1. 1
“IMPLEMENTATION OF GST IN INDIA”
Bachelor of Commerce
FINANCIAL MARKETS
Semester VI
(2015-2016)
Submitted by
SOWJANYA SAMPATHKUMAR
Roll No. 51
H.R. COLLEGE OF COMMERCE & ECONOMICS
123, D.W. Road, Churchgate, Mumbai – 400 020
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INDEX
Sr. No. Particulars Page No.
1 Introduction of GST in India 1
2 Current status of the GST Bill 4
3 Analysis of GST in India 7
4 Analysis of GST in other countries 16
5 Major beneficiaries(Sectors) due to
GST
31
6 Impact of GST on ultimate consumers 47
7 Overall benefits in the economy 52
8 Conclusion 53
9 Bibliography 57
3. 3
Introduction of GST in India
The Goods and Services Tax Bill or GST Bill, officiallyknown as The
Constitution (One Hundred and Twenty-Second Amendment)Bill, 2014,
proposes a national Value added Tax to be implemented
in India. "Goodsand Services Tax" would be a comprehensive indirect
tax on manufacture, sale and consumptionof goods and services
throughout India, to replace taxes levied by
the Central and State governments.Goods and services tax would be
levied and collected at each stage of sale or purchase of goods or
services based on the input tax credit method.This method allows GST-
registered businesses to claim tax credit to the value of GST they paid
on purchase of goods or services as part of their normal commercial
activity.
Taxable goods and services are not distinguished from one another and
are taxed at a single rate in a supply chain till the goods or services
reach the consumer.Administrative responsibilitywould generally rest
with a single authority to levy tax on goods and services.Exports would
be zero-rated and imports would be levied the same taxes as domestic
goods and services adhering to the destination principle.
The introduction of Goods and Services Tax (GST) would be a
significant step in the reform of indirect taxation in India. Amalgamating
several Central and State taxes into a single tax would mitigate
cascading or double taxation, facilitating a commonnational market. The
simplicity of the tax should lead to easier administration and
enforcement.From the consumerpoint of view, the biggestadvantage
would be in terms of a reduction in the overall tax burden on goods,
which is currently estimated at 25%-30%
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As India is a federalrepublic GST would be implemented concurrently
by the central government and by state governments.
A single taxation point system can bring about more transparency and
accountability in the country’s tax regime.
It is considered to be a game changing reform which will not only
increase the economic growth by upto 2% (Finance Ministry) but also
have many other spin offs forthe economy.It will usher in a single
market in the country and considerablyenhance the 'Ease of Doing
Business in India'
Backdropof GST-
The constitution provides for the separation of tax related
powers in the constitution on the basis of the 7th schedule viz,
Union, State and Concurrent list with residuary power of
taxation being vested with the Centre. (Service tax imposed on
the basis of residuary power)
Broadly there are two types of taxes in India; Direct Tax and
IndirectTax. Direct Tax refers to that tax whose burden can't be
passed on to someone else (Income Tax, Wealth Tax,
Corporation Tax, MAT etc.). Whereas IndirectTax's burden can
be passed on to the next personin the chain of transaction (eg
excise duty, sales tax, service tax, octroi, customs duty etc.)
and ultimately on the final consumer.
GST is concerned only with Indirecttaxes. Some of these are
levied by Centre and some by State. Those imposed by states
are done at varying rates across the country. Further there are
state specific variations in remissions also.
5. 5
The Excise duty was levied on both inputs used and outputs
produced.Thus the amount paid on input was taxed at each
stage. This resulted in cascading effectof taxes.
The issue of cascading taxation was partly addressedthrough
the VAT regime.However, certain problems remained. For
example, several central and state taxes were excluded from
VAT. Sectors such as real estate, oil and gas productionetc.
were exemptfrom VAT.Further, goods and services were taxed
differently,thereby making the taxation of products complex.
Timeline of GST-
GST was first mooted by Dr Manmohan Singh in the mid 90s
The BJP Government under Atal Bihari Vajpayee started
consultation on GST and established a committee under Asim
Dasgupta for implementation of GST
The GST was recommended by the Kelkar Task Force on FRBM
act in 2005
In 2011,the Constitution (115th Amendment)Bill, 2011 was
introduced in Parliament to enable the levy of GST. However, the
Bill lapsed with the dissolutionof the 15th Lok Sabha.
Subsequently, in December2014,the Constitution (122nd
Amendment)Bill, 2014 was introduced in Lok Sabha. The Bill
was passed by Lok Sabha in May 2015 and referred to a Select
Committee of Rajya Sabha for examination.
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Current status of the GST Bill
We can always recollectthe Budget2015-16 from last year where the
Goods and Services Tax (GST) formed one of the major pillars for ‘Ease
of Doing Business’in India. And in stark contrast with last year’s
Finance Ministers speech,this year we only heard a meagre reference
of GST in FM budget speech,which read:
“The Governmentshallalso endeavourto continue with the ongoing
reform programme and ensurethe passageof the Constitutional
amendments to enablethe implementationof the Goods and Service
Tax”
As GST remained a political hotbed over the past year, a direct
reference of GST policies through the BudgetSpeechwould not have
been a prudent political decisionin any case. Rather the Finance
Minister chose to be smart, by disguisedlyintroducing various
‘transparency’ and ‘Ease of Doing Business’ driven changes, in line with
the proposedGST regime.Many changes, although administrative,
showcase the continuous commitmentof the government towards GST.
Some of the major proposed changes have been:
• Reorganizations of field formations of Central Excise and Service Tax
in the event of implementationof GST; and
• Proposalto revamp the Maharashtra VAT Return procedures more in
line with suggested GST Business Processes;
• The Allocation of GSTN Contract to Information Technologygiant
Infosys.
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These small changes show enough promise that the GST is not yet
down and out. Also the Economic Survey 2015-16(released on 26th
February 2016)which preceded the Union Budget2016-17,has clearly
indicated that GST would remain a central focus for India’s Make in India
project.
The Economic survey 2015-16enumerates that:
• A move to GST would eliminate tax leakages due to
rationalisation of indirect tax exemptions which account to an
estimated cost of Rs. 3.3 lakh crore.
• GST would affectpotentially 2-2.5 million excise and service
taxpayers; and
• GST is an unprecedentedreform in modern global tax history.
The 122 Constitution Amendment Bill has been passed in the Lok
Sabha and is pending in the Rajya Sabha. The government had set a
deadline of 1st April 2016 for the implementation of GST.The Rajya
Sabha stalled on various issues and the differences faced by opposition
party view have made the realization of the target unlikely.
Some of the issues are:
GST rate of 18% to be made a part of the Constitution
AmendmentBill.
The 1% levy must be abolished.
Dispute redressalAuthority to be established.
Since the bill seeks to alter major provision of taxations in the
constitution that affectthe states, it must be passed in both the houses
of the Parliament and also endorsed by half the states.
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The Budget 2016 under the subtle tone of indirect tax changes i.e.
improving litigation procedures,Digitization of government procedures,
unifying interest rates, subsuming of 13 indirect taxes etc. is slowly but
certainly moving towards an organized indirect tax system (GST).
