GST Services

GST – The Game Changer

The genesis of the introduction of GST in the country was laid down in the historic Budget Speech of 28th February 2006, wherein the then Finance Minister laid down 1st April, 2010 as the date for the introduction of GST in the country. Thereafter, there has been a constant endeavor for the introduction of the GST in the country whose culmination has been the introduction of the Constitution (122nd Amendment) Bill in December, 2014.

Why GST?

A common refrain in the popular discussions is what is the need for the introduction of GST? To answer that question, it is important to understand the present indirect tax structure in our country. Presently the Central Government levies tax on manufacture (Central Excise duty), provision of services (Service Tax), interstate sale of goods (CST levied by the Centre but collected and appropriated by the States) and the State Governments levy tax on retail sales (VAT), entry of goods in the State (Entry Tax), Luxury Tax, Purchase Tax, etc. It is clearly visible that there are multiplicities of taxes which are being levied on the same supply chain.

There is cascading of taxes, as taxes levied by the Central Government are not available as setoff against the taxes being levied by the State governments. Even certain taxes levied by State Governments are not allowed as set off for payment of other taxes being levied by them. Further, a variety of VAT laws in the country with disparate tax rates and dissimilar tax practices, divides the country into separate economic spheres. Creation of tariff and non- tariff barriers such as Octroi, entry Tax, Check posts etc. hinder the free flow of trade throughout the country. Besides that, the large number of taxes creates high compliance cost for the taxpayers in the form of number of returns, payments etc

What is GST?

All the taxes mentioned earlier are proposed to be subsumed in a single tax called the Goods and Services Tax (GST) which will be levied on supply of goods or services or both at each stage of supply chain starting from manufacture or import and till the last retail level. So basically any tax that is presently being levied by the Central or State Government on the supply of goods or services is going to be converged into GST.

GST is proposed to be a dual levy where the Central Government will levy and collect Central GST (CGST) and the State will levy and collect State GST (SGST) on intra-state supply of goods or services. The Centre will also levy and collect Integrated GST (IGST) on inter-state supply of goods or services. Thus GST is a unifier that is going to integrate various taxes being levied by the Centre and the State at present and provide a platform for forging an economic union of the country.

This tax reform will lead to creation of a single national market, common tax base and common tax laws for the Centre and States. Another very significant feature of GST will be that input tax credit will be available at every stage of supply for the tax paid at the earlier stage of supply. This feature would mitigate cascading or double taxation in a major way. This tax reform will be supported by extensive use of Information Technology [through Goods and Services Tax Network (GSTN)], which will lead to greater transparency in tax burden, accountability of the tax administrations of the Centre and the States and also improve compliance levels at reduced cost of compliance for taxpayers. Studies indicate that introduction of GST would instantly spur economic growth and can potentially lead to additional GDP growth in the range of 1% to 2%.

Advantages of GST

Advantages for the government:

  • Will help to create a unified common national market for India, giving a boost to foreign investment and “Make in India” campaign;
  • Will mitigate cascading of taxes as Input Tax Credit will be available across goods and services at every stage of supply;
  • Harmonization of laws, procedures and rates of tax between Centre and States and across States;
  • Improved environment for compliance as all returns are to be filed online, input credits to be verified online, encouraging more paper trail of transactions at each level of supply chain;
  • Similar uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate arbitrage between neighbouring States and that between intra and inter-state sales;
  • Common procedures for registration of taxpayers, refund of taxes, uniform formats of tax return, common tax base, common system of classification of goods and services will lend greater certainty to taxation system;
  • Greater use of IT will reduce human interface between the taxpayer and the tax administration, which will go a long way in reducing corruption;
  • It will boost export and manufacturing activity, generate more employment and thus increase GDP with gainful employment leading to substantive economic growth;
  • Ultimately it will help in poverty eradication by generating more employment and more financial resources

Advantages to Trade and Industry:

  • Increased ease of doing business;
  • Reduction in multiplicity of taxes that are at present governing our indirect tax system leading to simplification and uniformity;
  • Elimination of double taxation on certain sectors like works contract, software, hospitality sector;
  • Will mitigate cascading of taxes as Input Tax Credit will be available across goods and services at every stage of supply;
  • Reduction in compliance costs – No multiple record keeping for a variety of taxes – so lesser investment of resources and manpower in maintaining records;
  • More efficient neutralization of taxes especially for exports thereby making our products more competitive in the international market and give boost to Indian Exports;
  • Simplified and automated procedures for various processes such as registration, returns, refunds, tax payments, etc;
  • Average tax burden on supply of goods or services is expected to come down which would lead to more consumption, which in turn means more production thereby helping in the growth of the industries manufacturing in India.

