What is the lowdown on the Goods and Services Tax
Goods and Services Tax (GST) is the new system
proposed to be rolled out from July 1 this year for taxing all goods and
services that you consume.
The Goods and Services Tax or GST will replace the
myriad local, State-level and Central taxes that are built into the price you pay
for products, and the service tax as well as cesses that are dovetailed to your
outgoes when you dine at a restaurant or pay your mobile phone bills.- Multiple
Central and State-level indirect taxes, such as sales tax, excise duty,
Central value-added tax (VAT) and State VAT. The alphabet soup of taxes,
differing regulations across 29 States, and difficulties in inter-State
trade which often involve hours of highway snarls at border checkpoints to
collect and check documents, are a recipe for inefficiency and a
proven incentive for tax evasion by sticking to the informal sector.
As a single tax that would replace all such
duties and cesses, the GST will make India a unified market with a common tax
structure, instead of 29 fractured markets.
One last thing worth noting: petroleum products and alcohol are being kept out
of the GST net for now.
Background:
Nine years after the Indian economy was opened up
in 1991, the Atal Bihari Vajpayee government first floated the idea of a
simple, transparent and efficient GST regime to substitute the multiple Central
and State taxes and cesses. But, like several critical (and often inevitable)
reforms in India, the GST took a tortuously long route to reach the cusp of
reality — a route marred by resistance, flip-flops and political expediency.
- April
1, 2010 was the first official target date for kicking off the GST
announced by the then Finance Minister P. Chidambaram in the Union Budget
for 2006-07. That date was pushed back by a year and later abandoned as
certain Opposition-ruled States, including Gujarat, stymied the tax
reform.
However, when Gujarat Chief Minister Narendra
Modi became the Prime Minister in 2014, the GST got a fresh lease of life and
constitutional amendments necessary to implement it were cleared by the Lok
Sabha within Mr. Modi’s first seven months in office.
The Rajya Sabha’s approval for these changes,
however, could only be clinched last August. Since then, a co-operative
governance body called the GST Council, with representatives from the States
and the Centre, has thrashed out the nitty-gritty of the new regime, including
five rate slabs (zero, 5%, 12%, 18% and 28%) and an additional cess on top of
the highest GST rate on sin goods, such as luxury cars and tobacco.
Importance:
Unlike income tax, which just a small segment of
India’s mammoth 1.3 billion-plus population end up paying, virtually everyone,
including the poorest of the poor, pay indirect taxes on products and services,
be it a shampoo sachet or a mobile phone recharge.
Besides improving tax compliance from traders,
the GST regime is expected to boost economic growth by a percentage point or
two, despite the risk of an initial blip, the government and industry bodies
reckon. Investors, often put off by India’s complex taxation structure, should
find it easier and more attractive to do business in the country and create an
important by-product for India’s fast-growing, young workforce — jobs.
Next Step:
With President Pranab Mukherjee signing off this
week on four enabling GST laws cleared by Parliament, the legislative action
will shift to the Assemblies to pass the State GST laws.
- Over
the next month, officials hope to complete another cumbersome task —
fitting the different GST rates onto thousands of products and services.
GST Council will take up these minutiae at its next meeting in Srinagar in
the third week of May.
That will leave industry with little over a month to prepare for
the transition by tweaking pricing, accounting and supply chain management
strategies in the middle of a financial year.
Source: The Hindu