The Economic Survey 2015-16 acknowledgesGST bill to be a step in
the right direction. However, it also recognizes that a lot more needs to
be done by the States, including, creating better physical IT
infrastructure, procedural amendments,etc. in order to ascertain GST
preparednessforthe future. Thus, in the backdrop of Make in India,
Manufacturing goals of India and proposedBudgetchanges, GST even
though not mentioned in budget,still appears to be in the priority and is
mostly discussedto be implemented from April 2016 onwards.
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Analysis of GST in India
GST is a consumptionbased tax levied on sale, manufacture and
consumptionon goods & services at a national level. This tax will be
substitute for all indirect tax levied by state and central government.
Exports and direct tax like income tax, corporate tax and capital gain tax
will not be affected by GST. With the increase of international trade in
services,GST has becomea global standard. The proposedtax system
will take the form of “dual GST” which is concurrently levied by central
and state government. This will comprise of:
Central GST (CGST)which will be levied by Centre
State GST (SGST) Which will be levied by State
Integrated GST (IGST)– which will be levied by Central Government
on inter-State supply of goods and services.
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Scope of GST
GST is applicable on the supply of goods orservices.
Alcoholic liquor for human consumptionis exemptfrom GST.
Initially, GST will not apply to: (a) petroleum crude, (b) high speed
diesel,(c) motor spirit (petrol), (d) natural gas, and (e) aviation turbine
fuel. The GST Council will decide when GST will be levied on them.
Tobacco and tobacco products will be subjectto GST.
Levy of GST
Both, Parliament and state legislatures will have the power to make
laws on the taxation of goods and services.A law made by
Parliament in relation to GST will not override a state law on GST.
The central governmentwill have the exclusive power to levy and
collectGST in the course of interstate trade or commerce,or imports.
This will be known as Integrated GST (IGST).
A central law will prescribe the manner in which the IGST will be
shared between the centre and states, based on the
recommendations ofthe GST Council.
An additional tax of up to 1% on the supply of goods will be levied by
centre in the course of inter-state trade or commerce.The tax will be
collected by the centre and directly assigned to the states from where
the supply originates.
This tax will be levied for two years, or for a longer period as
recommended bythe GST Council. The central government may
exemptcertain goods from such additional tax.
The principles for determining the place of origin from where the
supply of such goods takes place will be formulated by a law of
Parliament.
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Justification at the Central level
At presentexcise duty paid on raw material consumed is
being allowed as input credit only. For other taxes and duty paid for
postmanufacturing expenses,there is no mechanism for input tax
credit under the Central Excise Duty Act.
Credit for service tax paid is being allowed by the manufacturer or
service provider to a limited extent. In orderto give the credit of
service tax paid in respectof services consumed,it is of utmost
necessityof an existence of comprehensive tax system under
both the goods and services are covered.
At presentservice tax is levied on a few items only. With
government realizing “Negative List” from time to time in which
the listed services will be out of the purview of service tax.
Justification at the State level
A major defectunder the State VAT is that the State is charging
VAT on the excise duty paid to the Central Government,
which goes against the principle of not levying tax on taxes.
The present State VAT scheme, CENVAT allowed on goods
remain included in the value of goods to be taxed which is
cascading effecton account of CENVAT element.
Many states are still continuing with various types of indirect
taxes.
As tax is being levied on inter-state transfer of goods,there is no
provision for taking input crediton CST leading to additional
burden on dealers.
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Alternatives to the IGST
The Bill permits the centre to levy and collectGST in the course of
inter-state trade and commerce,called the Integrated Goods and
Services Tax (IGST). Such tax will be apportioned between the centre
and the states in a manner to be decided bya law made by
Parliament.
The Task Force set up by the 13th Finance Commissionhad
suggestedan alternative to the IGST.5 The Commissionhad
recommended amodified bank modelwith regard to inter-state
transactions. Under this model, the seller levies GST on the buyer
state, and deposits the tax collected to a nodal bank. The nodal bank
then credits payment to the consuming state. This modelwas
recommended,given that inter-state transfers under GST should be
designed (i) to avoid any distortions or cascading effects,and so that
(ii) tax accrues to the state where the final consumeris located.5 The
Standing Committee examining the Constitution (115th Amendment)
Bill, 2011 had recommended the modified bank modelas an
alternative to the IGST as it would simplify tax compliance and ease
administrative burden in inter-state transactions.
The New Indian Express in their article ‘GST SO NEAR YET TOO FAR’
have pointed out the fact that India will gain an estimated $15 billion by
the implementation of GST. With a simplerand sophisticated indirect tax
model,there will be an ease in understanding between the revenue
officials and the tax payers.
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Positive Aspects
The main reason to implementGST is to abolish the cascading
effecton tax. A producton which excise duty is paid can also be
liable for VAT.Suppose a productA is manufactured in a factory. As
soon as it releases from factory, excise duty has to be paid to central
government. When that product A is sold in same state then VAT
has to be paid to state government. Also no credit on excise duty
paid can be taken against output VAT. This is termed as cascading
effectsince double tax is levied on same product.
The GST is being introduced to create a commonmarket across
states, not only to avoid enfeebled effectof indirect tax but also to
improve tax compliance.
GST will lead a more transparent and neutral manner to raise
revenue.
Price reduction as credit of input tax is available against output tax.
Simplified and cost saving system as procedural costreduces due to
uniform accounting for all types of taxes. Only three accounts;
CGST,SGST,IGST have to be maintained.
GST is structured to simplify the current indirect system.It is a long
term strategy leading to a higher output, more employment
opportunities,and economic boom.
GST is beneficialfor both economyand corporations.The reduced
tax burden on companies will reduce production costmaking
exporters more competitive.
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Negative Aspects
GST is being referred as a single taxation system but in reality it is a
dual tax in which state and centre both collects separate tax on a
single transaction of sale and service.
At presentthe main Indirect tax system of central Government is
central excise. All the goods and commoditiesare not covered by the
central excise and further there is an exemption limit of Rs. 1.50
Crores in the central excise and further traders are not liable to pay
central excise.
Majority of dealers are not covered with the central excise but are
only paying VAT in the state. Now all the Vat dealers will be required
to pay “Central Goods and service tax”.
The calculation of RNR (Revenue Neutral Rate) is very difficultand
further Govt. wants to enhance its revenue hence rate of Tax will be
a problem.As per the News reports the proposedrate for State GST
is 12% and Central GST is 14% Plus Govt. wants to impose 1% CST
at the initial stage of GST on the interstate sale of Goods and
services.So the normal rate of overall tax will be 26%. This rate is
very high comparing to the fact that small and medium Industries are
at presentnot covered by the central excise and mostof the Goods
such as agricultural products are out of the preview of the Central
Excise.
Improvementin the Manufacturing and distribution of Goods and
service, increase in exports, various reforms,check on corruption,
less Government control are some of the factors which are
responsible forthe economic growth of the country.
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Impact of passage of the GST bill
Creation of a 'harmonized system of taxation' in the country by
subsuming all the indirect taxes into one GST
It will eliminate cascading taxes (tax on tax) hence reduce the costof
goods
It will ensure higher compliance on account of input tax rebate system
Single tax for Goods and Services hence no need for differentiation
between the two which is not only difficult in the age of IT but also
results in double taxation
It will widen the tax base and lower the tax burden
It will help ensure the same price for a single good or service across
the country
By extension, it will help increase the saving rate and thus help the
economygrow. The government feels it can help enhance the growth
by upto 2 %. Even the Task Force under leading economistKelkar
had pointed out that it will increase growth.
