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GOODS AND SERVICES TAX: A REVOLUTIONARY TAX REFORM

Aarti Garg

Assistant Professor, Dept. of Commerce, Dev Samaj College for Women Ferozepur, Pb. (India)

ABSTRACT

GST also known as the Goods and Services Tax is defined as the giant indirect tax structure designed to support and enhance the economic growth of a country. More than 150 countries have implemented GST so far.

However, the idea of GST in India was mooted by Vajpayee government in 2000.The Constitution Amendment Bill for Goods and Services Tax (GST) has been approved by The President of India post its passage in the Parliament (Rajya Sabha on 3 August 2016 and Lok Sabha on 8 August 2016) and ratification by more than 50 percent of state legislatures. The Government of India is committed to replace all the indirect taxes levied on goods and services by the Centre and States and implement GST by July 2017.With GST, it is anticipated that the tax base will be comprehensive, as virtually all goods and services will be taxable, with minimum exemptions.GST will have a far-reaching impact on almost all the aspects of the business operations in the country, for instance, pricing of products and services, supply chain optimization, IT, accounting, and tax compliance systems. The paper highlights the background, objectives of the proposed GST and the impact of GST in the present tax scenario in India. The paper further explores various benefits and opportunities of GST.

Finally, the paper examines and draws out a conclusion.

Keywords: Goods and Services Tax, Economic Growth, IGST, CGST, SGST

I. INTRODUCTION

Tax policies play an important role on the economy through their impact on both efficiency and equity. A good tax system should keep in view issues of income distribution and, at the same time, also endeavour to generate tax revenues to support government expenditure on public services and infrastructure development. GST stands for Goods and Services Tax. GST is a value-added tax levied at all points in the supply chain with credit allowed for any tax paid on input acquired for use in making the supply. It would apply to both goods and services in a comprehensive manner, with exemptions restricted to a minimum. It is a convenient and economically efficient way of taxing consumption. If it is levied at a single rate and there are only very few exemptions, it becomes a proportional tax on consumption. In order to ensure that the tax burden is distributed according to the consumption of different individuals, it must be levied on the basis of the principle of destination, that is to say that the tax on a good should go to the state in which the concerned consumer lives.

This automatically takes place if the tax is levied at only the central level, or if the state is a unitary one with only one level of taxation.

II. LITERATURE REVIEW

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Shaik Shakir, Sameera S.A.and Firoz Sk.C. (2015) in his paper ―Does goods and Services Tax (GST) Leads to Economic Development‖? examined the Tax policies play an important role on the economy through their impact on both efficiency and equity. A good tax system should keep in view issues of income distribution and, at the same time, also endeavour to generate tax revenues to support government expenditure on public services and infrastructure development.

Kiyawat Bharati and Kiyawat Shruti (2015) in his paper ―The Role of Goods and Services Tax (GST) in Development of Indian Economy‖ investigated the GST is betterment for taxation of goods and services as compared to VAT Excise Service Tax regime. After implementation of GST in India, there will be uniformity of taxation throughout the Country. This will result in reduction in prices of goods and services and hence this will increase the GDP as demand will also increase due to reduction in prices.

G. Raghuram and K.S. Deepa (2015) ―Goods and Services Tax (GST) : The Introduction Process‖ in his study investigated the GST was expected to subsume a variety of taxes and simplify the indirect tax regime. The Empowered Committee (EC) was mandated in 2007, to bring about consensus among the States to move towards GST.

Garg Girish (2014) in his paper ―Basic Concepts and Features of Good and Service Tax in India‖ examined the 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.

Nishitha Guptha (2014) in her study stated that implementation of GST in the Indian framework will lead to commercial benefits which were untouched by the VAT system and would essentially lead to economic development. Hence GST may usher in the possibility of a collective gain for industry, trade, agriculture and common consumers as well as for the Central Government and the State Government.

III. OBJECTIVES OF THE STUDY

1. To study the concept of Goods and Services Tax (GST) and its impact on growth of Indian Economy.

2. To understand working of GST in India.

3. To understand the advantages and challenges of GST in Indian context.

IV. RESEARCH METHODOLOGY

The study focuses on extensive study of Secondary data collected from various books, National & international Journals, government reports, publications from various websites which focused on various aspects of Goods and Service tax.

V. CONCEPT OF GOODS AND SERVICE TAX

GST is a comprehensive indirect tax on manufacture, sale and consumption of goods and services at national level. One of the biggest taxation reforms in India the (GST) is all set to integrate State economies and boost

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overall growth. Currently, companies and businesses pay lot of indirect taxes such as VAT, service tax, sales tax, entertainment tax, octroi and luxury tax. Once GST is implemented, all these taxes would cease to exist.

