The government has embarked on the last lap of escorting in the ambitious goods and services tax (GST) regime in India. The GST is one of the biggest reforms to the Indian economic set-up in recent times. It seeks to simplify the taxation of trade in goods and services, reducing processes and increasing the ease of doing business.
While GST is said to be the biggest tax reform in the Indian history and is expected to be a game-changer, but the common man still needs some questions answered. Hence probably it is also called the Big Confused Tax. In this write-up we have tried to club few questions and answers from industry experts: Waman Parkhi, partner, indirect tax, KPMG; Pratik Jain, partner and leader, indirect tax, PwC India; Monish Bhalla, an expert on indirect tax and a columnist; and Mahesh Jaising, partner, indirect tax, BMR Advisors.
The GST needed contract between states, the centre, and industry groups which took a lot of time. Multiple drafts were floated around and the provisions nipped once the public’s feedback was collected. Finally, the GST council was formed along with the passing of the constitution amendment bill in September 2016, clarified KPMG’s Parkhi. After the council began giving law the onceover, “there were certain issues that the states, centre, and even industry groups had. That is why it took three months to come to an accord,” Parkhi added.
The real tax collection before compensation will be on a 50-50 basis between the centre and the states, said Bhalla. “After the distribution, if the states’ share falls short of what was being forecast, the centre will pay them compensation to pad the breach,” he clarified.
GST will be the only tax. The central goods and services tax (CGST) and state goods and services tax (SGST) are the components of the GST created to make the administration easier, clarified Bhalla. “It is for the revenue share purposes, for example if I am paying `100,000 as GST, then `50,000 will go towards CGST and SGST each,” Bhalla said. The integrated service tax (IGST) anyhow is for inter-state purchases and will be applied as a whole, he added.
For example, when you go to a restaurant today, there are normally four to five different tax components that are included in the total price. Now, the bill will have two taxes: CGST and SGST, PwC’s Jain clarified. All other components will go away. The CGST revenue will go towards the centre, while the SGST towards the states. “The IGST will only be applied when you do an inter-state purchase. So if you buy something on Flipkart, and the seller is not from your state, then IGST will be charged,” said Parkhi.
Services currently don’t have tax rate slabs, but goods have tax rate slabs. “No slab has been decided for services, and there’s an assumption that all services will be taxed at around 18%,” said Jain. Parkhi clarified: “For goods, we will have different slabs: 0%, 5%, 12%, 18%, and 28%. Moreover there are certain goods like luxury cars, aerated beverages, and tobacco that will have 28% plus a cess.” Consequently the effective tax rate for luxury cars can go up to 43%, whereas for tobacco it can go up to 75%, according to estimates, Parkhi added.
Necessary commodities such as vegetables, fruits and pulses will stay untaxed under the GST. Prices of small-ticket purchases like toothpaste should attract a lower rate of 12% compared to consumer appliances such as refrigerators and air conditioners, clarified Jaising. “The prices of fast-moving consumer goods could in fact drop because currently they are being taxed at a higher rate. Companies would also pass the benefits they get from tax credits to the end user,” Jaising said.
Experts have said there will be a peripheral impact on inflation. The core impact on inflation will be due to the tax on services, but many expect the effect to stabilize after the initial one-time hit.
If you have more questions around GST, feel free to write to us at email@example.com.