It will increase the export competitiveness of the economy
It will enhance the 'Ease of Doing Business' in India and help attract
investment (Make in India)
The ease of a single indirect tax will increase the compliance levels
thus increasing the tax buoyancy
The states will be compensated forfirst five years for losses incurred
on account of GST implementation for upto 5 years in staggered
manner
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Challenges ahead of GST
Passage of the bill in the Rajya Sabha
Support by at least half of the states
A functionally robust GSTN to facilitate the implementation
Formulating the Revenue Neutral rate for GST
Drafting a modellegislation to be adopted by the states
Deciding the minimum threshold value beyond which the GST will be
applicable
Compiling the 'place of supply' rules to determine where the goods
and services will be taxed. India favors the ''destination based
consumption'' principle
Key issues in the GST
Loss of revenue for states- States are going to be compensated forit,
further Alcohol has been left out of the purview of GST. Petroleum
products will be dealt with at a later stage in the GST Council with
states on board.
Loss of fiscal autonomy of the states - although the GST Council will
be a very important player in tax related matters there will be
democratic functioning of the Council. The voting powers will be
shared between Centre and States in the ratio 33.33:66.66.
The additional 1% tax levied on goods that are transported across
states dilutes the objective of creating a harmonized national market
for goods and services.Inter-state trade of a good would be more
expensive than intra-state trade, with the burden being borne by retail
consumers.Further, cascading of taxes will continue.
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Highlights of the GST bill
The GST Bill amends the Constitution to introduce the goods and
services tax (GST).
Parliament and state legislatures will have concurrent powers to
make laws on GST. Only the centre may levy an integrated GST
(IGST)on the interstate supply of goods and services,and imports.
Alcoholfor human consumptionhas been exempted from the purview
of GST. GST will apply to five petroleum products at a later date.
The GST Council will recommend rates of tax, period of levy of
additional tax, principles of supply, specialprovisions to certain states
etc. The GST Council will consistof the Union Finance Minister,
Union Minister of State for Revenue, and state Finance Ministers.
The Bill empowers the centre to impose an additional tax of up to 1%,
on the inter-state supply of goods fortwo years or more. This tax will
accrue to states from where the supply originates.
Parliament may, by law, provide compensationto states for any loss
of revenue from the introduction of GST,up to a five year period.
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Analysis of GST in other countries
New Zealand
Goods and Services Tax (GST) is a value added tax in New Zealand.
GST in New Zealand is designed to be a broad based system with few
exemptions.Exceptions that do exist include rents collected on
residential rental properties,donations, precious metals and financial
services.
End-users pay this tax on all liable goods and services directly, in that
the purchase price of goods and services includes GST.
The existing rate for GST effective from 1 October2010 is 15%.
GST was introduced by the Fourth Labour Government of New
Zealand on 1 October1986 at a rate of 10% on mostgoods and
services.It replaced existing sales taxes for some goods and services.
GST was a part of the economic reformsinitiated by Labour Finance
Minister RogerDouglas dubbed Rogernomics.GST was introduced in
conjunction with compensating changes to personal income tax rates.
Since its introduction it has had two increases,on 1 July 1989 the rate
increased to 12.5% and on 1 October2010 it increased again to 15%.
GST-registered organisations and individuals pay GST only on the
differencebetweenGST-liable sales and GST-liable supplies (i.e., they
pay GST on the differencebetweenwhat they sell and what they buy:
income less expenditure).
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This is accomplished byreconciling GST received (through sales) and
GST paid (through purchases)at regular periods (typically every two
months, with some qualifying companies opting for one-month or six-
month periods),then either paying the difference to the Inland Revenue
(IRD) if the GST collected on sales is higher or receiving a refund from
IRD if the GST paid on purchases is higher.
Businesses exporting goods and services from New Zealand are entitled
to "zero-rate" their products:effectively,they charge GST at 0%. This
permits the business to claim back the input GST, but the eventual, non-
New Zealand based consumerdoes not pay the tax (businesses that
produce GST-exemptsupplies are not able to claim back input GST).
Because businessesclaim back their input GST, the GST inclusive price
is usually irrelevant for business purchasing decisions,other than in
relation to cash flow issues. Consequently, wholesalers often state
prices exclusive of GST, but must collectthe full, GST-inclusive price
when they make the sale and account to the IRD for the GST so
collected.
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Australia
The goods and services tax (GST) in Australia is a value added tax of
10% on mostgoods and services sales.GST is levied on most
transactions in the productionprocess,but is refunded to all parties in
the chain of productionother than the final consumer.
The tax was introduced by the Howard Government and commencedon
1 July 2000,replacing the previous federalwholesale sales tax system
and designed to phase out a number of various State and Territory
Government taxes, duties and levies such as banking taxes and stamp
duty.
An increase of the GST to 15% has been put forward, but is generally
lacking in bi-partisan support.
The idea for a broad-based consumptiontax was first proposedby then
federaltreasurer Paul Keating at the 1985 Tax Summit but was dropped
at the behestof then Labour Prime Minister Bob Hawke after pressure
from the ACTU, welfare groups and business,which did not like its
association with proposals for capital gains and fringe benefits taxes.
A prominent selling point of the legislation was that all the revenue
raised by the GST would be distributed to the states. In 1999 an
agreementwas reached with the state and territory governments that
their various duties, levies and taxes on consumptionwould be removed
over time, with the consequentbudgetshortfall being replaced by GST
income distributed by the Commonwealth Grants Commission.
Furthermore, federally-levied personal income tax and company tax was
reduced to offsetthe GST.
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All Australian businesses whose turnover is above the minimum
threshold (currently $75,000 perannum) are required to register for
GST. Businesseswhose turnover is below the threshold may registerif
they wish to.
A GST-registeredbusiness must charge its customers GST on taxable
goods and services it provides,but is entitled to a credit for any GST it
has paid for its expenditures on these goods and services as well as
capital purchases (called input tax credits).A registered business must
periodically lodge Business Activity Statements (monthly, quarterly or
annually), and at the same time pay the net amount of GST owed to the
tax office (if more GST is paid than collected,a refund is paid by the tax
office instead).
Some goods and services (notably salaries, wages, fresh food,and real
estate) are exempt from GST. Other goods and services (rental income
and financial services)are "input-taxed", which means that GST is not
charged on the sale, but GST paid by that part of the business is not
eligible to be claimed as an input tax credit.
John Howard had said that the "GST would never becomepart of Liberal
Party policy ", but his change of heart would become apparentin the
lead-up to the 1998 campaign. It was passed by the Senate in June
1999 in a heavily amended form.
The Leader of the Democrats, Meg Lees,viewed the dilution of the GST
legislation as a success,but the issue split the Democrats,with Senators
Natasha Stott Despojaand Andrew Bartlett voting against the GST.
23. 23
Critics have argued that the GST is a regressive tax, which has a more
pronounced effecton lower income earners, meaning that the tax
consumes a higher proportionof their income,compared to those
earning large incomes.However, due to the corresponding reductions in
personal income taxes, state banking taxes, federalwholesale taxes and
some fuel taxes that were implemented when the GST was introduced,
formerTreasurer Peter Costello claimed that people were effectively
paying no extra tax.
