GST- A NEW DIMENSION IN INDIAN TAX SYSTEM
Student, 2nd Year, LLC, Greater Noida
The Rajya Sabha has unanimously passed The Constitution (122nd Amendment) (GST) Bill, 2014 to introduce the goods and services tax (GST). With this passage of bill, India took giant step in structural indirect taxation reform and paved way for the concept of one nation, one tax and one market. To cut down the administrative huddles and puzzled present tax system in India, the Modi led government is keen on introducing GST, the rationale behind the uniform tax system is to simplifying the tax system and to boost the revenue which is expected to rose upto 1.5% of present tax collection. Experts are also of the view that it can help to minimize the fiscal deficit. The Government of India is committed to replace all the indirect taxes levied on goods and services by the Centre and States and implement GST by April 2017.With GST, it is anticipated that the tax base will be comprehensive, as virtually all goods and services will be taxable, with minimum exemptions.
GST will be a game changing reform for the Indian economy by creating a common Indian market and reducing the cascading effect of tax on the cost of goods and services. It will impact the tax structure, tax incidence, tax computation, tax payment, compliance, credit utilization and reporting, leading to a complete overhaul of the current indirect tax system.GST will have a far-reaching impact on almost all the aspects of the business operations in the country, for instance, pricing of products and services, supply chain optimization, IT, accounting, and tax compliance systems.
The congress wants a provision capping the GST rate at 18 percent to be added to the bill itself. It also wants to scrap the proposed 1 percent additional levy (over and above the GST) for manufacturing states. This levy was demanded by manufacturing state who argued that they needed to be compensated for the investment they had made for improving their manufacturing capabilities. The centre had agreed to this demand to encourage the state to support GST bill.
The third demand by the Congress was to change the composition of the GST council—the body that decides the various nitty-gritty’s like rates of tax, period of levy of additional tax, principles of supply, special provisions to certain states, etc. The proposed composition is for the Council to be two-thirds comprised from states and one-third from the Centre. The Congress wants the Centre’s share to be reduced to one-fourth. This demand, however, was rejected by even the Rajya Sabha Standing Committee.
GST is believed to be the single most powerful tax reform that India will see. The objective is to break down state boundries and to end the headache of multiple taxes. For sale within a state, currently we pay VAT, Exercise duty and Sales tax. But under the new system, we will only pay a state GST(SGST) and central GST(CGST). For sale outside the state, we pay a Central Sales Tax, Exercise and a whole host of other local taxes. Under the new GST system of taxation, we will pay a fixed Integrated GST (IGST) which will be collected by the Centre. For example, a phone manufactured in Tamil Nadu and sold in Punjab will cost the same anywhere, as it would – should the phone were to be sold within Tamil Nadu. Under the current regime, hypothetically speaking, a 100 rupee phone manufactured in Chennai sent in a truck to Chandigarh through six states with each state levying tax plus the central taxes will cost 130 rupees by the time it reaches its destination. But Under GST, assuming the revenue neutral rate to be 18%, a 100 rupee phone manufactured in Chennai sent in a truck to Chandigarh will cost just 118 rupees by the time it reaches because we will pay one Integrated GST (IGST) to the Central government. So GST aims to make India one unified market, provided all states implement GST and all states comply with the same rates. So while it is a tall order, it will need every state to come together to make it happen!
This Article was prepared or accomplished by Shubhangi Sharma , Student of LLC Greater Noida in his personal capacity. The opinions expressed in this article are the author’s own and do not reflect the view of the LawOF.in
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