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GST (Goods and Services Tax) In Detail
The midnight of 30th June, 2017 was a revolutionary one in the history of the Indian economy after the Economic Liberalization of 1991 because that is the day when the Goods and Services Tax came into existence after a lot of debate over the issue in the public domain as well as in the Parliament. This was a tax structure which was billed as the one replacing all the indirect taxes such as service tax, excise tax, customs duty etc. and thereby, unifying the nearly $2 trillion Indian economy. The step brought a lot of changes in the tax structure and obviously, in the monthly budget of the middle class as well as the big corporates operating in our country.
A historic nation-wide tax reform, Goods and Services Tax (GST), came into effect from the midnight of 30th June-1st Ju 2017.
The President, The Vice President, The Prime Minister, The Speaker of Lok Sabha and The Union Finance Minister were present during the occasion held at the Central Hall of Parliament.
On 29th March 2017, the Finance Minister of India presented four Goods and Services Tax (GST) Bills, for passage in the Lok Sabha.
- The Central Goods and Services Tax (CGST) Bill, 2017
- The Integrated Goods and Services Tax (IGST) Bill, 2017
- The Union Territories Goods and Services Tax (UTGST) Bill, 2017
- GST (Compensation to States) Bill, 2017.
They were passed by the Lok Sabha on 29th March, 2017 and by the Rajya Sabha on 6th April, 2017.
- In the current system, the tax is levied at each stage separately by the Central government and the State Government at varying rates, on the full value of the goods. But under the GST system, tax will be levied only on the value added at each stage.
- Hence in the GST system, the final consumer will only bear the GST , which is charged by the last dealer in the supply chain.
CGST and SGST
- For transactions within a State, there will be two components of GST – Central GST (CGST), levied and collected by the Central government and State GST (SGST) by the state government – levied on the value of goods and services.
- In the case of Inter-State transactions, the Centre will levy and collect the Integrated Goods and Services Tax (IGST). The IGST would be approximately equal to the total of CGST and SGST.
Final Structure of GST
- The threshold limit for exemption from GST is Rs. 20 lakh for the State and Rs 10 Lakh for the special category states.
- A four slab tax rate structure of 5%, 12%, 18% and 28% has been adopted for GST.
- A cess would be levied on certain goods such as luxury cars, aerated drinks, pan masala and tobacco products, in addition to the GST rate of 28% .This would be used for payment of compensation to the states. (A cess is a tax that is levied by the government to raise funds for a specific purpose)
- The threshold for availing the Composition scheme is Rs. 75 lakh. (Rs.50 lakh for special category states) and they are required to file quarterly returns only.
- Certain categories of manufacturers, service providers (except restaurants) can not avail the Composition Scheme.
GST Network (GSTN)
- GSTN has been created to function as a common Pass-through portal for taxpayers. On this common portal, taxpayers will submit their registration applications, file the returns, make their tax payments, claim their refunds etc.
- All filings under GST will be done electronically and the network will provide interface to 80 lakh taxpayers of the country and thousands of tax officials. At the back end of the network, the IT systems of CBEC (Central Board of Excise and Customs ) and different states interface with the GST network to provide an efficient processing of tax returns for the taxpayers.
- Registration of existing taxpayers of the State tax administrations and the CBEC to the GST system started on 8th November 2016. More than 66 lakh taxpayers of our country have activated their account in the GST portal.
What is GST etc. etc…..
Well, there has been a lot of discussion in the topic and may be that has contributed to the complexity surrounding this issue.
In simple terms, Goods and Services Tax is an indirect tax cascading all the indirect taxes prevailing in the country. It has been implemented through the 122nd Constitution Amendment Bill. The tax structure has been finalized by the GST Council which is headed by the Finance Minister of India. Basically, all the goods and services have been brought into five tax rate brackets and these are 0%, 5%, 12%, 18% and 28%. However, special rate of 0.25% is applicable for semi-precious metals and 3% on gold under this tax regime. In this regard, France was the first country to implement this kind of tax structure.
GST Journey so far: The Impact…..
For a country like India, GST has been a change that has affected the lives of each and every person in the country and also the NRIs residing outside the country. Because of the diversity of economy, the impact of this tax structure needs to be understood with respect to various sectors operating in India. In this article, we shall try to see the consequences of GST on some of the important sectors.
