One nation,One tax. Yes, I am talking about the much awaited, hope setting historic event – The Constitution’s (One Hundred Twenty second Amendment) Bill -GST. which was passed in Rajya Sabha on August 3, 2016 by a full majority and approved by the Lok Sabha on 8 August 2016. till date it has been ratified by 23 states.
GST is a single tax on the supply of goods and services, from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition.The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
Talking about its history, In 2003, the Kelkar Task Force on indirect tax had suggested a comprehensive Goods and Services Tax (GST) based on VAT principle.A proposal to introduce a National level Goods and Services Tax (GST) by April 1, 2010 was first mooted in the Budget Speech for the financial year 2006-07.
NEED OF GST
in production and distribution of goods, services are increasingly used or consumed and vice versa. Separate taxes for goods and services, which is the present taxation system, requires division of transaction values into value of goods and services for taxation, leading to greater complications, administration, including compliances costs. In the GST system, when all the taxes are integrated, it would make possible the taxation burden to be split equitably between manufacturing and services.Hence, Introduction of a GST is very much essential in the emerging environment of the Indian economy.
According to experts, by implementing the GST, India will gain $15 billion a year. This is because, it will promote more exports, create more employment opportunities and boost growth. It will divide the burden of tax between manufacturing and services.
THE TAXES TO BE SUBSUMED ARE-
Central indirect taxes like Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty(Countervailing Duty), and Special Additional Duty of Customs and State VAT/Sales Tax, Entertainment Tax, Central Sales Tax, Octroi and Entry tax, Purchase Tax, Luxury tax, and Taxes on lottery, betting and gambling. Taxes on entertainment at panchayat, municipality or district level will continue. Stamp duties, typically imposed on legal agreements by states, will continue to be levied.
ITS SCOPE COVERS
All goods and services, except alcoholic liquor for human consumption. Petroleum and products(crude,high speed diesel, motor spirit, aviation turbine fuel and natural gas) shall be subject to GST – date to be notified by the GST Council.
The 2 Components of GST –
Central GST (CGST) and State GST (SGST).Centre would levy and collect CGST, and States would levy and collect the SGST on all transactions within a State. The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output. No cross utilization of credit would be permitted.In case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services.
The IGST would roughly be equal to CGST plus SGST.
STRUCTURE OF MANAGEMENT
The Central and State Governments have jointly registered Goods and Services Tax Network (GSTN) as a not-for-profit, non-Government Company to provide front end services of registration, returns and payments to all taxpayers, and the backend IT modules for certain States that include processing of returns, registrations, audits, assessments, appeals, etc. All States, accounting authorities, RBI and banks, are also preparing their IT infrastructure for the administration of GST.
GST Council would examine issues relating to goods and services tax and make recommendations to the Union and the States on parameters like rates, taxes, cesses and surcharges to be subsumed, exemption list and threshold limits, Model GST laws, etc. The Council shall function under the Chairmanship of the Union Finance Minister and will have all the State Governments as Members.
The Council has finalised the GST rates structure keeping in the mind the need to prevent inflation in consumer prices and protecting the revenues of both the Centre and the States.The four GST slabs are 5%, 12%, 18% and 28% for different items or services. The rate of 5 per cent would apply to common use items. To keep inflation in check, essential items including food will be taxed at a zero rate. The rate of 28% will apply to luxury goods. Luxury cars, tobacco products and aerated drinks will attract an additional cess to pay compensations. Fitment or categorization of items for each slab will be done by officials and will then be approved by the GST council.
The base year for calculating the revenue of a State would be 2015-16 and the likely revenue of each State in the first five years of implementation of GST will be calculated using secular growth rate of 14 per cent.
THE UNION-STATE PARTNERSHIP
States will frame their respective GST Legislations to enable them to implement GST. It will be in line with the Central GST Legislation.
The power to make laws in respect of supplies in the course of inter-state trade or commerce will be vested only in the Union Government. States will have the right to levy GST on intra-state transactions, including on services.
There would no manual filing of returns. All taxes can also be paid online. All mis-matched returns would be auto-generated, and there would be no need for manual interventions. Most returns would be self-assessed. Common return would serve the purpose of both Centre and State Government.There are eight forms provided for in the GST business processes for filing for returns. Most of the average tax payers would be using only four forms for filing their returns- return for supplies, return for purchases, monthly returns and annual return.Small taxpayers who have opted composition scheme shall have to file return on quarterly basis.