There would be only one tax, that too at the national level, monitored by the central government. GST is also different in the way it is levied — at the final point of consumption and not at the manufacturing stage. At present, separate tax rates are applied to goods and services. Under GST, there would be only one tax rate for both goods and services. The goods and services Tax will indeed be a further significant improvement towards a comprehensive indirect tax reforms in the country. Integration of goods and services taxation would give India a world class tax system and improve tax collections. It would end distortions of differential treatments of manufacturing and service sector. GST is expected to create a business friendly environment, as price levels and hence inflation rates would come down overtime as a uniform tax rate is applied. It will also improve government's fiscal health as the tax collection system would become more transparent, making tax evasion difficult.

VI. SCOPE OF GST

 All goods and services are covered under GST Regime except Alcoholic liquor for Human Consumption,

Tobacco Products subject to levy of GST and Centre may also levy excise duty

 GST Council yet to decide the incidence and levy of GST on following;

 a)Crude Petroleum

 b)High Speed Diesel (HSD)

 c)Motor Spirit (Petrol)

 d)Natural Gas

 e)Aviation Turbine Fuel

VII. GST – HOW IT WORKS IN INDIA?

The GST system is based on the same concept as VAT. Here, set-off is available in respect of taxes paid in the previous level against the GST charged at the time of sale. The GST model has some aspects which are as follows:

Components: GST will be divided into two components, namely, Central Goods and Service Tax and State Goods and Service

Applicability: GST will be applicable to all Goods and Services sold or provided in India, except from the list of exempted goods which fall outside its purview.

Inter-State Transactions and the IGST Mechanism: The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supply of goods and services. The IGST mechanism has been designed to ensure seamless flow of input tax credit from one State to another. The inter-State seller would pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST and SGST on his purchases (in that order). The exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The importing dealer will claim credit of IGST while discharging his output tax liability (both CGST and

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SGST) in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST.

Payment: GST will be charged and paid separately in case of Central and State level.

Input Tax Credit: The facility of Input Tax Credit at Central level will only be available in respect of Central Goods and Service tax. In other words, the ITC of Central Goods and Service tax shall not be allowed as a set- off against State Goods and Service tax and vice versa.

Destination principle

The GST structure would follow the destination principle. Accordingly, imports would be subject to GST, while exports would be zero-rated. In the case of inter-state transactions within India, State tax would apply in the state of destination as opposed to that of origin.

Goods and Services Tax Network (GSTN):A not-for-profit, Non-Government Company called Goods and Services Tax Network (GSTN), jointly set up by the Central and State Governments will provide shared IT infrastructure and services to the Central and State Governments, tax payers and other stakeholders.

Input tax credit set off : ITC for CGST & SGST will be taken for taxes allowed against central and state respectively.

GST on Imports : Centre will levy IGST on inter-State supply of goods and services.Import of goods will be subject to basic customs duty and IGST.

Taxes to be subsumed

GST would replace most indirect taxes currently in place such as:

Central Taxes

 Central Excise Duty [including additional excise duties, excise duty under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955]

 Service tax

 Additional Customs Duty (CVD)

 Special Additional Duty of Customs (SAD)

 Central Sales Tax ( levied by the Centre and collected by the States)

 Central surcharges and cesses ( relating to supply of goods and services)

State Taxes

 Value-added tax

 Octroi and Entry tax

 Purchase tax

 Luxury tax

 Taxes on lottery, betting and gambling

 State cesses and surcharges

 Entertainment tax (other than the tax levied by the local bodies)

Migration of the existing taxpayers to GST regime

All the existing taxpayers registered under VAT, Service Tax, and Excise are required to furnish the details at GST Common portal for the purpose of migrating themselves into GST regime. To begin with, the taxpayers registered under the State Vat Department needs to provide their details and period for furnishing these details are specified for every state.Once the taxpayers provide their details there will be no need for them to register

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again with the State or Center once the GST Act is implemented. Enrolment process for other existing taxpayers not registered with VAT will be started at a later date.

VIII. IMPACT OF GST IN INDIAN ECONOMY

 Reduce tax burden on producers and foster growth through more production. This double taxation prevents manufacturers from producing to their optimum capacity and retards growth. GST would take care of this problem by providing tax credit to the manufacturer.

 Various tax barriers such as check posts and toll plazas lead to a lot of wastage for perishable items being transported, a loss that translated into major costs through higher need of buffer stocks and warehousing costs as well. A single taxation system could eliminate this roadblock for them.

 A single taxation on producers would also translate into a lower final selling price for the consumer.

 Also, there will be more transparency in the system as the customers would know exactly how much taxes they are being charged and on what base.

 GST would add to government revenues by widening the tax base.

 GST provides credits for the taxes paid by producers earlier in the goods/services chain. This would encourage these producers to buy raw material from different registered dealers and would bring in more and more vendors and suppliers under the purview of taxation.