- Manufacturing industry: It has been a boon for this sector in the sense that tax compliance expenses have decreased because of this tax structure. Earlier, they had to pay a number of taxes and that used to increase the administrative costs but with GST around, that has definitely come down. On the other hand, a lot of enterprises had to register for GST and that has come as a boon for the government as it has widened the tax bracket.
- Services sector: Same goes for this sector as well since tax compliance has increased with the increase in tax base. For the existing businesses, it has become easier to comply with the new tax structure.
- E-Commerce sector: This sector has seen exponential growth in the last decade but with the Tax Collection at Source mechanism in place in the GST regime, the major players are not happy with this, however, it is yet to be seen how this pans out in the long run for this sector.
- Agriculture Sector: This sector has seen growth in contribution to the GDP of the country since the transportation of the agriculture products have become a lot easier under the GST regime with a unified tax structure.
- Real Estate sector: The short journey that GST has traversed till date, it is difficult to measure its effect on the real estate sector. However, as any other sector, the real change has been the level of transparency in this sector in terms of tax compliance.
- Automobile industry: This industry is one of the most important one in India but it was also the one which was taxed heavily in form of excise duty, VAT, sales tax, motor vehicles tax, road tax, registration duty etc. With GST around, it has been a lot simpler for the car makers to file taxes and become tax compliant.
- FMCG Sector: This has been one of the many winners under the new tax regime since GST regime has done away with multiple sales depots in way of logistics and transportation of goods. The complexity has reduced and as was envisaged, the tax base has widened.
- Telecommunication sector: This sector has been on the rise in India since the last two decades. After the implementation of GST, the prices of mobiles have come down since manufacturers have saved a lot on management expenses by managing the inventory effectively. On the other hand, handset manufacturers have also been able to save on logistics cost thereby passing it on to the consumers. However, the mobile service providers will require you to pay for more money for your services.
- GDP of India: This is the ultimate parameter of measuring the GST impact and it is yet to be seen since the GDP figures of the September quarter is not out. However, it is to be seen whether GST can bring the economy back on track after a not-so-good first quarter of this financial year which saw India losing the tag of the fastest growing economy to China by registering only 5.7% GDP growth in that period.
These are still early days to judge the actual effect of GST tax regime since it has been a mammoth change in the Indian economy and the first GDP Growth figures after that are yet to be published by the government. However, one thing is for certain and that is tax compliance has increased because of the transparency which comes with GST structure. In the coming days, the effects of the new tax regime need to be studied and necessary changes will be required on the part of the government. No change is easy and given the Indian context, it is all the more difficult to bring about a change of this magnitude as GST. There will be some pros and some cons but on the whole, it has contributed to simplification of a very complex taxation system and that, definitely, is a step towards the right direction despite the fact that the jury is still out on whether GST is boon or bane for the Indian economy.
4 GST Supplementary Bills: All You Need To Know
“GST is going to bring one of the biggest reforms in the economic history of India by way of One Nation One Tax Regime.”
- The Union Cabinet on March 20, 2017 approved four Goods & Services Tax (GST) Supplementary Bills, which would now be introduced in the Parliament during the ongoing Budget session.
- The Cabinet meeting, Chaired by Prime Minister Narendra Modi, focused exclusively and solely on the GST legislations i.e. GST was the only agenda of the Union Cabinet.
- These four supplementary GST legislations include Central GST (C-GST), Integrated GST (I-GST), Union Territory GST (UT-GST), and the GST Compensation to the States Law.
- The four bills were earlier approved by the GST Council headed by Union Finance Minister Arun Jaitley, after a minute clause by clause discussion during its 12 meetings held during the last six months.
- State GST (S-0GST), already approved by the GST Council, has to be approved and passed by each of the state legislative assemblies, whereas the four GST Supplementary laws stated above have to be approved by the Parliament.
- These four bills would be introduced in the Lok Sabha as Money Bills before the end of this week. It may be noted that a Money Bill does not require approval from the Rajya Sabha.
- Thus, the Government has come closer to the implementation of the All-India Taxation Regime by way of GST.
- Passage of all these legislations as stated above is crucial as these would pave the path for the introduction of the historical tax reforms through Goods and Services Tax (GST) with effect from July 1, 2017 as desired by the Union Finance Ministry.
