CHAPTER – 3
ECONOMIC REFORMS IN INDIA SINCE 1991
PART - 9
GOODS AND SERVICE TAX
INTRODUCTION
Broadly speaking,
GST (Goods and Service Tax) is one tax subsuming all other indirect taxes in
the economy. It is said to be national tax. Because, it is an uniform tax across
all states of the country. Only one rate will prevail on one set of goods
across all parts of the country. Accordingly, GST carries the slogan of ‘one
tax, one nation, one market’.
So simple
it appears to be. But GST has covered a long journey of nearly 17 years before
coming to its final shape. Implying, that it was indeed very difficult for the
government to work out a simplified tax structure relating to goods and
services. Pros and Cons of GST are being hotly debated by the cross section of
the society. Opposition to GST is so strong that there have been strikes and
‘bandhs' in many parts of the country, following its introduction.
Time Line –
* The Goods and Service Tax Act 2016 introduced as 122nd
constitutional amendments on 19.12.2014.
* The constitution Amendment Bill was passed by the Lok Sabha
in May, 2015.
* The Bill with certain amendments was finally passed in the
Rajya Sabha on 03.08.2016.
* The Bill Passed by Lok Sabha on 08.08.2016.
* The Bill has been ratified by the required number of States
and has since received the assent of the President on 8th September, 2016.
* The bill has been enacted as the 101st Constitution
Amendment Act, 2016.
* The GST Council has also been notified w.e.f. 12th
September, 2016.
* The Goods and
Service Tax Act 2016 came in to effect from 01 July, 2017.
OBJECTIVES OF GST -
(i) To eliminate the cascading impact of taxes on production and
distribution coat of goods and services.
(ii) Streamlining indirect tax regime
(iii) Growth of revenue in States and Union Territories
(iv) Reduction in transaction costs and unnecessary wastage
(v) Elimination of the multiplicity of taxation
(vi) One Point Single Tax
(vii) Reduction in average tax burdens
(viii) Reduction in the corruption
TYPES OF GST LAWS
(i) Centre Goods and Service Tax (CGST) – It is the GST levied on the
intra state supply of goods and service by the Centre.
(ii) State Goods and Service Tax (SGST) - It is the GST levied on the
intra state supply of goods and service by the State including UTs.
(iii) Integrated Goods and Service Tax (IGST) - It is the GST levied on
the Inter- State supply of goods and service and is collected by the Centre.
IGST is the equivalent to the sum total of CGST and SGST.
SALIENT FEATURES OF GST
(i) GST is applicable on
‘supply’ of goods or services as against the present concept on the manufacture
of goods or on sale of goods or on provision of services.
(ii) GST is based on the
principle of destination-based consumption taxation as against the present
principle of origin-based taxation.
(iii) It is a dual GST
with the Centre and the States simultaneously levying tax on a common base. GST
to be levied by the Centre would be called Central GST (CGST) and that to be
levied by the States would be called State GST (SGST).
(iv) An Integrated GST
(IGST) would be levied an inter-state supply (including stock transfers) of
goods or services. This shall be levied and collected by the Government of
India and such tax shall be apportioned between the Union and the States in the
manner as may be provided by Parliament by Law on the recommendation of the GST
Council.
(v) Import of goods or
services would be treated as inter-state supplies and would be subject to IGST
in addition to the applicable customs duties.
(vi) CGST, SGST &
IGST would be levied at rates to be mutually agreed upon by the Centre and the
States. The rates would be notified on the recommendation of the GST Council.
In a recent meeting, the GST Council has decided that GST would be levied at
four rates viz. 5%, 12%, 16% and 28%. The schedule or list of items that would
fall under each of these slabs has been worked out. In addition to these rates,
a cess would be imposed on “demerit” goods to raise resources for providing
compensation to States as States may lose revenue owing to the implementation
of GST.
(vii) GST would replace
the following taxes currently levied and collected by the Centre:-
(a) Central Excise Duty
(b) Duties of Excise
(Medicinal and Toilet Preparations)
(c) Additional Duties of
Excise (Goods of Special Importance)
(d) Additional Duties of
Excise (Textiles and Textile Products)
(e) Additional Duties of
Customs (commonly known as CVD)
(f) Special Additional
Duty of Customs(SAD)
(g) Service Tax
(h) Cesses and surcharge
in so far as they relate to supply of goods and services.
