GOODS AND SERVICE TAX PROSPECTIVE IN INDIA

The tax a burden on assesses or individual or person within a jurisdiction of sovereign and nation is been levied by certain and specified tax liability by enforcing authority as legitimated by government.

The Goods and Service Tax (GST) is a Value Added Tax (VAT) to be implemented in India, from April 2016. GST stands for “Goods and Services Tax”, and is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. It will replace all indirect taxes levied on goods and services by the Indian Central and State governments. It is aimed at being comprehensive for most goods and services. India is a federal republic, and the GST will thus be implemented concurrently by the central and state governments as the Central GST and the State GST respectively. Exports will be zero-rated and imports will be levied the same taxes as domestic goods and services adhering to the destination principle.

The journey of Tax started in India by concern In 2000, the Vajpayee Government started discussion on GST by setting up an empowered committee. The committee was headed by Asim Dasgupta, (Finance Minister, Government of West Bengal). It was given the task of designing the GST model and overseeing the IT back-end preparedness for its rollout. It is considered to be a major improvement over the pre-existing central excise duty at the national level and the sales tax system at the state level, the new tax will be a further significant breakthrough and the next logical step towards a comprehensive indirect tax reform in the country.

Keeping this overall objective in view, an announcement was made by Palaniappan Chidambaram, the Union Finance Minister, during the central budget of 2007–2008 that it would be introduced from April 1, 2010 and that the Empowered Committee of State Finance Ministers, on his request, would work with the Central Government to prepare a road map for introduction of GST in India.

After this announcement, the Empowered Committee of State Finance Ministers decided to set up a Joint Working Group on May 10, 2007, with the Adviser to the Union Finance Minister and the Member-Secretary of Empowered Committee as co-convenors and the concerned Joint Secretaries of the Department of Revenue of Union Finance Ministry and all Finance Secretaries of the states as its members. The Joint Working Group, after intensive internal discussions as well as interaction with experts and representatives of Chambers of Commerce and Industry, submitted its report to the Empowered Committee on November 19, 2007.

This report was then discussed in detail in the meeting of Empowered Committee on November 28, 2007. On the basis of this discussion and the written observations of the states, certain modifications were made, and a final version of the views of Empowered Committee at that stage was prepared and was sent to the Government of India (April 30, 2008). The comments of the Government of India were received on December 12, 2008 and were duly considered by the Empowered Committee (December 16, 2008).

With heterogeneous State laws on VAT, the debate on the necessity for a GST has been reignited. The best GST systems across the world use a single GST, while India has opted for a dual-GST model. Critics claim that CGST, SGST and IGST are nothing but new names for Central Excise/Service Tax, VAT and CST, and hence GST brings nothing new to the table. The concept of value-added has never been utilised in the levy of service, as the Delhi High Court is attempting to prove in the case of Home Solution Retail, while under Central Excise the focus is on defining and refining the definition of manufacture, instead of focusing on value additions. The Revenue can be very stubborn when it comes to refunds, as the Maharashtra Government proves, and software entities that applied for refunds on excess service tax paid on inputs discovered.

The all-new Cenvat Credit Rules, 2014 do little to clarify eligibility for input credits, by using general terms such as “ any goods which have no relationship whatsoever with the manufacture of a final product” and “ services used primarily for personal use or consumption of any employee’’. Before penning the GST Act and Rules, the Empowered Committee would do well to take a hard look at all the present laws that GST subsumes and their complexities. It could tempt them to rethink on the necessity to draft even the preamble.

This change in the tax structure is going to have a huge impact in the current supply chain of India. It is currently sub-optimal, and has been structured in such a fashion to avoid taxes. The supply chain tax structure of India can be broadly classified in the following categories. Threshold limit of traders, with turnover below 10 lakhs, need not register, is a concept brought from VAT system. This can cause ambiguity.  The argument that small traders can not be handled by the system is not true. A country that can give a Unique ID to every citizen, can as well give registration service to small traders. They should not be eliminated from the Tax system. Even the compounding system, of charging 0.5% for the traders with below 50 lakhs turnover, can cause undesirable results. They also should not be eliminated from the tax system. It is not fair to restrict them from certain trade activities, such as selling to other states. The registered trader will have to face loss of input tax, if he buys either from threshold trader or compounded traders.

The objectives of GST; One of the main objectives of GST would be to eliminate the cascading impact of taxes on production and distribution cost of goods and services. The exclusion of cascading effects i.e. tax on tax will significantly improve the competitiveness of original goods and services which leads to beneficial impact to the GDP growth. It is felt that the GST would serve a superior reason to achieve the objective of streamlining indirect tax regime in India which can remove cascading effects in supply chain till the level of final consumers only when all such above mentioned indirect taxes are completely included in GST. It is understood that alcohol, tobacco and petroleum products will not be enclosed by GST as alcohol and tobacco are considered as Sin Goods, and governments do not like to allow free trade on these property.  