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Canada
The goods and services tax is a multi-level value added tax introduced
in Canada on January 1, 1991,by then-Prime Minister Brian Mulroney
and his finance minister Michael Wilson.The GST replaced a hidden
13.5% manufacturers' sales tax (MST); Mulroney claimed the GST was
implemented because the MST was hindering the manufacturing
sector's ability to export competitively.The introduction of the GST was
very controversial. The GST rate is 5%, effective January 1, 2008.
The goods and services tax is defined in law at Part IX of the Excise Tax
Act. GST is levied on supplies of goods or services purchased in
Canada and includes mostproducts,except certain politically sensitive
essentials such as groceries,residentialrent, and medical services,and
services such as financial services.Businesses that purchase goods
and services that are consumed,used or supplied in the course of their
"commercialactivities" can claim "input tax credits" subjectto prescribed
documentation requirements (i.e., when they remit to the Canada
Revenue Agencythe GST they have collected in any given period of
time, they are allowed to deductthe amount of GST they paid during that
period). This avoids "cascading" (i.e., the application of the GST on the
same good or service several times as it passes from business to
business on its way to the final consumer). In this way, the tax is
essentially borne by the final consumer.This system is not completely
effective,as shown by criminals who defrauded the system by claiming
GST input credits for non-existent sales by a fictional
company. Exported goods are exempt ("zero-rated"), while individuals
with low incomes can receive a GST rebate calculated in conjunction
with their income tax.
26. 26
The tax is a 5% tax imposed on the supply of goods and services that
are purchased in Canada, exceptcertain items that are either "exempt"
or "zero-rated":
For tax-free — i.e., "zero-rated" — sales, GST is charged by
suppliers at a rate of 0% so effectivelythere is no GST collected.
However, when a supplier makes a zero-rated supply, it is eligible to
recoverany GST paid on purchases used in producing the particular
supply or service. This effectivelyremoves the cascading tax from
these particular goods and services.
Commonzero-rated items include basic groceries,prescriptiondrugs,
inward/outbound transportation and medical devices (GST/HST
Memoranda Series ME-04-02-9801-E 4.2 Medicaland Assistive
Devices).Certain exports of goods and services are also zero-rated.
For tax-exempt supplies,the supply is not subjectto GST and
suppliers do not charge tax on their exemptsupplies.Furthermore,
suppliers that make exempt supplies are not entitled to recoverGST
paid on inputs acquired for the purposes of making the exemptgood
or service.Tax-exempt items include long term residential rents,
health and dental care, educational services,day-care services,legal
aid services,and financial services.
On July 1, 2006,the Government of Canada reduced the tax by 1
percentage point (to 6%), as promised by the Conservative Party in the
2006 electioncampaign. They again lowered it to 5%, effective January
1, 2008. This reduction was included in the Final 2007 Budget
ImplementationBill (Bill C-28), which received Royal Assenton
December14,2007.
27. 27
This change has been estimated to have decreased government
revenues by approximately $6 billion. Opponents of these tax decreases
cited that sales taxes target those who spend more and therefore such
reductions disproportionatelybenefitCanadians giving those who have
the most and spend the most the largest tax decrease.
Much of the reason for the notoriety of the GST in Canada is for reasons
of an obscure Constitutional provision. Other countries with a Value
Added Tax legislate that posted prices include the tax; thus, consumers
are vaguely aware of it but "what they see is what they pay". Canada
cannot do this because jurisdiction over most advertising and price-
posting is in the domain of the provinces under the Constitution Act,
1867.The provinces have chosen not to require prices to include the
GST, similar to their provincial sales taxes. As a result, virtually all prices
(exceptfor fuel pump prices,taxi meters and a few other things) are
shown "pre-GST",with the tax (or taxes) listed separately.
29. 29
Singapore
Goods and Services Tax (Abbreviation: GST) in Singapore is a broad-
based value added tax levied on import of goods,as well as nearly all
supplies of goods and services.The only exemptions are for the sales
and leases of residential properties and most financial services.Export
of goods and international services are zero-rated.
Before 1986,Singapore'scorporate income tax rate and top marginal
personal income tax rate both stood at 40%. Such high rates were
deemed to be uncompetitive. On the recommendationof the 1986
Economic Committee,Singapore's governmentdecided that it needed to
shift from direct to indirect taxes, to maintain its international
competitivenessin attracting investments, and to sustain its economic
growth to create well-paying jobs for Singaporeans.
The GST was part of a larger tax restructuring exercise to enable
Singapore to shift its reliance from directtaxes to indirect taxes. The
government argued that tax reform was necessaryto maintain
Singapore's competitiveness,to sustain long-term growth and job
creation. The government also argued that with an ageing population,
Singapore's income tax base was expected to decline.With a broad-
based GST, the taxation burden would be more evenly spread among
the population.
A value-added tax, like the GST, also has several features that make it
attractive. A tax on consumption,not income, the tax system inherently
encourages savings and investments instead of consumption.The tax
also has a self-policing mechanism that discourages evasion, unlike a
retail sales tax system or an income tax system, which would be
relatively easier to evade.
30. 30
GST was implemented at a single rate of 3% on 1 April 1994,with an
assurance that it would not be raised for at least five years. To cushion
the impact of GST on Singaporean households,an offsetpackage was
also introduced. Simultaneously, corporate tax rate was cut by 3% to
27%, and the top marginal personal income tax rate was cut by 3% to
30%. The initial GST rate of 3% was among the lowest in the world, as
the focus was not to generate substantial revenue, but to allow people to
get adjusted to the tax.[4]
In 2002,the Economic ReviewCommittee reviewed Singapore's tax
policy, and recommended that further tax reform was necessaryto bring
in new investments. The committee noted that other countries were
aggressivelycutting their direct tax rates to attract internationally mobile
capital and labour, and recommended that the government rely more on
GST for its tax revenues, while again cushioning the impact on
Singaporean households through an offsetpackage.
The government accepted the committee's recommendations.The GST
rate was increased from 3% to 4% in 2003,and to 5% in 2004.Each
increase was accompanied by an offsetpackage that was designed to
make the average Singaporean household overall better off,even after
accounting for the additional costs imposedby the increase in GST
rates. Direct tax rates were also reduced correspondingly.
On 15 February 2007 (Budget Day), Second Finance Minister Tharman
Shanmugaratnam announced that the GST rate would be increased to
7% with effectfrom 1 July 2007.
The rate increase was accompanied by an offsetpackage to help
Singaporeans with the increase in GST. The package would cost the
government $4 billion over five years.
31. 31
The government argued that the offsetpackage would help the majority
of Singaporeans offsettheir increased GST costs for several years. The
offsetpackage consisted of directtransfer benefits,in the form of cash
payouts (GST credits, growth dividends,senior citizens' bonuses), CPF
top-ups (post-secondary education account top-ups for students,
Medisave top-ups for olderSingaporeans), and rebates (on utilities and
public housing service & conservancy charges). Those who earned less
or lived in smaller homes received more benefits. The government also
argued that the Workfare Income Supplement,a wage subsidy, would
provide significant supportfor lower-income workers on a continuing
basis even after the GST offsets have beendistributed.
The government also cut direct tax rates, continuing its practice of
lowering direct tax rates since 1986. As of 2010,the top marginal rates
for corporate tax stood at 17% and personal income tax at 20%, with
effective rates being much lower.