- Narendra Modi Government is quite hopeful that the C-GST, I-GST, UT-GST and the GST Compensation to the States Law will be approved in the ongoing session of Parliament and the S-GST by each of the state legislatures before the end of June 2017.
- In the words of Arun Jaitley, “Narendra Modi government is optimistic about rolling out the GST as per its revised deadline – July 1”.
Assent of the President:
- It may be noted here that the original GST Bill got President Pranab Mukherjee’s assent on September 8, 2016, after being ratified by 16 states. It was passed by the Parliament on August 03, 2016.
Prime Aim of GST:
- Prime aim of GST is ‘One Nation One Tax Regime’. GST seeks to replace India’s complicated tax regime comprising 17 different charges with a single levy.
- A composite GST will be charged on sale of goods or rendering of services after the implementation of the GST after the passing of GST Act in toto and the tax revenue would be shared between the Centre and the states in almost equal proportion.
- The GST will merge into it Central taxes like Excise Duty and Service Tax and State Levies like Value Added Tax (VAT).
Slabs of Taxation under GST:
Effects and Implications of GST bill
“GST has been positioned as a comprehensive indirect tax on the sale, manufacture, and consumption of different kinds of goods and services throughout India and thus the GST will have far-reaching implications through uniformity in the tax rates across various States and Union Territories.”
Passing of the GST: .
Since the GST is a ‘Money Bill’, its status as a ‘money bill limits the intervention of Rajya Sabha. The decision of passing of the GST Bill is solely in the hands of the Lok Sabha. Rajya Sabha may make some ‘suggestions’ if it so desires; which may or may not be implemented by the Union Government. In case the Rajya Sabha does not revert back the bill since its placement in the Rajya Sabha, it will be assumed as having been passed by it.
Effects of the GST:
The foremost effect of GST is that it is expected to bring uniformity and simplicity in the tax regime. Once GST is implemented it is going to make things more efficient. GST will lead to increased tax compliance. GST will boost growth rate and curb corruption as well as curbing black money generation. Once implemented, GST, billed as India’s most ambitious reforms move, will stitch together a common national market, dismantle fiscal barriers among states and consolidate a patchwork of various state and central duties such as VAT and Excise into a single tax.
Importance of the GST:
The introduction of the GST would mark a watershed moment in the tax reform landscape of the country. The GST has so far been hailed as a singular decisive reform which will remove inter-state tax barriers and rid the economy of the burden of cascading tax, integrating national trade and altering prices of goods and services favorably.
Pre-Implementation Implications of the GST:
The next impediment is that most of the small businessmen do not understand the new set of rules through GST. But the Union Finance Minister has himself assured, “Government will extensively support industry and the trading fraternity in understanding and implementing the new rules, during the three-month gap between the passage and nation-wide roll-out of GST.”
Implications of the GST:
Some of the salient features of the GST and the implications through the implementation of the GST are listed hereunder:
- The foremost implication of the GST is that it is going to add up to 2% to India’s economic growth. This may be a big gain in terms of revenue collections, improved GDP figures.
- The GST may accelerate the inflation rate upwards and the increased inflation rate may become a big headache for not only the RBI and the Union Finance Ministry but also for Narendra Modi Government.
- GST will help to attract more foreign direct investments across various sectors due to tax transparency and ease of doing business.
- According to Pullela Nageswara Rao, Chief Commissioner of Central Excise, Customs and Service Tax, Kerala, “Implementation of GST will help trade and industry and there is no need to have any room of concern about its implementation, and GST is indeed a good tax,”
- Investors will have to shell out more for buying mutual fund products after the implementation of the GST.
- Chartered Accountants in India will have huge opportunities and challenges before them when the GST is implemented and the CAs would have to play a vital role in addressing issues such as curbing black money.
- Hospitality and luxury industry experts have said implementation of the GST will benefit the Hospitality Sector by lowering costs for consumers and facilitating seamless movement of the products across the country.
Special Note # 1:
The word “GST” (Goods and Services Tax) was first of all used in his Budget Speech in 2006-07 by the then Union Finance Minister P Chidambaram in Lok Sabha on February 28, 2006.
Special Note # 2:
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