Scope and jurisdiction of GST; The introduction of GST at the Central level will not only include comprehensively more indirect Central taxes and integrate goods and service taxes for the purpose of set-off relief, but may also lead to revenue gain for the Centre through widening of the dealer base by capturing value addition in the distributive trade and increased compliance. In the GST, both the cascading effects of CENVAT and service tax are removed with set-off,

and a constant chain of set-off from the original producer’s point and service provider’s point up to the retailer’s level is established which reduces the burden of all cascading effects. This is the real meaning of GST, and this is why GST is not simply VAT plus service tax but an improvement over the previous system of VAT and disjointed service tax. Moreover, with the introduction of GST, burden of Central Sales Tax (CST) will also be removed. GST simultaneously provides considerable benefits such as;

1. GST provide comprehensive and wider coverage of input credit setoff, you can use service tax credit for the payment of tax on sale of goods etc.
2. CST will be removed and need not pay. At present there is no input tax credit available for CST.
3. Many indirect taxes in state and central level included by GST, You need to pay a single GST instead of all . 4. Uniformity of tax rates across the states
4. Ensure better compliance due to aggregate tax rate reduces.
5. By reducing the tax burden the competitiveness of Indian products in international market is expected to increase and there by development of the nation.
6. 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.

Role of GST enriching economy and benifiting industries;

1. Food Industry

The application of GST to food items will have a significant impact on those who are living under subsistence level. But at the same time, a complete exemption for food items would drastically shrink the tax base. Food includes grains and cereals, meat, fish and poultry, milk and dairy products, fruits and vegetables, candy and confectionary, snacks, prepared meals for home consumption, restaurant meals and beverages. Even if the food is within the scope of GST, such sales would largely remain exempt due to small business registration threshold. Given the exemption of food from CENVAT and 4% VAT on food item, the GST under a single rate would lead to a doubling of tax burden on food. 

1. Housing and Construction Industry

In India, construction and Housing sector need to be included in the GST tax base because construction sector is a significant contributor to the national economy. 

III. FMCG Sector 

Despite of the economic slowdown, India’s Fast Moving Consumer Goods (FMCG) has grown consistently during the past three – four years reaching to $25 billion at retail sales in 2008. Implementation of proposed GST and opening of Foreign Direct Investment (F.D.I.) are expected to fuel the growth and raise industry’s size to $95 Billion by 201835.

.   V. Rail Sector

There have been suggestions for including the rail sector under the GST umbrella to bring about significant tax gains and widen the tax net so as to keep overall GST rate low. This will have the added benefit of ensuring that all inter – state transportation of goods can be tracked through the proposed Information technology (IT) network

1. Financial Services

In most of the countries GST is not charged on the financial services. Example, In New Zealand most of the services covered except financial services as GST. Under the service tax, India has followed the approach of bringing virtually all financial services within the ambit of tax where consideration for them is in the form of an explicit fee. GST also include financial services on the above grounds only. 

1. Information Technology enabled services

To be in sync with the best International practices, domestic supply of software should also attract G.S.T. on the basis of mode of transaction. Hence if the software is transferred through electronic form, it should be considered as Intellectual Property and regarded as a service. And if the software is transmitted on media or any other tangible property, then it should be treated as goods and subject to G.S.T. 35 According to a FICCI – Technopak Report. Implemtayion of GST will also help in uniform, simplified and single point Taxation and thereby reduced prices. 

VII. Impact on Small Enterprises 

There will be three categories of Small Enterprises in the GST regime. 

Those below threshold need not register for the GST 

Those between the threshold and composition turnovers will have the option to pay a turnover based tax or opt to join the GST regime.

GST is the most logical steps towards the comprehensive indirect tax reform in our country since independence. GST is leviable on all supply of goods and provision of services as well combination thereof. All sectors of economy whether the industry, business including Govt. departments and service sector shall have to bear impact of GST. All sections of economy viz., big, medium, small scale units, intermediaries, importers, exporters, traders, professionals and consumers shall be directly affected by GST… One of the biggest taxation reforms in India — the Goods and Service Tax (GST) — is all set to integrate State economies and boost overall growth. GST will create a single, unified Indian market to make the economy stronger. Experts say that GST is likely to improve tax collections and Boost India’s economic development by breaking tax barriers between States and integrating India through a uniform tax rate. Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by increasing the tax base and minimizing exemptions.

The current government of BJP under leadership of Modi envisages GST as essence to growth of economy as 2%, thus its clear that by goverment to implement the tax on 2016 to make India in the league of highly centralized tax system to cater more standardized, transparency, accountability. Besides in general preview Tax is burden and when its scope is enlarged it restricts all the indirect speculators which where other wise acquiring undue profitability within a dominance and in longrun where scattering money and its source and generate black money which is cancer to system or sovereign.

GST bill as envisages to amendment of article 370 and bring Kashmir under the direct influence of union and concurrency of legitimacy. 

References:

1. http://goodsandservicetax.com/gst/showthread. php?69-CHAPTER-X-Goods-and-Services-Tax-Theway-forward
2. http://en.wikipedia.org/wiki/Goods_and_Service s_Tax_(India) accessed on 15 Jan 2014.
3. http://www.taxmanagementindia.com/visitor/de tail_rss_feed.asp?ID=1226
4. http://www.gstindia.com/
5. http://www.thehindubusinessline.com/todayspaper/tp-others/tp-taxation/article2286103.ece

6.http://finmin.nic.in/workingpaper/gst%20reforms%20and%20intergovernmental%20considerati ons%20in%20india.pdf

7. http://economictimes.indiatimes.com/topic/GST
8. http://www.moneycontrol.com/newstopic/gst/
9. http://www.businessstandard.com/article/economy-policy/gstreform-may-be-implemented-after-elections-ubs114011200205_1.html
10. http://www.ficci.com/spdocument/20238/Towar ds-the-GST-Approach-Paper-Apri-2013.pdf

Note;; work is endevour for general know how of GST  and its content is abstracted from existing work.