33. 33
Major beneficiaries(Sectors) due to GST
E-commerce
As industrialists in India wait with bated breath for the rollout of GST as
part of the tax reforms undertaken by the government, one of the biggest
beneficiaries of the rollout could be the booming e-commerce sectorin
India.
India currently has no tax laws in place to regulate the e-commerce
industry. As a result, tax imposition is done based on the interpretation
of local taxation authorities in differentstates. Businesses suffer
because the interpretation varies from state to state.
Implementing GST will actually help eliminate the taxation problem at
the root faced by the e-commercecompanies and give a further boost
to the e-commerce sectorthat is still at a nascent stage, yet growing
exponentially, and has the potential to give a huge boostto the country’s
economyin the coming years. It is currently being perceived,by the
industry, as panacea to endless tax woes. Logistics being one of the
biggesthurdles so far for e-commerce companies,the roll-out of GST is
likely to simplify things to a great extent. The objective of GST is to
simplifyand streamline the indirect tax regime in the country.
Since the same tax regulation will apply across differentstates, e-
commercecompanies (as well as those from other industries) will not
have to struggle with the complexregulatory structure that currently
prevails in the country, and with the lack of uniform policies in different
states, giving them the levy to devise their strategies in keeping with the
GST norms.
34. 34
Under GST, both Central and State taxes will be levied on the
manufacturing costat the point of sale, which will help eliminate the
challenge of tax being levied on the same product/service morethan
once.
Moreover, sourcing, distribution and warehousing strategies that are
currently designed by companies from the perspective of how tax liability
can be minimised will change. Companies can now device these
strategies based on what is actually in their best interest, since they no
longer need to have a warehouse in every state as a means to minimize
their tax liability.
Instead, a large warehouse at a strategic location can fulfill the demand
of several states and help minimize costs.In fact, based on research it is
believed that a company’s profit can increase by over 20 per cent by
reducing costby a mere 2 per cent. Going by this estimate, e-commerce
companies stand to gain tremendouslyfrom GST.
Easing regulatory norms is a move that will not just benefite-commerce
companies by further accelerating their growth, but will also position the
country as industry-friendly and attract more investments from foreign
investors. This in turn will create a ripple effectby generating endless
employmentopportunities.It is, therefore,imperative that the
government makes all efforts to make GST a success,since it will be a
win-win for both, the industry and the economy.
35. 35
Logistics
With the Government hoping to pass the Goods and Services Tax (GST)
bill in the Parliament's budget session,transportation and logistics
companies are preparing for changes in their operations.Industry
experts feel that GST will not only make them more efficient but also
reduce their actual requirement for commercialvehicles.
The GST is expected to be implemented by fiscal 2016-17 and is aimed
at reducing multiple taxes. Inter-state sales transaction will becometax
neutral, the whole country become one single commonmarket without
any state borders.
Logistics companieswill therefore see a major change in transportation
of goods and location of warehouses. In the past the warehouses were
set up for avoiding state taxes at the cost of operational efficiencies.
Vivek Ganguly, Director(Investments), Nine River Capital, an investment
banking firm, said that because of trade barriers such as entry taxes,
local bodytaxes, octroi and other hurdles, trucks are sitting idle 30 to 40
per cent during their delivery schedule.
“Whenyou remove these barriers, you will have 30 to 40 per cent, less
downtime for vehicles, which effectivelywould mean companies would
need lessernumber of vehicles for carrying out the same business. Post
GST implementationthere would be a dip in the replacementdemand
for vehicles, at least for a period of 12 to 18 months,” Ganguly said.
There would also be a move for procuring higher tonnage trucks due to
the new efficienciesbrought about by the GST.Companies will
consolidate small warehouses, which were set up for avoiding taxes.
36. 36
Trucks with load capacity up to 20 tonnes would be replaced by larger
trucks for carrying additional cargo, Gangulay said.
Logistics costs inthe country are about 14 per cent of GDP, while in
developedcountries they are nine per cent. In the logistics sectoronly
about 10 to 20 per cent of the companies are organised.Rest of the
space is taken by small fleet and warehouse operators,which leads to
tremendous inefficiencies in operations.
Past presidentof All India Motor Transport Congress,Bal Malkit Singh,
said that on an average a truck runs about 220 km per day. After is GST
is implemented could run up to 300 km to 315 km, efficiencies of the
logistics companies will also increase, leading to a reduction in demand
for new trucks.
Managing Director of DHL Supply Chain Vikas Anand, said that in the
postGST scenario, location of the warehouse would be more driven by
the market forces of demand and supply. In the coming years the
smaller warehouses of 15,000 to 20,000 sq ft would be merged and
larger ones of over 2 lakh sq feetwould be set up,
GST will transform the way goods are transported within the country.
Today because of sizes of warehouses are very small, corresponding
smaller inefficienttrucks with a carrying capacity of nine to 20 tonnes are
being used. In the near future, trucks with 40 tonnes plus carrying
capacity will run on the highways, which will service large warehouses,
he said.
37. 37
Plywood
Plywood manufacturers in the organised sectorexpect the rollout of the
goods and services tax (GST) to boosttheir sales in a market dominated
by the unorganised sector.
In the Rs 25,000-crore Indian plywood market, the unorganised sector
has a market share of 60-65 per cent. Organised players in the segment
include Greenply, Century Plywood, Kitply,National Plywood and Uniply
Industries.Keshav Kantamneni, chief executive of Uniply Industries, said
the introduction of GST would result in "goods being taxed at every level,
thereby creating a level playing field for the organised manufacturers,
and would also make inferior-quality plywood less competitive".
The price advantage enjoyed by unorganised manufacturers would
diminish gradually, making high-quality plywood competitive,he said.
Existing manufacturers pay 16 per cent excise duty and four per cent
sales tax on their products. According to the Federationof Indian
Plywood & Panel Industry, lowering of excise duty to less than 10 per
cent would force the unorganised plywood units to make excise
payments regularly.
The Bengaluru-based Indian Plywood Industries Research& Training
Institute also expects the rollout of GST to make things tough for the
unorganised sector,as inferior-quality plywood would become less
competitive.This would also lead to a reduction in the import of low-cost
Chinese plywood in the coming years.
38. 38
Plywood demand meanwhile is set to witness a jump owing to a rise in
real estate demand and the Centre's plan to establish smart cities and
other urban infrastructure projects.As against 5-6 per cent growth seen
last year, it is expected to clock double-digitgrowth in the current fiscal
year.
Top producers,therefore,are expanding capacity and are increasingly
looking to acquire manufacturing units in the northern and western
regions, where the demand is anticipated to come from. Green Ply
Industries is currently expanding its Rajasthan laminates factory plant,
and is open to considering new investments in its plywood factories
located at Kolkata and Nagaland.
Also, with labour costs going up in China, producers there are losing out
to competitionfrom India, Vietnam and Indonesia.This is helping Indian
manufacturers to plan capacity additions and step out aggressivelyto
source raw material, said Naresh Tiwari, president, North India Plywood
Manufacturers Association.The protracted slowdown in Chinese
domestic plywood demand had resulted in companies there reducing
capacity and some even shutting down their units due to the imposition
of a ban on logging of high-quality wood in Myanmar, the source of the
most-preferred wood.
As a result, low-costproducers in India are either sourcing veneers
(facing layers) from established players or through imports, and binding
them with rubber plantation wood, bamboo and other materials, which
has poor durability.
