Education Series | June 06, 2017
Just before a month ago, the Goods and Services Tax (GST) is literally becoming the talk of the town, considering it to be the biggest reform in the Indian economy. Almost all the business leaders and consumers are looking forward to it with great anticipation. Whether it will leave a favourable impact on the Indian finance or whether it will create disruptions in business transactions is what people are mostly looking forward to.
In order to understand the various complexities of implementing the GST and to sense its effect on the future economy, we have attended a GST session of Mr. Arun Goyal, IAS and Secretary of the GST Council, responsible for the formation of rules and regulations under the GST and its implementation in the country in New Delhi.
Following are the takeaways from the GST session
- The main purpose of introducing the GST is to simplify the existing complex and multi-layer tax system in India and have a uniform tax structure to ease out the tax understanding and compliance across the nation.
- Another purpose is to resist the unlawful businesses in India and foreign investments and to withstand the rampant tax evasion and tax leakage, which eventually leads to revenue loss to the government.
Longer term benefit of GST on the economy
- On the implementation of GST, the majority of goods and services are decided to be taxed on the basis of earlier tax structure so that not much differences show up after the amalgamation of the central and state taxes into a single tax rate. The goods that were taxed at 26% including the VAT (State) and Excise (Central) will be taxed at 28%. This little mismatch in the tax rates might rise to controversy, but is likely to benefit the businesses in the long run.
- Another major benefit that our country is going to experience is the introduction of GSTN (Goods & Services Tax Network), under which seller’s invoice will be matched with the buyer’s invoice to pass the benefit of input tax credit to the buyer. However, in case, the invoices do not match within 2 months time but the benefit gets passed, then the input tax credit will be reversed.
- At present, the country’s tax to GDP ratio is much lesser in compare to the developed countries like Europe. GST is likely to play a vital role in increasing the taxpaying and compliance habit which in turn will lead to the country’s tax growth to GDP ratio. Currently, only 8% tax comes from small scale or unorganized sector, whereas 92% from organized sector.
Key points under GST
- Alcohol for human consumption will be outside the GST purview. Likewise, 5 petroleum products like crude oil, diesel, petrol, natural gas and ATF will be outside the GST purview, except the fact that GST Council will have the discretionary power to decide the GST rates for these products.
- Tobacco will also be outside the GST purview. But under central GST, the government will have the power to levy additional duty on it. Entertainment tax will not be included in the GST as well and will remain under the state and local bodies.
- There will be a system of GST compliant rating under the GST regime. This system will eliminate low GST compliant from the business chain.
- Goods and Services Tax Network (GSTN) will be consisted of 25 companies with strategic government control to function as a common pass through the portal for taxpayers. Infosys is appointed for managing the portal as managed service provider.
To ensure single interference, 90% of taxpayers with less than Rs. 1.5 crore turnover will come under state tax administration, while 10% will come under central tax administration. Taxpayers with a turnover of Rs. 1.5 crore or more will come under 50% of central tax administration and 50% of state tax administration.
- 5% GST will be levied on Print media and newsprint companies. Electronic media advertisement revenues will be taxed at different rates.
- Companies selling products through e-commerce companies will be taxed at the same rate as the tax had been levied on selling products through non e-commerce channels.
- Gold, gems and jewellery will be taxed at 3%, whereas GST on apparel below Rs.1000 will be fixed at 5%.
- GST on all biscuits will be 18%
- Footwear priced below Rs. 500 will be taxed at 5% and the rest at 18%.