Good and service tax is a
single tax on goods and service. It has subsumed central indirect taxes like
excise duty, countervailing duty and service tax and indirect taxes like Value Added Tax, octroi and entry tax, purchase
tax and entertainment tax. Introduction of GST will not affect direct tax
system,
Commodities outside GST
The government of india will
continue to charge excise duty on all petroleum & natural gas products,
tobacco and opium products. GST on above product will applicable on later stage,
which will be decided by GST council.
Only alcohol has been kept out of purview of GST. Thus,
existing central and state taxes will continue to apply on alcohol.
GST Rate
GST rate has not been capped. It has been decided by the GST
council and will be reviewed by the council from time to time.
Compensation to states
Parliament has agreed to compensate states for any loss of
revenues, on account of change in
taxation system to GST, for a period of five years. A shift to new taxation
system initially reduces the tax compliance among people and thus, in initial
years the revenue of state governments may reduce. However, in the long run,
GST will lead to increase in revenue of state governments.
Benefits of Introducing GST
- As GST is a uniform taxation system applicable throughout the country, GST will create uniform market across the country and make taxation transparent and hassle-free.
- GST has subsumed many taxes and thus, GST has made taxation system simple and reduced the cost of complying the taxation system.
- The earlier system of numerous tax departments hampered inter-department coordination and made tax evasion possible. GST will drastically increase the tax base and reduce tax evasion.
- After introduction of GST, Most of the goods will cheaper, the rate of tax under GST is less as compared to the tax rates existing earlier. In fact, the GST rate for essential commodities is 0%.
- The reduction in tax burden will reduce the price of goods, lower the production cost and improve exports. Thus, in the long run, implementation of GST will create a large number of jobs.
- Service are presently taxed at 15%. The GST rate for most of the service is around 18%. Thus, service are expected are to be costlier.
- Bigger beneficiary of GST is going to logistics industry since truck used to spend days altogether at the state tax barriers. These barriers will not become redundant and it will make movement of good at lease 60% quicker and a lot cheaper
- Because of all these reasons , GST in expected to add 2% to india’s GDP growth rate
Rate of GST
The Goods and Service Tax has goods and service categorized
under the following slab rates
NO TAX
Goods
No tax will be imposed on items like fresh meat, fish,
chicken, eggs, butter milk. Cued, natural honey, fresh fruits and vegetables,
flour, besan, bread, Prasad, salt, bindi, sindoor, stamps, judicial papers,
printed books, newspapers, bangles, handloom etc.
Services
Hotels and lodges with tariff below Rs 1000. Grandfathering
service has been exempted under GST.
5%
Goods
Items such as fish fillet cream, skimmed milk powder,
branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk,
sabudana, kerosene, coal, medicines, stent, lifeboat will attract tax of 5%.
Services
Transport service(Railways, air transport), small restaurant
will be under the 5% category because their main input is petroleum products,
which is outside GST ambit.
12%
Goods
Frozen meat products, butter, cheese, ghee, dry fruits in
packaged form, animal fat, sausage, fruit juices, namkeen, ayurvedic medicines,
tooth powder, agarbatti, colouring books, picture books, umbrella, sewing
machine, cellphones will be under 12% tax slab.
Services
Non-AC hotels, business class air ticket, fertilizers, work
contracts will fall under 12 percent GST tax slab.
18%
Goods
Most items are under this tax slab which include flavoured
refined sugar, pasta, cornflakes, pastries and cakes. Preserved vegetables,
jams, sauces, soups, ice cream. Instant food mixes, mineral water, tissues,
envelopes, note books, steel products, printed circuits, camera, speakers and monitors.
Services
AC hotels that serve liquor, telecom service, IT services,
branded garments and financial service.
