8% = Rs. 80
Total: = Rs. 1160

Value to the consumer is quite low in proposed GST model as compared to present position in India. It has been decreased to Rs. 1160 from current value of Rs. 1260. Both CGST & SGST are levied on the base price only.

GST will give a better competitive advantage to the industry on this front. Obviously consumer is also on the gain side in terms of price paid. This will be a ‘win-win situation’ for both the industry and the end users.

In India, GST will be levied by both tiers of Government concurrently. It will be ‘Dual Concurrent Model’ of GST. Central GST will be administered by the Central Government and State GST by respective State Governments. At present, Centre can levy tax on goods and services (e.g., excise duty on goods manufactured, service tax on services), but state has no power to levy tax on services.

Taxes to be Subsumed in GST

A. CGST will subsume following taxes -:

• CENVAT
• Additional Excise Duty
• Additional Custom Duty i.e. CVD, SAD and other domestic taxes on import of goods
• Cesses levied by the Union e.g., Cess on rubber, tea, coffee, etc.
• Service Tax
• CST
Surcharges levied by the Union e.g., National Calamity Contingent Duty, Education Cess, Special Additional Duties of Excise on Motor Spirit and High Speed Diesel (HSD).

B. SGST will subsume following taxes -:

• VAT
• Purchase Tax
• State Excise Duty except on liquor
• Entertainment Tax
• Luxury Tax
• Octroi
• Entry tax in lieu of Octroi
• Taxes on Lottery, betting and gambling

Taxes not to be Subsumed in GST

A. In CGST

• Basic Custom Duty
• Excise Duty on Tobacco
• Export Duty
• Specific Cesses

B. In SGST

• Tax on Liquor
• Toll Tax
• Environment Tax
• Road Tax
• Property Tax
• Stamp Duty
• Tax on consumption of Electricity

Advantages of GST

• GST will result in abolition of multiple taxes on goods and services.
• There will be only two to three floor rates of tax for goods and services, thereby removing a great deal of confusion.
• It will reduce compliance cost and increase voluntary compliance.
• GST will widen the tax base with comprehensive goods and services.
• Corruption and litigation will be minimized.
• Employment rate will be on high side.
• GST will promote in reducing cascading effects of taxes in our economy.
• Exports will be promoted since they will now become zero rated.

What is RNR and its importance in GST?

RNR stands for Revenue Neutral Rate. With the introduction of GST, Government’s revenue will decline due to tax credit mechanism and other factors. To bring the proposed revenue at par with present tax structure, suitable adjustment is required in tax rate. This rate is termed as ‘Revenue Neutral Rate’. At RNR, tax revenues will be same as present despite giving credit of duty paid on inputs and other factors.

Factors for Determination of RNR- :

1. Present Tax Rates

• Excise Duty which is levied at different rates,
• CVD on goods imported
• Service tax rate
• State Vat rates
• Collection of Government from these levies

2. Tax base which will be comprehensive in GST

• Excise Duty may be levied on a lower base by the States. Presently, threshold limit under CENVAT is Rs. 1.5 Crores. Under GST, it may be between Rs. 10-20 Lakhs.
• Excise duty will be levied upto retail level instead of at manufacturing point only.
• Number of Services will increase.
• Some Exemptions may be withdrawn.
• Tax rates will be two or three instead of multiple rates.

How GST Success Depends upon RNR ?

This is the basic truth that success of GST will largely depend upon fixation of RNR at Central & State levels. RNR will be most workable when it is acceptable to the common man as well as revenue neutral for the Government.

Every effort should be so made that GST rate is set as low as possible. There should be no revenue loss from proposed changes and a normal growth is also maintained. The Finance Ministry of India has asked the Revenue Department to make an advance payment of Rs. 500 Crores to States as a compensation of GST.

Expected GST Rates in India:

GST rates are expected to be 12 % to 20% for the first year, 12% to 18% for the second year and 16% for the third year and onwards.

GST ROLLOUT

GST implementation will certainly promote Indian growth. It is expected that present value of GST will be half a trillion dollars, meaning gains of nearly 15 billion dollars annually to our economy.

No doubt, implementation of GST is not an easy task for us. Many challenges will have to be faced on various fronts. Every major reform certainly is objected for its drawbacks. Same is the case with GST.

It is a long time for GST from April 1, 2010 till now!!!!!!!! We all are waiting.........April 1, 2016 deadline seems difficult to achieve since ‘The Constitution Amendment Bill, 2014’got stuck in Rajya Sabha where NDA doesn’t have majority to pass the bill............... Hope our government will reach to a consensus in this Winter Session to initiate GST at the earliest.

CA Neha Gupta
B.com, ACA, AIR (Final) 36
Partner
LNG & Associates
Chartered Accountants
Net:- lng.cafirm@gmail.com