All existing taxpayers registered under any of the Acts will be transitioned to GST. The data available with various tax authorities is incomplete and thus fresh enrolment has been planned. Also, this will ensure latest data of taxpayers is available in the GST database.Thus, The GST Common Portal has been made available to enable taxpayers enrol with GST. Paper based enrolment option is NOT available. It will enable taxpayers to meet the GST compliance requirement like filing return and making tax payment. there is no fee or charge levied for the enrolment of a taxpayer under GST. There will be common registration, common return and common Challan for Central and State GST.
The State VAT and Central Excise registered taxpayers can start enrolling from October, 2016.The taxpayers registered under Service Tax will be enrolled on a later date for which separate intimation will be sent. Before enrolling ensure to have the following information:Provisional ID and password received from State/ Central Authorities,Valid E-mail Address and Mobile Number,Bank Account Number and IFSC.
The Provisional Registration Certificate will be available on the appointed date only if the Registration Application was submitted successfully.
The final Registration Certificate will be issued within 6 months of verification of documents by authorized Center/ State officials of the concerned Jurisdiction (s) after the appointed date.
For business and industry
-Easy compliance: all tax payer services such as registrations, returns, payments, etc. would be available to the taxpayers online, which would -make compliance easy and transparent.
-Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are common across the country, thereby increasing -certainty and ease of doing business. Right now,India ranks 130 out of 189 countries in the ease of doing business, moving up four places from last year’s adjusted ranking of 134.
-Removal of cascading: A system of seamless tax-credits throughout the value-chain, and across boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden costs of doing business.
-Improved competitiveness: Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for the trade and industry.
-Gain to manufacturers and exporters: The subsuming of major Central and State taxes would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports.
To prepare for the implementation of GST, companies need to understand GST policy development and its implications for scenario planning and transition roadmap preparation.The key imperatives for companies are:
-Understand key areas of impact in their business
-Prepare different scenarios for the design and application of GST
-Continually track policy development regarding GST and update prepared scenarios
-Identify any areas of adverse impact and prepare contingency measures
-Identify issues and concerns requiring representation to authorities and develop a strategy for effective advocacy
GST will change the traditional pattern of pricing the products and services. It will help in supply chain optimization and in creating a single national market.
Here is a sector-wise snapshot of the biggest gainers and losers.
-Logistics-With ‘Make in India’ gaining ground along with rapidly increasing e-commerce, companies involved in logistics are likely to be gainers. Companies like Container Corporation of India, Interglobe Aviation, Allcargo, Aegis logistics, Adani SEZ, Gujarat Pipavav will receive a boost.
-Automobiles-Small car manufacturers like Maruti, Hyundai and Tata Motors and 2-wheeler companies like Hero Motors, Eicher, Bajaj Auto will be big beneficiaries as costs are likely to drop significantly.
-FMCG-Large FMCG companies like Hindustan Levers, P&G, Godrej and ITC are likely to benefit a lot from lower taxes and logistics cost.
-Consumer Durables-this sector will benefit from lower taxes and logistic costs. White goods manufacturers, electrical appliances etc are mostly expected to benefit.
-Cement-Being a major input to the infrastructure industry, most cement companies have been witnessing an upsurge in demand. With GST, lower costs will see a further increase in demand and lowering of overall cost of infrastructure in India.
-Utilities-With sale of electricity being kept out of GST, the cost to companies using coal-based power and renewable energy are likely to see an increase in costs.
-Oil and Gas-Aviation Turbine Fuel, high speed diesel, crude oil and other petroleum products excluded from GST will see a rise in costs, if dual indirect taxes are not removed.
For Central and State Governments
Simple and easy to administer: as it is backed with a robust end-to-end IT system
Better controls on leakage: Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of GST that would incentivize tax compliance by traders.
Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of the Government
Harmonization of center and state tax administrations, which would reduce duplication and compliance costs
For the consumer-
-Single and transparent tax: there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer.
-Relief in overall tax burden: due to efficiency gains and prevention of leakages
-People will be able to buy raw materials or constituent materials for production only from those who have paid taxes, in order to claim benefits.
-It will be cheaper to buy input goods and services for production from other states.
GST is expected to –
-Enhance GDP by anywhere between 1-2%
-Reduce inflation in the long term
-Create more jobs
-Increase indirect tax collection from a wider base
-Shift emphasis from indirect tax to direct tax collection in the long term
-Increase in Foreign Direct Investment and improvement in international investor confidence
Challenges to smooth transition to GST regime-
With 29 states and 7 Union Territories, it will be no easy task to transition existing businesses to a single seamless integrated platform .The problem is the existing gap between IT infrastructures of various states that operate on separate platforms and vary in technical complexity. personnel will have to be trained on the new platform, given the disparity in quality of IT personnel and the limited time to upgrade their skills before GST goes live. With the government aiming to implement GST from 01 July 2017, GSTN has a major challenge at hand.
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