FOUR YEARS OF THE GST

FOUR YEARS OF THE GST

Context

• Recently, the Central Board of Indirect Taxes and Customs (CBIC) decided to felicitate around 54,000 taxpayers to mark the competition of 4 years of Goods and Services Tax (GST).

MORE ABOUT GST

• GST is India’s biggest tax reform in 60 years. It is an Act one if its kind and whereas many countries across the world have adopted this Act. India, with its wide diversity, has adopted this much talked about act in its unique way. India has excellently converged the “One Nation One Tax” slogan with the diverse nature of transactions and inequalities that exist in our nation.
• GST Act is centrally governed by a GST Council which is represented by the Finance Minister and representatives of all other States. GST Council shall be responsible for all major decisions regarding the act.
• GST Council:
• It is a constitutional body (Article 279A) for making recommendations to the Union and State Government on issues related to GST.
• The GST Council is chaired by the Union Finance Minister and other members are the Union State Minister of Revenue or Finance and Ministers in-charge of Finance or Taxation of all the States.
• It is considered as a federal body where both the centre and the states get due representation.
• Central level, the following taxes are being subsumed:
  • Central Excise Duty,
  • Additional Excise Duty,
  • Service Tax,
  • Additional Customs Duty commonly known as Countervailing Duty, and
  • Special Additional Duty of Customs.
• At the State level, the following taxes are being subsumed:
  • Subsuming of State Value Added Tax/Sales Tax,
  • Entertainment Tax (other than the tax levied by the local bodies),
  • Central Sales Tax (levied by the Centre and collected by the States),
  • Octroi and Entry tax,
  • Purchase Tax,
  • Luxury tax, and
  • Taxes on lottery, betting and gambling.

ADVANTAGES OF GST

Advantages for the government:

• It helped to create a unified common national market for India, giving a boost to foreign investment and “Make in India” campaign;
• It led to 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 reduced 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 created greater certainty to taxation system;

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;
• 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

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.

GST: CHALLENGES (Ref – Mrunal Patel)

• High Rates and Multiple Slabs – If Union and States abolished existing indirect taxes (Excise, Custom and VAT), then their revenue income will obviously decline. Therefore, GST rate needed be high enough to sustain any fall in revenue collection. Such ‘ideal’ rate of GST, is called Revenue Neutral Rate (RNR). In, Singapore GST only 7%, Australia GST only 10%.
  • Whereas in India we’ve FOUR SLABS: 5-12-18-28% slabs. Many daily necessities are in 18% GST slab. Indirect taxes regressive in nature & harm purchasing power of poor.
• Petrol, diesel, electricity: not subjected to GST regime yet, So, businessman cannot claim GST-input credit on them.
• Frequent changes harming long term business planning – Frequent changes in GST rates makes it difficult for the companies to plan long term business strategies. 15th Finance Commission Chairman NK Singh criticized frequent changes in GST rates.
• Fall in revenue collection – Tax collections have suffered in wake of the Coronavirus pandemic and consequent lockdown.

Demand for rate cut – Experts have reckoned that the economic crisis caused due to the Coronavirus pandemic is likely to cripple a number of industries especially hospitality, travel and tourism. Obviously, a number of industries are going to demand rate cuts and exemptions – this is going to be quite a challenge for the Government, both Centre and State as any sort of rate cuts will lead to lower revenue collections.

• Adapting to The IT Ecosystem is Hard – Indian economy is majorly driven by small business units i.e SMEs. It will be unfair to expect small-scale business firms to make the transition to an online IT platform and expect no errors in return filing. It is an uphill task for the majority of our working population which has little hands-on experience with IT solutions. The cost of SRP deployment is a major concern for micro-small-medium scale enterprises
• GSTN server crashes often so traders can’t upload things on time, and then they’ve to pay penalty for crossing monthly deadlines.

WAY FORWARD

• The law is still a ‘work-in-progress’ and the process of evolution, in such a complex journey, cannot be eliminated. The Government should continue to take measures to deliver on its promise of a ‘Good & Simple Tax’ in the times to come.