Implementation of good and services tax (GST) in India

The Goods and Service Tax (GST) is a Value Added Tax (VAT) have been passed in the Rajya Sabha on Aug 3,2016. With 203 vote in favour of the bill after a long struggle. This has become a huge success for the NDA government which was reflected in the voice of the Finance Minister saying ,’it was a historic day.  Once it is implemented, the GST will replace all indirect taxes levied on goods and services by the Indian Central and State governments. In 2000, for the first time the idea of the GST was initiated by the then BJP Government. An empowered committee was also formed for that, headed by Asim Dasgupta (the then Finance Minister of the West Bengal Government) to design the model of the GST and at the same time inspect the preparation of the IT department for its rollout (Phukan, 2015).

What is GST?

Goods and Service Tax (GST) is a comprehensive tax levy on manufacture, sale and consumption of goods and service at a national level. In simple terms, GST may be defined as a tax on goods and services, which is leviable at each point of sale or provision of service, in which at the time of sale of goods or providing the services the seller or service provider may claim the input credit of tax which he has paid while purchasing the goods or procuring the service. It is basically a tax on final consumption (Kumar, 2014).

  In 1954 GST was introduced for the first time in France. Today this tax is spread over 150 countries around the world.GST rates of some of the countries around the world are given below:

On implementation of GST, the following Central and State taxes would be subsumed under the Goods and Services Tax:

Central Taxes : Central Excise Duty, Additional Excise Duties, the Excise Duty levied under the Medicinal and Toiletries Preparation Act, Service Tax ,Additional Customs Duty, commonly known as Countervailing Duty (CVD),Special Additional Duty of Customs - 4% (SAD), Surcharges, and Cesses.

State Taxes: VAT / Sales tax, Entertainment tax (unless it is levied by the local bodies), Luxury tax, Taxes on lottery, betting and gambling, State Cesses and Surcharges in so far as they relate to supply of goods and services, Entry tax not in lieu of Octroi.

Why GST?

Despite the success of VAT in the context of the Indian economy, there are still certain shortcomings in the structure of Central VAT (CENVAT) and the VAT at States.

A major problem with VAT is the way it taxes inputs and outputs. Inputs are taxed at 4 percent and outputs at 12.5 percent. Taxing inputs and outputs at different rates are problematic because what is input in one case can be output in another. At the State level, the problem arises due to classification of goods under different tax schedules.

In the VAT system, taxing service sector is practically difficult. Now days it has become very complex to distinguish between goods and services due to development of information technology and digitization.

The introduction of GST would replace multiple tax with a single tax which would operate at various stages of supply chain, which would do away cascading effect of multiple taxation.

Salient features of the GST:

(i) The GST shall have two components: one levied by the Centre (hereinafter referred to as Central GST), and the other levied by the States (hereinafter referred to as State GST).

(ii) The Central GST and the State GST would be applicable to all transactions of goods and services made for a consideration except the exempted goods and services.

(iii) The Central GST and State GST are to be paid to the accounts of the Centre and the States separately.

(iv) Taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST.

(v) Cross utilization of ITC between the Central GST and the State GST would not be allowed.

(vi) Uniform procedure for collection of both Central GST and State GST would be prescribed in the respective legislation for Central GST and State GST.

(vii) The administration of the Central GST to the Centre and for State GST to the States would be given.

(viii) The taxpayer would need to submit periodical returns, in common format to both the Central GST authority and to the concerned State GST authorities.

(ix) Each taxpayer would be allotted a PAN-linked taxpayer identification number with a total of 13/15 digits.

List of the items outside the GST

Petroleum products [crude, motor spirit (including ATF)], alcohol and tobacco products are being kept outside the GST.

Benefit of GST to businessman:

GST will eliminate the cascading effects of taxes to the businessman. Presently there are lots of compliance to be done by the businessman under various tax (Service tax, Excise, Octroi, Vat, Turnover tax etc) that are compulsory one after another on the supply chain till the time of its utilization. GST will remove all the Indirect taxes levied by state and central government reducing the compliance cost to the businessman.

Benefits of GST to Consumer:

In current tax system final tax to bear by the consumer same will be in the GST also but consumer will be benefited due to elimination of multiple taxes on the product and double charging in the system.

Benefits of GST to Government:

The  GST will increase the tax base but lowers down the tax rates and also removes the multiple point This, will lead to higher amount of revenue to both the states and the central government.  It will also help India to sale the goods overseas at the competitive prices and boost exports also.

Challenges in the implementation of GST:

• The important requirement is that the implementation of the GST by all the states together at uniform rate. Otherwise, it will be really cumbersome for businesses to comply with the provisions of the law.
• Another important challenge is to identify the destination of goods or services. The GST is a destination based tax, not the origin one. In such circumstances, it should be clearly identifiable as to where the goods are going. This may not be so easy in case of services.

If the challenges are taken care of certainly the GST would bring a big boost to our economy by removing all barriers of taxes of the states and central government merging into one single tax system which will be a paradigm shift in the country’s tax system.