Advantages of GST

Advantages for the government:

  • Will help to create a unified common national market for India, giving a boost to foreign investment and “Make in India” campaign;
  • Will mitigate cascading of taxes as Input Tax Credit will be available across goods and services at every stage of supply;
  • Harmonization of laws, procedures and rates of tax between Centre and States and across States;
  • Improved environment for compliance as all returns are to be filed online, input credits to be verified online, encouraging more paper trail of transactions at each level of supply chain;
  • Similar uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate arbitrage between neighbouring States and that between intra and inter-state sales;
  • Common procedures for registration of taxpayers, refund of taxes, uniform formats of tax return, common tax base, common system of classification of goods and services will lend greater certainty to taxation system;
  • Greater use of IT will reduce human interface between the taxpayer and the tax administration, which will go a long way in reducing corruption;
  • It will boost export and manufacturing activity, generate more employment and thus increase GDP with gainful employment leading to substantive economic growth;
  • Ultimately it will help in poverty eradication by generating more employment and more financial resources.

Advantages to Trade and Industry:

  • Simpler tax regime with fewer exemptions;
  • Increased ease of doing business;
  • Reduction in multiplicity of taxes that are at present governing our indirect tax system leading to simplification and uniformity;
  • Elimination of double taxation on certain sectors like works contract, software, hospitality sector;
  • Will mitigate cascading of taxes as Input Tax Credit will be available across goods and services at every stage of supply;
  • Reduction in compliance costs – No multiple record keeping for a variety of taxes – so lesser investment of resources and manpower in maintaining records;
  • More efficient neutralization of taxes especially for exports thereby making our products more competitive in the international market and give boost to Indian Exports;
  • Simplified and automated procedures for various processes such as registration, returns, refunds, tax payments, etc;
  • Average tax burden on supply of goods or services is expected to come down which would lead to more consumption, which in turn means more production thereby helping in the growth of the industries manufacturing in India.

Advantages to Consumers:

  • Final price of goods is expected to be transparent due to seamless flow of input tax credit between the manufacturer, retailer and service supplier;
  • Reduction in prices of commodities and goods in long run due to reduction in cascading impact of taxation;
  • Relatively large segment of small retailers will be either exempted from tax or will suffer very low tax rates under a compounding scheme – purchases from such entities will cost less for the consumers;
  • Poverty eradication by generating more employment and more financial resources.

Advantages to States:

  • Expansion of the tax base as they will be able to tax the entire supply chain from manufacturing to retail;
  • Power to tax services, which was hitherto with the Central Government only, will boost revenue and give States access to the fastest growing sector of the economy;
  • GST being destination based consumption tax will favour consuming States;
  • Improve the overall investment climate in the country which will naturally benefit the development in the States;
  • Largely uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate arbitrage between neighbouring States and that between intra and inter-state sales;
  • Improved Compliance levels of the tax payers will contribute greatly in improving the revenue collection of the States.

Current status

  • In order to implement this tax reform, Constitutional (122nd Amendment) Bill (CAB for short) was introduced in the Parliament and passed by Rajya Sabha on 03rd August, 2016 and Lok Sabha on 08th August, 2016.
  • The CAB was passed by more than 15 states and thereafter Hon’ble President gave assent to “The Constitution (One Hundred And First Amendment) Act, 2016” on 8th of September, 2016. Since then the GST council and been notified bringing into existence the Constitutional body to decide issues relating to GST.
  • On September 16, 2016, Government of India issued notifications bringing into effect all the sections of CAB setting firmly into motion the rolling out of GST. This notification sets out an outer limit of time of one year, that is till 15-9-2017 for bringing into effect GST.
  • The Central Goods and Services Tax bill, Integrated Goods and Services Tax bill, Union Territories (without legislature) Goods and Services Tax bill and Goods and Services Tax (Compensation to States) bill have been passed by the Lok Sabha on 29.03.2017 and by the Rajya Sabha on 06.04.2017
  • The following draft GST rules have been approved by the GST Council on 31.03.2017 and have been placed in the public domain:
    • Registration Rules
    • Return Rules
    • Invoice Rules
    • Payment Rules
    • Refund Rules
    • Input Tax Credit Rules
    • Valuation (Determination of the Value of Supply of Goods and Services) Rules
    • Transitional Rules
    • Composition Rules