GST as an “Economic freedom”, Paradigm shift in indirect taxation in India
Political union became a reality, but India did not become one market. NDA Government is working with the aim of uniting India’s markets, to empower our producers & strengthen our consumers. It is with this vision that the NDA Government, led by PM Narendra Modi has taken multiple initiatives to truly achieve One Nation, One tax, One Market.
All the major technical aspects of GST are being checked and reviewed by the PM, India. Ministries/Dept. to set-up a GST facilitation cell in their respective Ministries for complete support and help the nation get GST ready.
However, We had a multitude of taxes across the country. One country had multiple tax rates and multiple rules. Often, the producers ended up paying more and so did the consumers. This will all change with the advent of GST. With GST, there will be one tax rate in the entire country. Further, 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. It will ensure that indirect tax rates and structures are common across the country, thereby increasing certainty and ease of doing business. Furthermore, With the promise of ‘One Nation, One Tax, One Market’, it would create a border-less world of 1.3 billion people, producers and consumers engaged in a seamless exchange of goods and services, skill sets and capital, labour and ideas. Some of Top Business icons says that, GST is not just another piece of transform, it is the liberation of our economic imagination. In Short, It is our economic freedom. Significantly GST is one indirect tax for the whole nation, which will make India one unified common market. it 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. Moreover, Goods and Service Tax (“GST”) is a comprehensive tax on manufacture, sale and consumption of goods and services, that will absorb most of the indirect taxes levied by Central and State Government. Currently the GST is adopted in over 150 countries.
WHY GST : BENEFITS
- Reduction in multiplicity of taxes
- Mitigation of cascading/ double taxation
- More efficient neutralization of taxes especially for exports
- Development of common national market
- Simpler tax regime
- Fewer rates and exemptions
- Distinction between Goods & Services no longer required
- Simpler Tax system
- Reduction in prices of goods & services due to elimination of cascading
- Uniform prices throughout the country
- Transparency in taxation system
- Increase in employment opportunities
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, the overall tax burden on most commodities will come down, which will benefit consumers.
GST is a win-win situation for the entire country. It brings benefits to all the stakeholders of industry, government and the consumer. It will lower the cost of goods and services, give a boost to the economy and make the products and services globally competitive. GST aims to make India a common market with common tax rates and procedures and remove the economic barriers thus paving the way for an integrated economy at the national level. Moreover, GST will give a major boost to the ‘Make in India’ initiative of the Government of India by making goods and services produced in India competitive in the National as well as International market. Also all imported goods will be charged integrated tax (IGST) which is equivalent to Central GST + State GST. This will bring equality with taxation on local products. It will bring more transparency to indirect tax laws.
For business and industry point of view
Easy compliance: A robust and comprehensive IT system would be the foundation of the GST regime in India. Therefore, all tax payer 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 point of view
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 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 incentivize 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.
Further, Unification of different indirect taxes under GST will give boost to the existing tax-credit system, which will drive tax efficiency for manufacturers, wholesalers and also for consumers of goods. This will decrease the overall cost incurred by manufacturing sector which will reflect in various inflation indices in long-term. GST could have a negative impact on service sector, which contributes over 50% of Indian GDP. The existing Service Tax of 15% would surge to Goods and Service Tax rate which is anticipated at 18-20%. But at the same time, in current tax framework service sector is unable to enjoy tax-credit on VAT and Sales Tax, which is likely to change in favor of service providers after GST implementation. However, this might be lost if the GST rate is higher than anticipated. Government Revenue: Despite the expected change in pricing, the government is expected to set GST @ revenue neutral rate, so there might be no significant change in Government Revenue. Cash Flow: Goods and Service Tax is set to boost cash flows through the removal of concept of excise duty. Being a consumption-based tax, GST would now be collected at the time of sale/supply over current tax predicament of tax being collected at the production/removal of goods.
- Meeting implementation challenges
- Effective coordination between Centre & State tax administrations
- Reorganization of field formations
- Training of Officials
- Outreach programs for all stakeholders including Trade & Industry
Paradigm shift in indirect taxation in India, This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit consumers… (Trilok Singh; The writer/Author, is currently Honorary Student, Kirori Mal College, DU, Department Of political Science and Founder/CEO at IASmind & India’s Journals).http://www.iasmind.com/gst-awareness-campaign-original-documentation-ministry-finance-india/