An ideal GST yet to come

Jaya Raj

Arun Jaitley PThe final set of four bills necessary to roll out the Goods and Services Tax (GST) reform in the country secured Parliament's approval on April 6, paving the way for its introduction on July 1. Highlighting the uniqueness of this tax collection reform while replying to the debate on the last set of bills in the Lok Sabha, Finance Minister Arun Jaitley said for the first time the Centre and the States have come together and pooled their sovereignty into the GST Council to make it a reality. The rollout has become possible after the States and the Centre agreed to merge their existing taxation powers given by the Constitution to evolve a uniform tax structure.
Parliament had passed the initial Constitution Amendment bill, the first step for changing the tax collection pattern, on August 8, 2016 after years of holding up its passage in Parliament, by political opposition, first by BJP and post-2014 by Congress party which commanded a majority in the Rajya Sabha despite BJP handsomely winning the Lok Sabha elections.
Now, with Parliament finally clearing all legislative formalities, India is just a step away from rolling out an indirect tax reform that will for the first time economically unify the country.
The International Monitory Fund (IMF) summed up that the adoption of the GST could help raise India's medium-term gross domestic product (GDP) growth to over 8 per cent and create a single national market for enhancing the efficiency of the movement of goods and services.
The IMF said larger than expected gains from the GST and further structural reforms could lead to significantly stronger growth, while a sustained period of continued low global energy prices would also be beneficial to India.
The GST will replace nearly a dozen central and state levies into a single national sales tax. It will make the movement of goods cheaper and seamless across the country. It is bound to be far simpler than the current system, where a good is taxed multiple times and at different rates.
With the implementation of GST, consumers will not be subjected to double taxation. All taxes that are levied while purchasing good will include both the central government's taxes as well as the state government's taxes. The move would deter state governments from indiscriminately increasing taxes fearing public backlash.
In the final form, it may not be a single rate of GST for all goods, but there would be four tax slabs of 5, 12, 18 and 28 per cent. The GST Council is yet to decide which goods should fall in which slab. Revenue Secretary
Hasmukh Adhia has stated that the rates under GST will be broadly in line with the current existing rates, ruling out windfall tax slashes the people were expecting from GST initially.

Under the GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer. Besides, there will be relief in overall tax burden. This is because under the GST regime, the entire supply chain will be efficient leading to gains and prevention of leakages. This will result in the overall tax burden on most commodities to come down, which will benefit consumers.

Finalisation of rate of tax is another complex area that will take time. The tax slab may not be finalised before end-May or even early June. It would give only one month or so for companies to decide the prices of products in a post-GST regime.
While the GST Act is in place, the rules covering the Act are yet to be framed. These include very critical aspects relating to valuation (including related party transactions and inter-state stock transfers), input credits including the credits pertaining to transition stock, and manner of inter-office invoices.
It will not be an easy task, especially for products on which the rates vary in different states, like edible items and agricultural commodities, IT products and mobile phones, and used cars.
The real issue would be the applicability of cess on demerit goods. On four demerit items — luxury cars, aerated drinks, pan masala and tobacco — that are now taxed at around 40-65 per cent, there could be an additional cess. It could be over and above the highest tax slab of GST of 28 per cent.
Justification for it is that it was being done to compensate states for any revenue losses in the first five years of GST implementation. Thereafter it will be discontinued.
Under the GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer. Besides, there will be relief in overall tax burden. This is because under the GST regime, the entire supply chain will be efficient leading to gains and prevention of leakages. This will result in the overall tax burden on most commodities to come down, which will benefit consumers.
To keep inflation under check, essential items, including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate. Other GST rates will remain broadly in line with the existing rates.
Greater tax compliance has the potential to boost revenues for the government, helping narrow the country's widest budget deficit among Asian economies and allowing more funds to be allocated to schools and highways.

