GST: Freedom from multiple taxes - Dr Sanjiv Agarwal - Article published in Business Advisor, dated August 10, 2016 - http://www.magzter.com/IN/Shrinikethan/Business-Advisor/Business/

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GST: Freedom from multiple taxes
Dr Sanjiv Agarwal
There cannot be a better way to celebrate India‘s
independence. The dream to have GST in India may
soon be a reality now. The month of August once again
became historic after August of 1947 when India
attained independence from British raj. August 2016
created a historic achievement once again as India
marches ahead on the road to fiscal freedom on tax
front as the 122nd Constitutional Amendment has been
approved by both the houses of Indian Parliament, i.e.
on 3rd August 2016 by Rajya Sabha (upper house) and on 8th August, 2016
by Lok Sabha (lower house). What a gift to Indian citizens and businessmen
in the 70th year of Independence!
Goods and Services Tax (GST) is the biggest ever tax reform of Independent
India whereby multiplicity of taxes are subsumed in one tax called GST,
though we will have three versions of GST (CGST, SGST and IGST). The GST
will subsume taxes like Central Excise Duty (1944), Central Sales Tax
(1956), Service Tax (1994) and a host of state levied taxes including Value
Added Tax (VAT). GST aims at subsuming many multiple taxes presently
levied by Central and State Governments with the objective to follow one
nation – one market - one tax policy and scrap the cascading effect of taxes
on cost, i.e. payment of tax on taxes. GST would, therefore, bring in
economies of scale, operational efficiency, lower cost of production and
benefits accruing to consumers. GST is expected to change the way
businesses are done, provide a host of opportunities to professionals, reduce
corruption, and consumers will eventually benefit.
Constitutional amendment
The Constitution (122nd Amendment) Bill, 2014 as amended has now been
passed by both the houses of Parliament in August, 2016 - on 3rd August by
Rajya Sabha and on 8th August by Lok Sabha (and that too unanimously in
both houses). The major amendments made in the original Constitutional
Amendment Bill during passage thereof include the following:
a) The amounts apportioned to/ collected by/ used for payment by States
shall not from part of consolidated fund of India;
b) Taxes collected by Union shall be distributed between Union and States;

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c) The additional tax proposed for manufacturing states shall not be levied;
d) GST Council to establish a mechanism for adjudicating any dispute
arising out of Council‘s recommendations –
(i) Government of India and State(s);
(ii) Government of India and State(s) on one side and one or more States
on other side;
(iii) Two or more States.
e) Parliament shall, by law on the recommendations of Council, compensate
to States for loss of revenue on account of introduction of GST.
Goods and Services Tax (GST)
GST is one indirect tax for the whole nation, which will make India one
unified common market. GST is a single tax on the supply of goods and
services, right from the manufacturer to the consumer. Credits of input
taxes paid at each stage will be available in the subsequent stage of value
addition, which makes GST essentially a tax only on value addition at each
stage. The final consumer will thus bear only the GST charged by the last
dealer in the supply chain, with set-off benefits at all the previous stages.
Taxes being subsumed
At the Central level, the following taxes are being subsumed:
a) Central Excise Duty,
b) Additional Excise Duty,
c) Service Tax,
d) Additional Customs Duty commonly known as Countervailing Duty, and
e) Special Additional Duty of Customs.
At the State level, the following taxes are being subsumed:
a) Subsuming of State Value Added Tax/Sales Tax,
b) Entertainment Tax (other than the tax levied by the local bodies), Central
Sales Tax (levied by the Centre and collected by the States),
c) Octroi and Entry tax,
d) Purchase Tax,

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e) Luxury tax, and
f) Taxes on lottery, betting and gambling.
Benefits of GST
The benefits of GST accruing to various stake holders can be summarised
as under:
For business and industry
 Easy compliance: A robust and comprehensive IT system would be the
foundation of the GST regime in India. Therefore, all taxpayer services,
such as registrations, returns, payments, etc., would be available to the
taxpayers online, which would make compliance easy and transparent.
 Uniformity of tax rates and structures: GST will ensure that indirect tax
rates and structures are common across the country, thereby increasing
certainty and ease of doing business. In other words, GST would make
doing business in the country tax neutral, irrespective of the choice of
place of doing business.
 Removal of cascading: A system of seamless tax-credits throughout the
value-chain, and across boundaries of States, would ensure that there is
minimal cascading of taxes. This would reduce hidden costs of doing
business.
 Improved competitiveness: Reduction in transaction costs of doing
business would eventually lead to an improved competitiveness for the
trade and industry.
 Gain to manufacturers and exporters: The subsuming of major Central
and State taxes in GST, complete and comprehensive set-off of input
goods and services and phasing out of Central Sales Tax (CST) would
reduce the cost of locally manufactured goods and services. This will
increase the competitiveness of Indian goods and services in the
international market and give boost to Indian exports. The uniformity in
tax rates and procedures across the country will also go a long way in
reducing the compliance cost.
For Central and State Governments
 Simple and easy to administer: Multiple indirect taxes at the Central and
State levels are being replaced by GST. Backed with a robust end-to-end