39. 39
Pharmaceutical sector
With the implementation of GST, cost of any service,including logistics,
will be considered as value add, and the manufacturer will get tax credit
for the service tax paid.
The biggestadvantage to the industry would be that of reduction in
transaction cost,with an immediate impact coming from the
discontinuance of CST.The multistage taxation along with the inability to
take full benefitof the CENVAT credit /refund has been an issue for the
industry. With central GST expected to be a single rate for goods and
services,going forward credit accumulation may not be an area of
concern. Furthermore, if the legislation provides for carrying forward of
the unutilised credit this would be an additional boostto the industry.
This will result in lower costwhich can add to margins or can be passed
on to customers.
Opportunity to explore alternate distribution models:Organisations will
be able to explore differentdistribution models such as setting up mother
warehouses and regional distribution hubs and considerstepping away
from traditional C&F and distributor based models currently adopted.
This will lead to logistics and distribution to evolve as a competitive
advantage through improved service levels, faster turnaround times and
better fill rates at lower costs.
Furthermore, the pharmaceutical sectorcurrently enjoys various location
based tax holidays on its manufacturing activities. Under the proposed
structure of GST,such area based exemptionwill be done away with.
40. 40
However, taking into account past precedents suitable work
around/refund process would be constituted to ensure that any existing
hubs do not get impacted and continue to get the agreed benefits.
However, the challenges faced in distributing from these remote
locations could be addressedby designing logistics efficientnetworks of
mother and daughter warehouses to ensure optimisationof cost and
superior availability of products.
While the qualitative benefits arising out of GST are well established,
there is a definite impact to economics of companies as well. Logistics
costaccounts for nearly 13-14 per cent of our GDP. Of the total logistics
costtransportation contributes ~35 per cent, warehousing & storage ~10
per cent, inventory holding cost ~25 per cent and other inefficiencies’
make up the balance 30 per cent. Implementationof GST and alignment
of a firm’s supply chain to it will directly help in reducing coston
transportation, warehousing and inventory holding by 5-8 per cent, 10-12
per cent and upto 28 per cent respectivelyfor each of the costheads,
leading to an overall savings in the range of 10-12 per cent of the total
logistics cost.
As Indian pharmaceuticals companies look forward to revenue growth
on one side and the need to reduce costs,GST offersa great
opportunity to revisit their Supply Chain & distribution strategy to develop
an agile, customisedand cost-efficientsupply chain. Companies need to
act now to assess the impact of GST on their businessesand functions
and develop an action plan and road map for the future. Those who
move early are likely to gain an advantage on costand service levels
over their competitors and deliver a better value propositionto the
customer.
41. 41
Manufacturing industry
The proposedGoods and Services Tax (GST ) rate of 17-18 per cent as
suggestedby a panel headed by Chief Economic AdviserArvind
Subramanian would benefit mostcompanies engaged in manufacturing
of goods,according to tax experts, economistsand brokerage houses.
"Most goods manufactured in the country have an average 27-30 per
cent indirect taxes component.If the proposedstandard rate of 17-18
per cent is implemented,the final prices of these goods can come down
by 10-12 per cent," says Sachin Menon, partner and head, indirect tax
and COO, tax and regulatory services,KPMG in India.
At present, manufactured goods attract 12 per cent excise duty, 5-15 per
cent value-added tax (VAT) and in case of inter-state sales, a central
sales tax of 2-15 per cent. Besides,some states also impose entry tax
and Octroi of up to 15 per cent. With GST, all these taxes would be
subsumed and a standard rate would be applicable across the country.
Though initially the government was planning a single uniform rate
across the country, due to protests from states, which fear losing out on
tax revenue, the government has proposeda three-tiered tax structure to
begin with - a low rate of 12 per cent for essential items, a high rate of
40 per cent for luxury cars, tobacco products and aerated beverages,
and a standard rate of 17-18 per cent for mostgoods and all services.
According to a report released by Nomura, the announcement is positive
for most FMCG companies."Currently, most consumercompanies in
India incur tax rates of around 22-25 per cent, due to which a standard
rate of 17-18 per cent should benefitthem.
42. 42
We see companies such as Hindustan Unilever, Colgate-Palmolive and
Asian Paints benefiting from this recommendationthe most, especially
as their exemptions have recently expired. One should see a positive
effecteither in their volumes or through margin expansion," says the
report.
However, companies which are into food processing business - edible
oils, biscuits, chocolate,cocoaand baked items - may get negatively
impacted as they would reap the benefits exemptions extended to
processedfood items.
There are other sectors such as pharma and locally manufactured
mobile handsets that enjoy lower incidence of indirect taxes.
According to a Religare report on the impact of GST, sectors such as
automobile, capital goods,cementand building materials would gain due
to lower incidence of tax post-GST implementation. The report points out
that these sectors pay around 24-40 per cent indirect taxes.
The GST is also likely to widen the tax net as Sachin Menon of KPMG
says it is very difficult in the GST regime to escape paying taxes. This
would benefitthe companies that operate in sectors with large number of
unorganised players.
"The price competitiveness of the unorganised entities is likely to
deteriorate, resulting in narrowing of the price differentials.This is likely
to lead to accelerated top-line growth and also increase in market share
of the organised players," says the report from Religare.
According to Religare, companies like BATA India (Footwear), Kajaria
Ceramics,Somany Ceramics (Tiles), Mayur Uniquoters (Artificial
leather), Finolex Industries (Pipes), Pidilite (adhesive), etc may benefit
from unorganised players losing the price differentialbenefits postGST.
43. 43
Automobile
The government’s plan to introduce the goods and services tax (GST)
will allow the automobiles,logistics and entertainment sectors to reap a
rich dividend from the rollout targeted fornext year. But for petroleum,
the wait will be longer as it is not been included in the GST framework.
Analysts and corporate tax experts said under the GST, the cumulative
duty rates on large cars and sports utility vehicles would fall from 41-41
per cent to 20-24 per cent, making these the biggestbeneficiaries of the
rollout.
For some segments of the automobile industry like tractors, which are
exempted from excise duty but pay four per cent value added tax, the
GST rate will increase to 12 per cent. Overall, Mahindra & Mahindra
would be a beneficiarybecause the company earned 25 per cent of its
revenue from sports utility vehicles, analysts said.
Automobiles,pharmaceuticals and consumerproducts companies enjoy
tax benefits by setting up manufacturing units in states that offer
incentives like excise, VAT and income tax concessions.Many fast-
moving consumer goods companies,especially in food products,enjoy
rates of zero to six per cent versus the current excise rate of 12 per cent.
If the GST rates go up, they will increase costs and the companies will
pass them on to consumers.
Adi Godrej, chairman, GodrejGroup, said the GST would add two per
cent to gross domestic productgrowth and it was good that the Centre
and states had come to terms on the issue. “Though there have been a
few compromises.For instance, petroleum products have been
exempted fornow. So is alcohol.
44. 44
Once all the items are included, the full impact of the GST will be felt.
But there is no denying how critical this developmentis. We are better
off getting started with this (GST) rather than delaying it,” he said.
Corporate lawyer Sumit Lunker of BDO India said the entertainment and
telecom sectors would be big beneficiaries as the GST would eliminate a
multiplicity of taxes–entertainment tax, luxury tax, VAT and service tax–
and end classificationdisputes on software, SIM cards, franchise fees,
and annual maintenance contracts for telecom companies.