(viii) State taxes that
would be subsumed within the GST are:-
(a) State VAT
(b) Central Sates Tax
(c) Purchase Tax
(d) Luxury Tax
(e) Entry Tax (All
forms)
(f) Entertainment Tax
and Amusement Tax (except those levied by the local bodies)
(g) Taxes on
advertisements
(h) Taxes on lotteries,
betting and gambling
(i) State cesses and
surcharges in so far as they relate to supply of goods and services.
CONCEPT OF GST:
GST is
essentially a tax on value addition covering the entire range of production
activity from manufacturer to the consumer. If the producer pays CST on the
purchase of inputs, he can avail of (351' credit (input credit) when he
converts inputs into output and there is value addition. Thus, if Good-X passes
through 3 stages of value addition (before becoming a final good), the consumer
is loaded with GST only at the third stage when it is purchased for final
consumption. At the other two stages [which are intermediate stages of
production (and during which output of one firm is used as input by the other)]
tax burden will automatically be siphoned off. Thus, there is no cascading
(compounding) of tax load on the consumer. The following example illustrates this
point:
Firm A manufactures household
furniture.
It buys inputs from different
firms.
Firm A buys some inputs from Firm B
and pays GST = Rs. 10,000.
Firm A buys some more inputs from
Firm C and pays GST = Rs. 20,000.
Firm A buys another set of inputs
from Firm D and pays GST = Rs. 30,000.
Firm A sells its final output to the
households for Rs.10,00,000 and charges 10% GST = Rs. 1,00,000
GST liability of Firm A = GST
charged - GST paid
= Rs. 1,00,000 – Rs. 60,000 (Rs. 10,000
+ Rs. 20,000 + Rs. 30,000)
= Rs. 40,000.
GST of Rs. 60,000 paid by Firm A on
the purchase of inputs is adjusted against GST charged by it (= Rs. 1,00,000).
This is called adjustment of ‘GST credit’ or ‘input credit’.
Final incidence (impact) of CST on
the consumers = Rs. 1,00,000 which is 10% the FINAL PRODUCT.
Briefly, Firm A collects GST of Rs. 1,00,000
from the households (the end-users of household furniture), and it deposits Rs.
1,00,000 –Rs. 60,000 = Rs. 40,000 with the government having adjusted for
‘input credit’ of Rs. 60,000. Input credit is equal to GST paid by Firm A to
Firm B, C and D on the purchase of inputs. The following flow chart further
elaborates this point:
GST Flow Chart
BENEFITS OF GST
In the known perspective, the goods
and service tax has the potential to bring lot many benefits to the nation and
industries associated within. The goods and service tax has lot many advantages
which can be ascertained by given points:
Time-saving:
A single platform for both SGST and CGST is a great concept
to fulfill the taxation process as the taxpayers will be able to return the
taxes with a single click which will surely count as productive and feasible.
Single Tax Rate:
The unity of tax rates has brought a lot of cleanliness into
the system and likewise reduced the paperwork. The main advantage of this is
that it will definitely narrow down the complexity and in turn will give fast
and secured manner of the transaction.
Reduce cascading effect:
One of the main benefits of the Goods and service tax in India that it
will remove the value addition of every product and therefore remove the
cascading effect which burdens the final price of the product. In other words, Prices
of goods are expected to reduce in the long run as the benefits of less tax
burden would be passed on to the consumer.
Control tax evasion:
The online method of tax framework will certainly bring a
transparency and will also find out the source of any tax leakage as the
transactions can be monitored and will improve in helping overall tax
collection.
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.
