History of indirect tax regime in India:
Since independence, India has been a closed-door, quasi socialistic, highly regulated, bureaucratic economy where doing business was hard. The indirect tax system was complex even for experts to understand and implement. Both Central Government and State governments enacted various indirect tax laws such Central Sales Tax Act, State Sales Tax Act, Service Tax, Entertainment Tax, Octroi, Cess, Luxury Tax, Excise and Customs, etc. prohibiting free movement of goods and services across the country.
Unlike various developed countries in the world, India did not have “one nation, one tax” system.
History of GST in India:
Indian economy was opened up for foreign investment beginning 1991. Since then there has been concerns and discussions amongst different levels of the Governments, trade and industry circles, regulators and others to implement a simplified, rationalized, standard indirect tax system which was at par with developed countries and helped free movement of goods and services. The solution was found in Goods and Service Tax (GST).
The passage of the Constitution (101st) Amendment Bill, 2016 for GST in the Indian Parliament on August 8, 2016, and its ratification by more than 15 states, followed by its enactment, and passage of four GST Bills in Lok Sabha on March 29, 2017 and Rajya Sabha on April 6, 2017 has paved the way to a much-awaited tax reform in the history of Indian indirect tax system.
The GST Council, having representation from Centre as well as States, met 12 times to discuss various issues involved; such as GST laws, dual control GST rates, registration, migration, exemption, thresholds, compensation cess and so many others, and reached consensus on the same and recommended a four-tier rate structure.
The model GST law was released in the public domain in November 2016 and revised draft was split into four, Central GST (CGST), Integrated GST (IGST), Compensation to States GST (SGST) and Union Territory GST (UTGST) bills. Before, putting for discussion in Parliament it went to further reforms.
What is GST:
GST is a destination-based, integrated tax, working on the simple concept of “one nation, one tax”. Its implementation will benefit replacement of cascading effect of current multi-tax system and a seamless flow of input tax credit. GST will be a dual levy with State/Union Territory GST and Central GST. Inter State supplies would also attract Integrated GST being the sum of total of CGST and SGST/UTGST.
Tax rates under GST:
GST council in addition to zero rated and exempt category of goods and services, also decided four-tier structure of tax rates.
Standard rate for goods and services
Standard rate for goods and services
Expected for goods currently taxed @more than 30 %
Alcohol for human consummation has been kept outside the purview of GST.
Migration to GST:
All existing registrants under Central Excise, Service Tax and Vat starting January 7th, 2017 had to migrate to GST regime. To migrate to GST, all PAN holder registrants had been provided a Provisional ID and Password by Central Board of Excise and Customs (CBEC). April 30th, 2017 was the last date of migration for the existing registered dealers. To ease up migration process a new GST portal www.gst.gov.in was launched.
Proposed implementation date for GST is July 1st, 2017.
Addressing concerns from trade and industry:
In April 2017 a highly empowered group having representation from banks, SEZ, IT, ITES, Telecommunication, Textiles, Oil & Gas, Transport & Logistics, Service, Gems and Jewellery and other sectors, were formed. The working group was mandated to submit its report highlighting the concerns received from various sectors and also its recommendations.
Advantages of GST:
Some of the advantages accruing from GST are:
Advantages to the Citizens:
a. Simpler tax system.
b. Reduction in prices of goods and services due to elimination of cascading.
c. Uniform prices throughout the country.
d. Transparency in taxation system.
e. Increase in employment opportunities.
Advantages accruing to the Trade and Industry:
a. Reduction in multiplicity of taxes and mitigation of cascading/double taxation.
b. More efficient neutralization of taxes especially for exports.
d. Development of common national market.
e. Simpler tax regime-fewer rates and exemptions.
Advantages accruing to the Central/State Governments:
a. A unified common national market to boost Foreign Investment and “Make in India” campaign.
b. Boost to export/manufacturing activity and improving the overall investment climate in the country.
c. Uniform SGST and IGST rates to reduce the incentive for tax evasion.
e. Reduction in compliance costs as no requirement of multiple record keeping.
In India, the GST has been identified as one of the most revolutionary tax reforms post-independence. It is will have a positive impact on the Indian economy and GDP growth. Removal of tax barriers on introduction of uniform GST across the country with seamless credit will make India a common market leading to economies of scale in production and efficiencies in supply chain. GST will significantly reduce cost of indigenous goods and services and will promote ‘Make In India’ brand. Stable, transparent and predictable tax regime will encourage local and foreign investment in India creating significant job opportunities resulting economic growth.
D. P. Jain is a former president of ICCC and a practicing CPA, CGA. This article is written to provide a basic understanding of the GST law in India; however, no pecuniary decisions should be made based on this information.