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IT system, GST would be simpler and easier to administer than all other
indirect taxes of the Centre and State levied so far.
 Better controls on leakage: GST will result in better tax compliance due to
a robust IT infrastructure. Due to the seamless transfer of input tax
credit from one stage to another in the chain of value addition, there is an
in-built mechanism in the design of GST that would incentivise tax
compliance by traders.
 Higher revenue efficiency: GST is expected to decrease the cost of
collection of tax revenues of the Government, and will therefore, lead to
higher revenue efficiency.
For the consumers
 Single and transparent tax proportionate to the value of goods and
services: Due to multiple indirect taxes being levied by the Centre and
State, with incomplete or no input tax credits available at progressive
stages of value addition, the cost of most goods and services in the
country today are laden with many hidden taxes. Under GST, there would
be only one tax from the manufacturer to the consumer, leading to
transparency of taxes paid to the final consumer.
 Relief in overall tax burden: Because of efficiency gains and prevention of
leakages, there will be relief in overall tax burden.
GST administration
For GST administration, keeping in mind the federal structure of India,
there will be two components of GST – Central GST (CGST) and State GST
(SGST). Both Centre and States will simultaneously levy GST across the
value chain. Tax will be levied on every supply of goods and services. Centre
would levy and collect Central Goods and Services Tax (CGST), and States
would levy and collect the State Goods and Services Tax (SGST) on all
transactions within a State. The input tax credit of CGST would be available
for discharging the CGST liability on the output at each stage. Similarly, the
credit of SGST paid on inputs would be allowed for paying the SGST on
output. No cross utilisation of credit would be permitted.
Are you prepared for GST?
Preparedness for GST in the next few months will involve tax planning
review, transactions review, training manpower, cost effectiveness in
inventory, logistics & final goods, business planning with anticipation of

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new tax structure with competition, fastest implementation & transition to
GST, procurement and purchase orders implementation, invoicing patterns,
proper implementation of GST transition in input stage credit, tax
management versus business operations, various miscellaneous provisions,
etc.
One has to take all steps to ensure that no dispute arises during transition
and thereafter. If precautions and safeguards are not taken, well in time,
during the pre and post implementation period of GST regime, then the
possibility of litigation, due to ignorance and/ or non-
implementation, cannot be ruled out.
Summing-up
GST is expected to play a key role in bringing about more transparency into
the tax system. Instead of fiscal concessions, concessions to select
industries on grounds such as environmental protection etc. could be
provided in a transparent manner through cash refunds or otherwise. While
unified rate may be there, states may be allowed to charge rates most
suitable to them such as on alcohol, petroleum products, etc.
A very strong infrastructure network would be required to administer GST
which would include facility for online payment of tax and e-filing of
returns. GST as a new levy could be a very effective tool and breakthrough
in indirect tax reforms, provided it is made simple and assessee-friendly –
not like the present tax system.
The nation is on the cusp of executing one of the most ambitious and
remarkable tax reforms in its independent history. Implementing a new tax,
encompassing both goods and services, to be implemented by the Centre, 29
States and 2 Union Territories, in a large and complex federal system, via a
constitutional amendment requiring broad political consensus, affecting
potentially 2-2.5 million tax entities, and marshalling the latest technology
to use and improve tax implementation capability, is perhaps
unprecedented in modern global tax history.
The time is ripe to collectively seize this historic opportunity.
It is felt that GST may seem to be a reality in 2017. The key lies in broad
consensus on simple tax law and commitment of States to a comprehensive
tax law which may be a watershed tax reform of the century which our
generation will witness. GST should be a win-win proposition for all --
Government, trade, industry and consumers.
(Dr Sanjiv Agarwal is Partner, Agarwal Sanjiv & Company, Jaipur.)