45. 45
Footwear sector
With no major announcements for shoe manufacturers, members of
Agra's footwearindustry are now looking towards the passing of the
Goods and Services Tax (GST) Bill with the hope that it might provide
some relief to their woes. They were disappointed that despite being
among the priority sectors under Prime Minister pet 'Make in India'
initiative the industry did not get any specialmention in this year's
Budget.
Industry insiders commented on two announcements made by Union
finance minister . First, reduction of excise duty on rubber sheets and
resin rubber sheets for soles and heels from 12.5% to 6%. Second,the
abatement rates for the retail sale price (RSP) based assessmentof
excise duty for all footwear have been revised from 25% to 30%. This,
shoe manufacturers said, will just marginally benefitconsumers and
exporters.
"As far as the overall Budgetis concerned,it is pro-development.There
is no major tax burden on the public. The increase in abatement rate
from 25% to 30% will have a positive effect,and it will increase
production, which may lead to fall in footwear prices," said Puran Dawar,
presidentof Agra Footwear Manufacturers & Exporters Chamber
(AFMEC), talking to TOI.
"The footwear industry has not got anything from this Budget,even as
this sectorwas made a thrust area during the Make in India campaign.
Now, our hopes are focused on the GST, where we see reforms.It will
bring uniform taxation and resolve many issues. The announcements
will make no differenceto domestic as well as export products," said
Valentino shoes director Chander Daultani.
46. 46
Formerpresidentof AFMEC Nazir Ahmed said the Budget was a
"letdown" for footwear exporters."We have sought certain incentives to
compete with the international market like duty-free import. High duties
on import of components are making it difficultfor us. Focus product
licence was reduced from 4% to 2%. We wanted that restored to the
original percentage.The budgetlooks to have political aims more than
commercial," Ahmed added.
47. 47
Start-up sector
Over from a decade,the culture of running startups and small
businesses has been evolved and still growing rapidly. Now-a-days the
trend of online business is emerging very fast, stepping back the
outdated traditional set-up.
The government has also realized the same. For promoting this
innovative idea, it has recently announced the “Startup India” campaign.
For generating interest among the youth, the campaign has proposeda
series of regulatory and tax-related benefits.Out of a diversified range of
proposals that are necessaryto encourage the startups, Goods and
Services Tax(GST) is the one, which is quite important too in terms of
indirect tax perspective.
Under the GST scheme,which is based on the business process
documenton registration discloseby the Government’s Joint Committee,
anticipations are there that for gaining the benefitof the indirect tax
registrations, there would be standardized and centralized registration
cell. By this, much of the time and efforts can be saved for startups and
resultantly they can focus more over their business concerns rather than
the tax compliance and administration.GST regime should also be
having similar provisions so that the initial burden regarding registrations
can be further reduced.
Apart from the positive changes in legislative provisions,there are many
ground-level realities that must be dealt very carefully. As per the GST
rules, it is expected that upto a large extent, the presentstate tax
borders would be diminished.
48. 48
Some of the advantages we can see under this aspectare:
Goods can be transported efficiently.
Storage and transportation costs will be reduced.
The exclusive function of business requirements is only the supply
chain.
Having a glance over the current Indirect Taxes framework in India, it
has been found that there’s an obstructionof input credits. This causes
high costs to be incurred for the startups. There are several non-
creditable taxes like Central Sales Tax(CST), entry taxes, luxury and
entertainment taxes. Moreover, output service tax can’t be used as VAT
and vice-versa. GST can resolve this upto some extent. Tax costs would
be cut down for the startups if there is an increase in credits.By this,
they can price their products in a more efficientmanner.
GST regime provides more like a distribution modelthat is probably
based on commercialconcerns.
A business-friendlytax policy must be there for the precise and clear
administration. For the developmentand growth of startups in the
country, it is anticipated that the GST would do something about this
aspect.What a new entrepreneur need is to not have the burden of tax,
disputes and difficulties while setting up the business.That’s all, which is
expected from GST.The fact, that these procedures and policies are so
necessary,it is important too that the same should be followed at the
ground level.
Making this initiative as an effective one,it is very important to consider
this innovative idea to be executed properly. Real boostto the startups
can only be done through a well-planned GST regime rather than an
inefficienttaxation model.
49. 49
Impact of GST on ultimate consumers
Any regulation change in taxation usually either means more taxes or
difficultprocedure.Either ways such kind of change in regulation is
usually opposedby people.However the proposed Goods and Service
Tax regulation is aimed at simplifying the current taxation structure and
reduce the cost of total tax
borne by end user.
Convenience to the honest tax payer and disincentivising the
tax evaders are two major benefits of this method of taxation.
To explain in a nutshell, when you purchase goods from one state you
pay sales tax (CST) and when you sell that goods in another state you
have to pay VAT again.
So there is a “double taxation” of the same goods and of the same
transaction as you do not get credit of tax already paid. What GST aims
at is in the above situation you have to pay tax only on the increase in
sales value and you get the creditof the tax you have paid while
purchasing. Biggestbenefit will be that multiple taxes like central sales
tax, excise duty, service tax state sales tax, entry tax, entertainment tax,
luxury tax, turnover tax etc., will no longer be presentand all that will be
brought under the GST.
Apart from the avoidance of double taxation the biggestbenefitis to
reduction of compliance costs.The paper work is going to be reduced as
there will be single authority to file returns, assessments and appeals.
So unproductive work like maintaining separate records,meeting
differentconsultants and complying with differentdepartments will be
reduced.
50. 50
This is a tremendous benefitto any size of business and in particular
National players. These tax savings eventually get passed on to
consumers.Moreover small businessmenwill get input credit of taxes
they pay on varied services.As of now Service Tax paid was not used
as a credit for payment towards Central Sales Tax. However in GST you
can take benefitof service tax paid on telephone bills, AC service
charge, computer AMC, Internet expense etc.
Doing Business now will be easier and more comfortable as various
hidden taxations will not be present. Starting a new business will be
easier and hence the consumers will have the luxury of multiple choices
for whichever goods or services he wants. This automatically keeps
prices in check and ensure that the benefits of decreased taxes be
passed on to the end users.
The rate of tax may seem high and for the first year end consumermay
have to pay higher tax, however after the first year the tax burden will
reduce.Combined with increased competition,no double taxation and
reduced paperwork – end user is definitely going to reap the dividends.
It will improve corporate earnings, attract investment, generate
employmentand boostthe economy.The GST will replace most other
indirect taxes and harmonise the differentialtax rates on manufactured
goods and services.Right now, the effective tax rate on manufactured
goods works out to 20%, while services are taxed at 10.3%.The GST
rate has not been decidedyet, but it is likely to be around 15%.So, the
tax on manufactured goods could go down while that on services could
go up.
This doesn’t mean that the GST is a zero-sum game for consumers.The
real benefits for them could come from the way it reduces the tax burden
on corporate.
51. 51
Right now, businesses pay taxes levied by the Centre and states at
every stage of the supply chain. This cascading effectof taxes pushes
up the costs of products and services,which the consumerhas to bear.
Under the GST, businesses will be allowed to set off the taxes they pay
when they purchase any raw material, good or service (see graphic). In
the example, all players in the supply chain pay 15% GST on the value
addition done by them. The consumeralso pays only 15% tax on the
price of the product.“The strength of the GST lies in avoiding the
continuous levying of taxes from producerto consumer.”