STRUCTURE
OF GST
GST
Council has specified multi-tier tax structure of 0%. 0.25%, 5%, 12%, 18%, and
28% as applicable to different categories of goods and services. The latest category
list is as under:
TAX
SLAB: No tax (0%)
GOODS
INCLUDED: There will be zero tax imposed on items
such as jute, fresh meat, fish chicken, eggs, milk, butter milk, curd, natural
honey, fresh fruits and vegetables, flour, besan, bread, prasad, salt, bindi.
sindoor, stamps, judicial papers, printed books, newspapers, bangles, handloom,
bones and horn cores, bone grist, bone meal, etc.; hoof meal, horn meal, cereal
grains hulled, palmyra jaggery, salt - all types, kajal, children's' picture,
drawing or colouring books, human hair, khadi purchased from khadi and village
industries stores, clay idols, brooms, cotton seed oil cake, charkha.
SERVICES:
There will be no tax on hotels and lodges with tariff below Rs 1,000. A 0.25
per cent tax will be levied on rough precious and semi-precious stones.
TAX SLAB: 0.25%
GOODS
INCLUDED: Rough Industrial Diamonds including
unsorted rough diamonds. This is almost a national tax category. The idea is to
protect the household enterprises engaged in this production activity.
TAX
SLAB: 5%
GOODS
INCLUDED: There will be a tax of 5 per cent
imposed in products like fish fillet, Apparel below Rs 1000, packaged food
items, footwear below Rs 500, cream, skimmed milk powder, branded paneer,
frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, kerosene,
coal, medicines, stent, lifeboats, Cashew nut, Cashew nut in shell, Raisin, Ice
and snow, Bio gas, Insulin, Agarbatti, Kites, Postage or revenue stamps,
stamp-post marks, first-day covers, Branded food, walnuts, dried tamarind, roasted
gram, Dhoop batti, Corduroy fabric, saree fall, Paper mache items, Oil cakes,
Duty Credit Scrips, Cotton quilts(quilts not exceeding Rs 1000 per piece),
corals, Rosaries and prayer beads, Hawan samagri, Grass, leaf and reed and
fibre products, including mats, pouches, wallets.
SERVICES:
Transport services such as Railways, air transport, small restaurants will be
under the 5 per cent tax category because their main input is petroleum, which
is currently outside GST ambit. Textile job work will also be taxed at 5 per
cent.
TAX
SLAB: 12%
GOODS
INCLUDED: A 12 per cent tax will be imposed on apparel above
Rs 1,000, frozen meat products, butter, cheese, ghee, dry fruits in packaged
form, animal fat, sausage, fruit juices, Bhutia, namkeen, Ayurvedic medicines,
tooth powder, agarbatti, colouring books, picture books, umbrella, sewing
machine, cellphones, Ketchup & Sauces, All diagnostic kits and reagents,
Exercise books and note books, Spoons, forks, ladles, skimmers, cake servers,
fish knives, tongs, Spectacles, corrective, Playing cards, chess board, carom
board and other board games, like ludo, rubber band, Wood, stone, metals,
marble idols, Table and kitchenware, Batters, including idli / dosa batter,
Textile caps, sprinklers, Cotton quilts(quilts exceeding Rs 1000 per
piece),Statues, statuettes, pedestals, ceramic articles, porcelain items,
ornamental articles, bells, gongs, non-electric of base metal, animal carving
material.
SERVICES:
12 per cent tax will be levied on services such as state-run lotteries, non-AC
hotels, business class air ticket, fertilisers and work contracts.
TAX
SLAB: 18%
GOODS
INCLUDED: 18 per cent tax will be imposed on
goods such as footwear costing more than Rs 500, trademarks, goodwill,
software, bidi patta, biscuits (all categories), flavoured refined sugar,
pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces,
soups, ice cream, instant food mixes, mineral water, tissues, envelopes,
tampons, note books, steel products, printed circuits, camera, speakers, kajal pencil
sticks, headgear and parts thereof, aluminium foil, weighing machinery [other
than electric or electronic weighing machinery], printers [other than
multifunction printers], electrical transformer, CCTV, optical fiber, bamboo
furniture, swimming pools and padding pools, curry paste; mayonnaise and salad
dressings; mixed condiments and mixed seasonings, tractor parts, raincoats,
medical grade disposable gloves, computer monitors(up to 20 inch),custard
powder, rice rubber rolls for paddy de-husking machine, kitchen gas lighters.
