Positive and negative impact of GST in India

Positive and negative impact of GST in India : The introduction of Goods and Services Tax (GST) would be a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax, it would mitigate cascading or double taxation in a major way and pave the way for a common national market. From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated to be around 25%-30%. Introduction of GST would also make Indian products competitive in the domestic and international markets. Studies show that this would have a boosting impact on economic growth. Last but not the least, this tax, because of its transparent and self-policing character, would be easier to administer here shows Positive and negative impact of GST in India.

Genesis

The idea of moving towards the GST was first mooted by the then Union Finance Minister in his Budget for 2007-08. Initially, it was proposed that GST would be introduced from 1st April, 2010. The Empowered Committee of State Finance Ministers (EC) which had formulated the design of State VAT was requested to come up with a roadmap and structure for the GST. Joint Working Groups of officials having representatives of the States as well as the Centre were set up to examine various aspects of the GST and draw up reports specifically on exemptions and thresholds, taxation of services and taxation of inter-State supplies. Based on discussions within and between it and the Central Government, the EC released its First Discussion Paper (FDP) on GST in November, 2009. This spells out the features of the proposed GST and hasformed the basis for discussion between the Centre and the States sofar.

GST and Centre-State Financial Relations

Currently, fiscal powers between the Centre and the States are clearly demarcated in the Constitution with almost no overlap between the respective domains. The Centre has the powers to levy tax on the manufacture of goods (except alcoholic liquor for human consumption, opium, narcotics etc.) while the States have the powers to levy tax on sale of goods. In case of inter-State sales, the Centre has the power to levy a tax (the Central Sales Tax) but, the tax is collected and retained entirely by the originating States. As for services, it is the Centre alone that is empowered to levy service tax. Since the States are not empowered to levy any tax on the sale or purchase of goods in the course of their importation into or exportation from India, the Centre levies and collects this tax as additional duties of customs, which is in addition to the Basic Customs Duty. This additional duty of customs (commonly known as CVD and SAD) counter balances excise duties, sales tax, State VAT and other taxes levied on the likedomestic product. Introduction of GST would require amendments in the

Constitution so as to concurrently empower the Centre and the States to levy and

collect the GST.

The assignment of concurrent jurisdiction to the Centre and the States for the levy of GST would require a unique institutional mechanism that would ensure that decisions about the structure, design and operation of GST are taken jointly by the two. For it to be effective, such a mechanism also needs to have Constitutional force.

Positive and negative impact of GST

Constitution (One Hundred and First) Amendment Act, 2016

To address all these and other issues, the Constitution (122ndAmendment) Bill was introduced in the 16th Lok Sabha on 19.12.2014. The Bill provides for a levy of GST on supply of all goods or services except for Alcohol for human consumption. The tax shall be levied as Dual GST separately but concurrently by the Union (central tax- CGST) and the States (including Union Territories with legislatures) (State tax -SGST) / Union territories without legislatures (Union territory tax – UTGST). The Parliament would have exclusive power to levy GST (integrated tax – IGST) on inter-State trade or commerce (including imports) in goods or services. The Central Government will have the power to levy excise duty in addition to the GST on tobacco and tobacco products. The tax on supply of five specified petroleum products namely crude, high speed diesel, petrol, ATF and natural gas would be levied from a later date on the recommendation of GST Council.

A Goods and Services Tax Council (GSTC) Positive and negative impact of GST

shall be constituted comprising the Union Finance Minister, the Minister of State (Revenue) and the State Finance Ministers to recommend on the GST rate, exemption and thresholds, taxes to be subsumed and other features. This mechanism would ensure some degree of harmonization on different aspects of GST between the Centre and the States as well as across States. One half of the total number of members of GSTC would form quorum in meetings of GSTC. Decision in GSTC would be taken by a majority of not less than three-fourth of weighted votes cast. Centre and minimum of 20 States would be required for majority because Centre would have one-third weightage of the total votes cast and all the States taken together would have two-third of weightage of the total votes cast.