The setting off provisionof the GST has far-reaching implications for
businesses.If they are refunded the taxes paid on inputs, service
providers,producers and distributors will see a significant dip in costs.
Also, the supply chain structures will become more efficient.Consumers
stand to gain if these costbenefits for producers translate into lower
prices.For instance, companies may no longer have to set up depots in
every state to avoid tax. Instead, one large depotcan service three-four
states.
52. 52
However, the gains for the aam aadmi are still wrapped in conjecture.
It’s not clear if the benefits will be passed on to the consumer.When
Australia introduced the GST in 2000,the government had set up a
commissionto protectthe interests of consumers.The commission
monitored prices to ensure that consumers gotfull benefits from the
reduction in tax rates. If the tax rate went up, it ensured that consumers
were not charged more than what was necessary.It could levy fines of
up to $10 million on businesses if they resorted to excessive profiteering.
The ACCC had also launched a nationwide consumer awareness
campaign on how GST would affectprices.The Everyday Shopping
Guide with the GST provided a range of expected price movements for
185 household goods and services and was widely distributed.
Indian lawmakers, however, do not think it important to discuss the
impact on the consumer. The issue of price control did not figure in the
discussions of the empoweredcommittee of state finance ministers.
“Price control was not discussed,but the GST will generate employment
and boostgrowth. The commonman will also gain from this,” says the
finance minister of Punjab.
While state intervention in pricing might seem regressive,experts agree
that consumer interests need to be protected.
Speaking at a meeting of the Parliamentary Consultative Committee
attached to his ministry, Finance Minister said GST will help reduce tax-
on-tax and will be beneficialto consumers.GST like state-level value
added tax (VAT) is imposed onvalue addition in each stages of
productionand, hence, avoid cascading effect,or tax-on-tax.
"GST will benefit mostof the states from Day 1, especiallyconsumer
states," he said, according to a statement issued by the finance ministry.
GST is a destination-based tax imposedon products and services in the
states where these are consumed.
53. 53
GST would be beneficialto the Centre, states, industrialists,
manufacturers, the commonman and the country at large since it will
bring more transparency, better compliance, increase in gross domestic
productgrowth and revenue collections.
As the volume of trade expanded and growth momentum picked up,
every state would benefitwith the rise in their revenue collections,he
added.The Centre proposed to levy a non-vat able additional tax of one
per cent on goods involved in inter-state trade which would be assigned
to states. While this tax will be levied for two years, it could be extended
if recommendedby the GST council.
A Constitutional AmendmentBill on GST was introduced in the Lok
Sabha on December19. It would be taken up by Parliament in the next
session.The governmentintends to roll out GST, which will subsume
most of the indirect taxes, from April 1, 2016.He also said the
government was open to suggestions formaking further improvements
to the GST Bill.
"GST is a continuing process,which would further evolve and improve
with time," the statement quoted him as saying.
In this regard, members made suggestions,including that the Centre
brings out a White Paper, giving details on revenue to the Centre, states
and who will be the ultimate beneficiaries.Clarity was also sought on
whether the manufacturers, suppliers or consumers would be the
ultimate beneficiaryof the move.
54. 54
Overall benefits in the economy
Government:
Consolidation of multiple Centre & State taxes
Increased tax collection on wider tax base
Improved tax GDP ratio –revenue aligned to the economy
Better and effective administration
Business:
Ease of compliance
Reduction in effective tax rate on goods & services
Reduction in cascading effect of tax
Efficient deployment of resources
Consumer:
Reduction in incidence of tax on goods / services
Reduce double taxation
55. 55
Conclusion
With the ongoing political debate in the Upper House of the Parliament,
passage of the Constitution (100th Amendment)Bill, 2015 is still a step
away from reality. Nonetheless,the central government seems positive
and expects significant movement on GST in the coming days. It is
visibly working in a constructive manner to have the Bill passed in the
latter half of the Budgetsessionof the Parliament. As far as creating the
ecosystemis concerned,even there the government does not seem to
be putting its footoff the pedal.
56. 56
Absent any officialextension of the April 2016 timeline as yet, the
bureaucracy as well as all agencies responsible to assistthe
government in GST implementation including the Goods and Service
Tax Network (‘GSTN’) team is working tirelessly to meet their respective
timelines. Gauging the unstoppable approach of the central government
even the state governments have also initiated some ground level
preparatory work.
All this action, however, does not seem to excite India Inc enough, which
continues to hold very meagre hopes of GST seeing the light of the day
anytime soon.The fact that the Indian governmenthas failed to deliver
GST on multiple committed timelines has led to an unforeseenscenario
wherein the government seems fully geared to implement GST but the
industry at large continues to be in slumber.
While the officialannouncement is likely to come only with the
announcement of Union Budget2016 next month, the governmentis
likely to make serious attempt to bring in GST in October2016 or latest
by April 2017.In either case, time with the industry to get ready for GST
is perceptiblyvery limited. Within this time frame, businesses needto be
prepared to switch over to new indirect tax regime.This calls for
undertaking a host of activities such as training of people,aligning the
indirect tax compliance processes,understanding the impact on
business,updating accounting and information technology systems and
taking other suitable measures to ensure a smooth transition.
As GST is envisaged to be driven on an online platform with real time
updating of data on the GSTN portal, a robust information technology
(IT) infrastructure would be required to meet the voluminous reporting
and compliance requirements under GST. ERP systems would need to
be revamped and developed stringently to capture the additional
information which is not captured presently.
57. 57
For instance, state of supply on the invoices for goods and services,
HSN/ accounting codes forthe goods or services,segregationof B2B
and B2C supplies etc may be required under the GST regime.
Compliances and record keeping at the warehouses may also become
equally important for manufacturers. As evident, IT teams would require
significant time to update all ERPs and to realign their process flows.
Transitional accounting features and facilitation of audit trail in the
accounting systems are crucial to avoid any last minute glitches.
Depending on the size, scale and complexities of the business,the
process ofimplementationof GST by corporate tax payers may need
constitution of a dedicated steering committee involving various process
owners for effective implementationof transition to the new indirect tax
landscape. Meticulous training of all stakeholders as well as overhauling
the tax compliance processes is other important dimensions in preparing
for the impending change in indirect taxation system.
Over the past couple of months, several reports have been issued by the
Joint Committee discussing several aspects such as registration, return,
payments and refunds.Further, the draft GST laws are also expected to
be released soonin the public domain for comments.Considering the
information available in the public domain, it is possible to map the broad
contours of the proposed GST regime.
This information would help businessesto undertake the impact analysis
and other necessarysteps for a smoothshift to the GST regime. Such
steps would further facilitate a SWOT analysis based on which they may
harness the strengths and minimize the weaknesses while identifying
the various opportunities and threats for the business under GST
regime.The processof readying the business teams for transition to
GST would also help in identification of areas of advocacy.
58. 58
Interaction with the government by making representation through
forums and industry chambers ahead of the official GST rollout could
also be a very relevant exercise at this stage.
The government’s continued action on GST is a strong wake up call for
India Inc to now gear up and get rolling. The additional time on account
of delay in passage of the Bill is in fact a bufferfor the businesses to
make preparations for shifting to GST regime which is a undeniably a
mammoth task. As someone said “if you fail to plan, you are planning to
fail”.
59. 59
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