28%
Goods
Chewing gum, molasses, chocolate not containing cocoa, pan
masala, aerated water, paint. Deodorants, shaving creams, after shave, hair
shampoo. dye, sunscreen wallpaper ceramic tiles, water heater, dish heater,
weighing machine, ATM, vending machine, vacuum cleaner, shavers, hair clippers,
automobiles, motorcycles, aircraft for personal use, will attract 28% tax- the
highest under GST system
Services
5-star hotels, race club betting, cinema will attract tax 28
percent tax slab under GST
3%
Goods
Gold, silver and diamonds are placed in the category of 3%
while rough diamonds would attract a nominal rate of 0.25%
Criticism of GST
A good GST was expected to yield major economic benefits,
adding 2 percentage points to the growth
rate. Unfortunately, what is on the table will not deliver that result thought
it will be an improvement on the present system
It does achieve the objective of creating an indirect-tax
system in which both the central and the state tax on any single commodity will
be levied on the same base, and at the same rate throughout the country, while
observing the value-added tax(VAT) principle of full set-off for earlier-stage
taxes and zero-rating for exports. Other taxes like the central sales tax,
octroi, entry tax etc., will be abolished from a taxation perspective this
created a single national market for each commodity.
The GST will also address the complaint of domestic
producers that they are at a disadvantage compared to imports, because the
latter escape the burden of state taxes, although they do pay an additional
duty equal to the central value-added tax(Cenvat). Once the GST is in place,
import will be subject to GST at the rate as domestic products, thus ensuring a
truly level-playing filed for domestic producers competing against imports.
Unfortunately, the GST being proposed departs from the
experts view that an ideal GST should have a few exempted commodities and a
single rate for all commodities. Lest such an ideal dismissed as academic, let
us consider what countries actually do. According to the international monetary
fund(IMF). 152 countries have now adopted the VAT, and of those , 69 have a
single rate, with some exemption.
Admittedly, this means as many as 83 countries have multiple rates, but
they don’t have anywhere near the number of rater we are considering.
Does this matter? The answer is a definite yes. The merit of
a single rate is that evasion can only occur through “Under declaration” of sales, which is more easily tracked,
especially as we move towards electronic payments system. Multiple rates create
incentives for deliberately mis-declaring items so they fall in a lower-rate
slab. Inevitably, this creates scope for tax disputes and
harassment/corruption. The proposal approved by the GST council will multiply
the possibility.
Three exclusion from the GST are indefensible. These are
electricity, real estate and petroleum products. It has been agreed that
petroleum could into the GST list at the end of five years. A similar agreement
is necessary for electricity and real estate. Extending the GST to real estate
would encourage investment since real-estate development is an important part
of fixed capital information. At present, taxes paid construction inputs,
including steel, cement, paint, doors, and windows etc. cannot be credited
against the GST to be paid on output from the factories/offices generating
taxable goods and services. Bringing real estate under GST would help these activities. It will help to
discourage the use of black money in real-estate transactions.
Apart from this, the complex nature of compliance structure
actually makes tax compliance more difficult then before.
The incremental burden of compliance shall vary for different classes of business. The service sector would be worst his as the benevolence
of centralized would be taken away. Taxpayer would be required to get
registered in every state from where he provides service. The number of
fillings would increase from 2 to minimum 37 in a year for each registration, considering
GSTR-1, GSTR-2 and GSTR-3 are treated as 3 returns. In case input service distributor
and Tax Deducted at source registration
are obtained in a state. The number could go up by another 24 filings a year
for each registration.
The service sector erstwhile was exposed only to the central
authorities would now have to face the state authorities as well, leading to
increased compliance costs.
Large manufacturers are already filling monthly Excise,
Value Added Tax and Central Sales Tax returns and hence the pinch of increased
compliance would felt to lesser extent. The factory level Excise and VAT
registration within a state can now be consolidated into a single state-wide
registration.
The micro and small sector, enjoying Excise duty exemption
up to 1.5 crore, shall be heavily impacted as the registration threshold has
been brought down to 10 lack as per Model GST Act. A composition scheme has
been proposed for taxpayers having turnover up to 50 lacs, which provides for quarterly
filling of returns. Such composition Taxpayer shall not eligible for input tax
credit and would not be able to issue tax invoice. According to us, not many tax
payers would wish to remain outside the credit chain. Apart from composition
Taxpayers, quarterly filing relaxation has not been extended to other
businesses and hence majority businesses shall have comparatively more
fillings.
One area of concern is the online matching of input tax
credit and reversal of credit or demand in case of mismatch. This process may
turn out to be the most irksome part of
compliance. Keeping track of mismatches, tallying the same with books of
accounts, accounting treatment of the same and dealing with non-compliant
vendors may require a team in self. Problems similar to TDS returns filing in
income tax may be expected during initial years, with monthly matching details
and GST compliance rating being made available, compliant taxpayer would surely
be preferred as business partners.