The Constitution Amendment Bill was earlier passed by the Lok Sabha in May, 2015. The Bill was referred to the Select of Rajya Sabha on 12.05.2015. The Select Committee had submitted its Report on the Bill on 22.07.2015. The Bill with certain amendments was finally passed in the Rajya Sabha and there after by Lok Sabha in August, 2016. Further the bill had been ratified by required number of States and received assent of the President on 8th September, 2016 and has since been enacted as Constitution (101st Amendment) Act, 2016 w.e.f. 16th September, 2016

Goods and Services Tax Council (GSTC)

The GSTC has been notified with effect from 12th September, 2016. GSTC is being assisted by a Secretariat. Thirteen meetings of the GSTC have been held so far. The following decisions have been taken by the GSTC:

The threshold exemption limit would be Rs. 20lac. For special category Statesenumerated in article 279A of the Constitution, threshold exemption limit has been fixed at Rs. 10lac.
Composition threshold shall be Rs. 50 lac. Composition scheme shall not be available to inter-State suppliers, service providers (except restaurant service)and specified category of manufacturers.
Existing tax incentive schemes of Central or State governments may be continued by respective government by way of reimbursement through budgetary route. The schemes, in the present form, would not continue in GST.
There would be four tax rates namely 5%, 12%, 18% and 28%. Besides, some goods and services would be under the list of exempt items. Rate for precious metals is yet to be fixed. A cess over the peak rate of 28% on certain specified luxury and sin goods would be imposed for a period of five years to compensate States for any revenue loss on account of implementation of GST. The Council has asked the Committee of officers to fit various goods and services in these four slabs keeping in view the present incidence of tax.
The five laws namely CGST Law, UTGST Law, IGST Law, SGST Law and GST Compensation Law have been recommended.
In order to ensure single interface, all administrative control over 90% of taxpayers having turnover below Rs. 1.5 crore would vest with State tax administration and 10% with the Central tax administration. Further all administrative control over taxpayers having turnover above Rs. 1.5 crore shall be divided equally in the ratio of 50% each for the Central and State tax.

Benefits of GST

Make in India

Will help to create a unified common national market for India, giving a boost to Foreign investment and “Make in India” campaign.
Will prevent cascading of taxes as Input Tax Credit will be available across goods and services at every stage of supply.
Harmonization of laws, procedures and rates of tax.
It will boost export and manufacturing activity, generate more employment and thus increase GDP with gainful employment leading to substantive economic growth.
Ultimately it will help in poverty eradication by generating more employment and more financial resources
More efficient neutralization of taxes especially for exports thereby making our products more competitive in the international market and give boost to Indian Exports.
Improve the over all investment climate in the country which will naturally benefit the development in the states.
Uniform SGST and IGST rates will reduce the incentive for evasion by
eliminating rate arbitrage between neighboring States and that betweenmintra and inter-state sales.

Ease of Doing Business

Simpler tax regime with fewer exemptions.
Reductions in the multiplicity of taxes that are at present governing our indirect tax system leading to simplification and uniformity.
Reduction in compliance costs – No multiple record keeping for a variety of taxes – so lesser investment of resources and manpower in maintaining records.
Simplified and automated procedures for various processes such as registration, returns, refunds, tax payments, etc.
All interaction to be through the common GSTN portal-so less public interface between the taxpayer and the tax administration.
Will improve environment of compliance as all returns to be filed online, input credits to be verified online, encouraging more paper trail of transactions.
Common procedures for registration of taxpayers, refund of taxes, uniform formats of tax return, common tax base, common system of classification of goods and services will lend greater certainty to taxation system Timelines to be provided for important activities like obtaining registration, refunds, etc.
Electronic matching of input tax credits all – across India thus making the process more transparent and accountable.

Benefit to Consumers

Final price of goodsmis expected to be lower due to seamless flow of input tax credit between the manufacturer, retailer and service supplier.
It is expected that a relatively large segment of small retailers will be either exempted from tax or will suffer very low tax rates under a compounding scheme- purchases from such entities will cost less for the consumers.
Average tax burden on companies is likely to come down which is expected to reduce prices and lower prices mean more consumption.

Impact of GST bill

Real Estate could have a negative impact, some economist predict that it will add up to 8% to the cost of new homes and reduce demand closely by 12%

There might be unrest amongst dealers who have been avoiding certain taxes, by only paying VAT, who will now be forced to pay GST.

There is a lot that is predicted by economic pundits, and there is a lot of dust in the air with regards to the immediate and long-term impact of the GST bill. It’s only when the dust settles, one will see where we stand. However, it can be said with surety that there will be a significant amount of transparency and ease in the taxation process for the tax payer.

Positive and negative impact of GST in India