An ideal GST will transform the business landscape of India by bringing about uniformity in taxation throughout the country, much to the advantage of investors and traders who have remained bogged down by multiple taxes and ambiguity over tax regulations. In fact, GST will turn out to be a game changer for all sectors of the economy in the long run. Companies will have to overhaul their accounting systems, which may involve one-time investment costs. There may also be chaos in the short term as the government gets the computer software up and running. The government has trained 49,000 officers of the states and the Centre till last week.
The GST Network (GSTN)—GST's IT infrastructure arm—and CBEC together will now

Looks like GST would deliver many of its originally expected simplifications. However, citizens would have to wait some years for the much lower tax levels it promised in the beginning. This is because the states that have pledged support for cooperative federalism do have competing and diverse interests and need more revenue.

conduct trainings so that businesses know how to file their returns. Through the GST Network (GSTN), the Government is working to provide the technology backbone to introduce GST and connect the databases of states and the Centre which will ease some of the burden on corporations.
Logistics companies stand to gain as it becomes easier to ferry goods across India. Other sectors largely depend on the fine print of the GST, including exemptions.
A complex tax structure in the old system and poor infrastructure have increased the logistics cost to 14 per cent of the value of the good in India vis-à-vis 7-8 per cent in developed countries. GST will eliminate the multiple state taxes and hence, lower inspection time at various check posts on state-borders. This will simplify the transportation between any two points in India at a lowest possible cost.
Looks like GST would deliver many of its originally expected simplifications. However, citizens would have to wait some years for the much lower tax levels it promised in the beginning. This is because the states that have pledged support for cooperative federalism do have competing and diverse interests and need more revenue. Every state will press for its pound of higher revenues.
That is why the IMF has cautioned that the GST should have minimal exemptions, uniform cross-state rates, and as few tax rate tiers as possible. It advises that key production inputs, such as energy and real estate, should be kept within the tax base to enable greater output gains and reduce the tax burden across sectors. At the moment, many petroleum products and potable alcohol are kept out of the GST. It needs correction at some point of time.