SERVICES: Hotel services such as AC hotels serving liquor, Room
tariffs between Rs 2,500 and Rs 7,500, Restaurants inside five-star hotels will
attract 12 per cent tax under GST slab. Other services such as telecom
services, IT services, branded garments and financial services are also in the
slab.
TAX
SLAB: 28%
GOODS
INCLUDED: The good under 28 per cent tax slab
includes - bidis, chewing gum, molasses, chocolate not containing cocoa,
waffles and wafers coated with chocolate, pan masala, aerated water, paint,
deodorants, shaving creams, after shave, hair shampoo, dye, sunscreen,
wallpaper, ceramic tiles, water heater, dishwasher, weighing machine, washing
machine, ATM, vending machines, vacuum cleaner, shavers, hair clippers, automobiles,
motorcycles, aircraft for personal use.
SERVICES:
State authorised private-run lotteries, hotels with room tariffs above Rs
7,500, 5-star hotels, race club betting, and cinema are all under the highest
tax slab of 28 per cent.
DEMERITS OF GST
GST is not free from criticism.
Following points are raised against this tax:
(i) Due to compulsions of tax
compliance, small and marginal producers of the shadow economy (where tax is
evaded) may find it difficult to continue their business operations.
(ii) If the small and marginal
producers are eliminated, production activity will decline. Still harder will
be the impact on employment. Because, it is production activity in the shadow
economy which generates most employment opportunities in the country.
(iii) The government proposes to set
up ‘Anti-profiteering Authority' to monitor that the benefits of lower taxation
is actually passed on to the consumers. This authority shall have the right to
cancel registration of such business establishments which are found to be
exploiting the consumers by charging higher price. The business community has
expressed their serious resentment over this issue. They are fearing that the
Anti-profiteering Authority will mean the return of ‘lnspector Raj' leading to
a rise in corruption.
(iv) it is feared that the operating
cost of small and marginal producers will rise owing to the maintenance of
records at all levels of sale and purchase of goods and services.
(v) There is a definite possibility
that post-GST, the prices of some goods and services will rise. This might
contribute to inflationary spiral in the country. Inflationary spiral is also
feared owing to the fact that post-GST nearly 75% goods and services will bear
the incidence (impact) of taxation.
(vi) According to P. Chidambaram
(ex-Finance Minister), small, medium and microscale entrepreneurs are not
GST-prepared. Even when GST is a tax-reform, its introduction should have
waited till these entrepreneurs fully understand the pros and cons of this tax.
These entrepreneurs. according to Chidambaram, are still not clear as to who is
leving GST-state or the centre.
(vii) Petroleum and Electricity are
out of the ambit of GST, even when these products constitute nearly 35-40% of
the economy. This is a serious demerit or deficiency of GST.
EVALUATION
GST is a
national tax replacing multiple of taxes on goods and services in the economy.
‘One tax in place of all' is undoubtedly a significant reform in the field of
taxation. It is also an undoubted fact that GST would increase tax compliance
leading to (i) a rise in tax-GDP ratio, and (ii) elimination of the shadow
economy (even though it may happen only over a longer period of time). Yet. the
flaws related to GST cannot be overlooked. Particularly, the fact that
petroleum products which are a significant source of revenue of the state
governments are out of the ambit of GST.
Presently,
these products are carrying a tax load of nearly 50% of the market price. Given
the fact that the highest GST slab is 28%, if petroleum products are brought in
the ambit of GST, the consumers will get a significant relief by way of price
cut. If GST is being propagated as consumer-friendly, then why not bring
petroleum products in the ambit of GST. Also, the government must allay fears
of the small and marginal entrepreneurs that Anti-profiteering Authority will
not mark the return of ‘Inspector Raj" in the country. This authority
should work for erosion of corruption rather than promoting it through
harassment of the business community.
Briefly,
GST is welcome provided it is implemented in letter and spirit. The government
must make CST as a landmark tax reform rather than a tax regime laden with
fears and apprehensions.
REFERENCE VIDEO
New
Economic Policy / Economic Reforms 1991 – Part 9
(Goods
and Service Tax)
https://youtu.be/DHOsys2FbEU