 GST also removes the custom duties applicable on exports. Our competitiveness in foreign markets would increase on account of lower cost of transaction.

 The proposed GST regime, which will subsume most central and state-level taxes, is expected to have a single unified list of concessions/exemptions as against the current mammoth exemptions and concessions available across goods and services

X. BENEFITS OF GST

GST has been envisaged as an efficient tax system, neutral in its application and distributionally attractive. The advantages of GST are:

 Wider tax base, necessary for lowering tax rates and eliminating classification disputes

 Elimination of multiplicity of taxes and their cascading effects

 Rationalization of tax structure and simplification of compliance procedures

 Harmonization of center and state tax administrations, which would reduce duplication and compliance costs

 Automation of compliance procedures to reduce errors and increase efficiency

X. CHALLENGES FOR GST

Whenever any Bill is to become Act, in between there are always many challenges which come in forward.

Some of the challenges are mentioned here:-

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1. ―Bill To Act‖ – The biggest challenge for the government is to pass the GST bill in both the houses of parliament so as to make it statue and compliance of the same can be made.

2. The financial challenge in the hands of government is the loss of revenue. Deciding the revenue neutral rate would keep the revenue as it is.

3. Applicability of the Act would be very much relevant, as it would take time to the individual to know about the act and how to interpret it in the right way.

4. Training would have to be given to the staff regarding the new act taking place which would incur huge cost.

5. The consent from the states is very much important as every state needs to accept the proposal because GST would lead to loss of revenue.

6. Rate should be such fixed that it do not become burden for the tax payer and would be affordable.

7. Technological changes such as software for calculating GST, for return filing etc need to be made so that the tax payer does not have to face any difficulty while complying with the Act.

8. GST council needs to make the GST draft within 30 days from the date of passing the GST bill which would be difficult as they have to take many factors into consideration such as rates, services and goods which should be exempt etc.

XI. CONCLUSION

Goods and Services Tax (GST) is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level. One of the biggest taxation reforms in India the GST is all set to integrate State economies and boost overall economic growth. India is a centralized democratic and therefore the GST will be implemented parallel by the central and state governments as CGST and SGST respectively. Goods and Services Tax, if implemented, will replace most of the existing indirect taxes. GST is also different in the way it is levied - at the final point of consumption and not at the manufacturing stage. Once GST is implemented, all these taxes would cease to exist. There would be only one tax, that too at the national level, monitored by the central government. The goods and services Tax will indeed be a further significant improvement towards a comprehensive indirect tax reforms in the country. Integration of goods and services taxation would give India a world class tax system and improve tax collections. It would end distortions of differential treatments of manufacturing and service sector. GST will be a game changing reform for the Indian economy by creating a common Indian market and reducing the cascading effect of tax on the cost of goods and services. It will impact the tax structure, tax incidence, tax computation, tax payment, compliance, credit utilization and reporting, leading to a complete overhaul of the current indirect tax system.

REFERENCES

[1] Shaik Shakir, Sameera S.A., and Firoz S k. C. (2015) ― Does Goods and Services Tax (GST) Leads to Indian Economic Development?‖ IOSR Journal of Business and Management (IOSRJBM) Volume 17, Issue 12 .Ver. III , pp 01-05

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[2]. Kiyawat Bharati and Kiyawat Shruti (2015)―The Role of the Goods and Service Tax (GST) in Development of Indian Economy‖ International Journal of Science and Research (IJSR), Volume 4, Issue 9, , pp. 1346-1347.

[3] G. Raghuram and K.S. Deepa (2015) Indian Institute Of Management Ahmedabad, India, Working Paper No.2015-03-01, pp. 1-43.

[4] Garg Girish (2014) ―Basic Concepts and Features of Good and Service Tax In India‖ International Journal of Scientific Research and Management (IJSRM), Volume 2, Issue 2, (2014) pp.542- 549

[2 Khurana Akanksha and Sharma Aastha (2016)― Goods And Services Tax In India - A Positive Reform For Indirect Tax System‖ International Journal of Advanced Research , Volume 4, Issue 3, 500-505

[6] Kulkarni S. M. (2010) Analytique Volume VI, No. 4,Quarterly Journal of the Bombay Chamber of Commerce and Industry Trust for Economic and Management Studies, pp. 1-35.

[7] Srivastava D K, Kumar K S Kavi, Rao C Bhujanga, Purohit Brijesh C, Sengupta Bodhisattva (2010) Discussion Paper, March 2010.

[8] Vasanthagopal. R. (2011) ―GST in India: A Big Leap in the Indirect Taxation System‖ International Journal of Trade, Economics and Finance, Vol. 2, No. 2, pp-144-146

[9] https://gst.caknowledge.in/impact-relevance-gst/ accessed on 12 March 2017

References

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