		EDITOR'S MAIL MATTERS OF PUBLIC POLICY MARCH OF AYODHYA INDIAN PRESIDENCY REALPOLITIK FOR CREDIBLE OPPOSITION A GAME CHANGER DEFENCE MODERNISATION STATE OF EDUCATION DELHI MCD POLLS FRANKLY SPEAKING SACRILEGE IN PUNJAB KASHMIR WATCH CRIMES AGAINST WOMEN POLL-YEAR HIMACHAL KERALA UNDER LDF CHANDIGARH DIARY U.S. FOREIGN POLICY AMERICAN DIARY JADAV ISSUE INDO-BANGLADESH TIES CIVIL AVIATION HITS & MISSES TEST CRICKET SPORTS BOOK BAZAAR SIGNS OF THE TIMES MIGRATION & WOMEN'S RIGHTS YOGA IN DAILY LIFE-XIII ART OF LIVING Issue:May' 2017 Subscribe Now	A GAME CHANGER An ideal GST yet to come Jaya Raj Arun Jaitley PThe final set of four bills necessary to roll out the Goods and Services Tax (GST) reform in the country secured Parliament's approval on April 6, paving the way for its introduction on July 1. Highlighting the uniqueness of this tax collection reform while replying to the debate on the last set of bills in the Lok Sabha, Finance Minister Arun Jaitley said for the first time the Centre and the States have come together and pooled their sovereignty into the GST Council to make it a reality. The rollout has become possible after the States and the Centre agreed to merge their existing taxation powers given by the Constitution to evolve a uniform tax structure. Parliament had passed the initial Constitution Amendment bill, the first step for changing the tax collection pattern, on August 8, 2016 after years of holding up its passage in Parliament, by political opposition, first by BJP and post-2014 by Congress party which commanded a majority in the Rajya Sabha despite BJP handsomely winning the Lok Sabha elections. Now, with Parliament finally clearing all legislative formalities, India is just a step away from rolling out an indirect tax reform that will for the first time economically unify the country. The International Monitory Fund (IMF) summed up that the adoption of the GST could help raise India's medium-term gross domestic product (GDP) growth to over 8 per cent and create a single national market for enhancing the efficiency of the movement of goods and services. The IMF said larger than expected gains from the GST and further structural reforms could lead to significantly stronger growth, while a sustained period of continued low global energy prices would also be beneficial to India. The GST will replace nearly a dozen central and state levies into a single national sales tax. It will make the movement of goods cheaper and seamless across the country. It is bound to be far simpler than the current system, where a good is taxed multiple times and at different rates. With the implementation of GST, consumers will not be subjected to double taxation. All taxes that are levied while purchasing good will include both the central government's taxes as well as the state government's taxes. The move would deter state governments from indiscriminately increasing taxes fearing public backlash. In the final form, it may not be a single rate of GST for all goods, but there would be four tax slabs of 5, 12, 18 and 28 per cent. The GST Council is yet to decide which goods should fall in which slab. Revenue Secretary Hasmukh Adhia has stated that the rates under GST will be broadly in line with the current existing rates, ruling out windfall tax slashes the people were expecting from GST initially. Under the GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer. Besides, there will be relief in overall tax burden. This is because under the GST regime, the entire supply chain will be efficient leading to gains and prevention of leakages. This will result in the overall tax burden on most commodities to come down, which will benefit consumers. Finalisation of rate of tax is another complex area that will take time. The tax slab may not be finalised before end-May or even early June. It would give only one month or so for companies to decide the prices of products in a post-GST regime. While the GST Act is in place, the rules covering the Act are yet to be framed. These include very critical aspects relating to valuation (including related party transactions and inter-state stock transfers), input credits including the credits pertaining to transition stock, and manner of inter-office invoices. It will not be an easy task, especially for products on which the rates vary in different states, like edible items and agricultural commodities, IT products and mobile phones, and used cars. The real issue would be the applicability of cess on demerit goods. On four demerit items — luxury cars, aerated drinks, pan masala and tobacco — that are now taxed at around 40-65 per cent, there could be an additional cess. It could be over and above the highest tax slab of GST of 28 per cent. Justification for it is that it was being done to compensate states for any revenue losses in the first five years of GST implementation. Thereafter it will be discontinued. Under the GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer. Besides, there will be relief in overall tax burden. This is because under the GST regime, the entire supply chain will be efficient leading to gains and prevention of leakages. This will result in the overall tax burden on most commodities to come down, which will benefit consumers. To keep inflation under check, essential items, including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate. Other GST rates will remain broadly in line with the existing rates. Greater tax compliance has the potential to boost revenues for the government, helping narrow the country's widest budget deficit among Asian economies and allowing more funds to be allocated to schools and highways. An ideal GST will transform the business landscape of India by bringing about uniformity in taxation throughout the country, much to the advantage of investors and traders who have remained bogged down by multiple taxes and ambiguity over tax regulations. In fact, GST will turn out to be a game changer for all sectors of the economy in the long run. Companies will have to overhaul their accounting systems, which may involve one-time investment costs. There may also be chaos in the short term as the government gets the computer software up and running. The government has trained 49,000 officers of the states and the Centre till last week. The GST Network (GSTN)—GST's IT infrastructure arm—and CBEC together will now Looks like GST would deliver many of its originally expected simplifications. However, citizens would have to wait some years for the much lower tax levels it promised in the beginning. This is because the states that have pledged support for cooperative federalism do have competing and diverse interests and need more revenue. conduct trainings so that businesses know how to file their returns. Through the GST Network (GSTN), the Government is working to provide the technology backbone to introduce GST and connect the databases of states and the Centre which will ease some of the burden on corporations. Logistics companies stand to gain as it becomes easier to ferry goods across India. Other sectors largely depend on the fine print of the GST, including exemptions. A complex tax structure in the old system and poor infrastructure have increased the logistics cost to 14 per cent of the value of the good in India vis-à-vis 7-8 per cent in developed countries. GST will eliminate the multiple state taxes and hence, lower inspection time at various check posts on state-borders. This will simplify the transportation between any two points in India at a lowest possible cost. Looks like GST would deliver many of its originally expected simplifications. However, citizens would have to wait some years for the much lower tax levels it promised in the beginning. This is because the states that have pledged support for cooperative federalism do have competing and diverse interests and need more revenue. Every state will press for its pound of higher revenues. That is why the IMF has cautioned that the GST should have minimal exemptions, uniform cross-state rates, and as few tax rate tiers as possible. It advises that key production inputs, such as energy and real estate, should be kept within the tax base to enable greater output gains and reduce the tax burden across sectors. At the moment, many petroleum products and potable alcohol are kept out of the GST. It needs correction at some point of time.