GST In India

GUJARAT NATIONAL LAW UNIVERSITY

PROJECT ON Article on GST And It’s Impact

Submitted By:Abhishek Chattejree Reg No: 11A006

In India taxes are levied by the Central Government and the State Governments.The municipality and other local authorities have also levy some miscellaneous taxes. Article 246 of The Indian Constitution provides the authority to the Central and State government to levy taxes through legislation in parliament or state legislature. Some of the important taxes are as follows: 

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CENVAT or central value added tax. Cenvat (Central Value Added Tax) has its origin in the system of VAT (Value Added Tax) Concept of VAT was developed to avoid cascading effect of taxes. VAT was found to be a very good and transparent tax collection system, which reduces tax evasion, ensures better tax compliance and increases tax revenue. Service Tax : Service Tax is a tax imposed by Government of India on services provided in India. The service provider collects the tax and pays the same to the government t is charged on all services except the services in the negative list of services. The exemptions i.e those activities which are part of negative list are found in Finance act.1 The 2016 Budget has imposed a cess called the krishi kalian cess at the rate of 0.5% on all taxable services. A swachh bharat cess has also been introduced at the rate of 0.5% on entire taxable amount of a service. The rate of service tax was increased from 12% to 14.5 in % plus education and higher education cess in 2015. Now 2016 budget proposes to increase it to 15% with the introduction of krishi kalian cess. With effect from June 1 2016.2 Customs Duty : A tax issued on the import of products, it is governed by the customs act of 1962

LIMITATION OF INDERECT TAXES Initially , the taxes on the sale of goods were imposed with respect to respective Sales Tax and the 'entry of goods' was liable to be taxed by relevant State Entry Tax enactments and this state of affairs persisted until reforms took place which resulted in VAT replacing these State Entry Taxes. The levy of tax on providing services was initiated for in 1994. This has been challenged stubbornly and persistently in Courts. The need to transition from the Sales Tax for taxing merchandise to a value added tax (VAT) was being realized . However the move to VAT cascading realities were not put to rest. This was occurring because Parliament has continued to go forth with its own VAT model 3 while the state legislatures do the same , no nexus existed between the two and therefore the credit of duties 1 Section 66 of finance act 1994 2 http://economictimes.indiatimes.com/wealth/personal-finance-news/budget-2016service-tax-proposed-to-be-increased-from-14-5-to-15/articleshow/51194043.cms

paid on manufacture are not presented towards adjustment on duties payable on sale of commodities. Thus it is obvious that the transitioning to VAT has not solved he issue of non-creditable duties and the resulting cascading effect which desperately needs further reform in the area and as a result the need for GST has been felt. In 1994 Service tax was introduced. Current service tax rate is 15%. The extent of service tax has since been extended constantly by successive Finance Acts and now about 119 services are covered. However there are many service sectors which remain beyond the purview of Central Government which has the potential to create more revenue for the Government. In spite of the of existence of various taxes like Excise, Customs, Education Cess, Surcharge, VAT, Service Tax etc. GDP of India is significantly lower than the GDP of countries like USA, China and Japan. India has miles to go to achieve this level. Therefore, the Indirect Taxes need to be immediately rationalized and unified. If the G.S.T. is introduced it would without doubt increase the amount of tax collection. The implementation of GST would ensure that India provides a tax regime which is comparable to the rest of the world. It will also develop the international cost competitiveness of domestic goods and services.

Why do we need GST model in India? n the current system there exists multiple taxes; the introduction of GST is expected to rationalize it.Several areas of Services are untaxed. Once the GST is introduced they will get covered as well. TheGST aid in avoiding distortions caused by the expansive and complex tax structure which is in exisistence today and will aid in the development of a common national market. The taxes which exist today i.e. Excise, VAT, CST, Entry Tax have the cascading effects of taxes. Therefore, we end up in paying tax on tax. Current taxes will be replaced by GST. Credit will be available on interstate purchases and there will be reduction in compliance requirements because of GST. Introducing GST will do much more than just reallocating the tax burden from one sector or Group in the economy to another. GST will help in achieving, uniformity of taxes across the territory, despite of place of manufacture or distribution. It willprovide, greater precision and transparency of taxes as well as ensuring tax compliance across the country with precise accuracy. GST will aid in avoiding the unfortunate phenomenon of double taxation to some extent. The implementation of GST shall ensure that India provides a tax regime that is almost comparable to the rest of industrialized world. International cost competitiveness of domestic Goods and

3 Excise duty on manufacture

Services would be ensured. GST would aid in providing unbiased tax structure that is neutral to business processes and geographical locations. SALIENT FEATURES Some of the salient features of GST are mentioned below: i. Harmonized system of nomenclature (HSN) will be applied for goods4. ii. Uniform return & collection procedure for central and state GST. iii. PAN based Common TIN registration5. iv. Turnover criteria to be prescribed for registration under both central goods and services tax (CGST) and state goods and services tax (SGST). v. TINXSYS to track transactions6. vi. Tax Payment will be by exporting dealer to the account of receiving state. vii. Credit will be allowed to the buying dealer by receiving state on verification. viii. Submission of declaration form is likely to be discontinued. ix. Area based exemptions will continue up to legitimate expiry time both for the Centre and the States. x. Product based exemptions to be converted into cash refund. xi. Limited flexibility to be given to Centre and States for exceptions like natural disasters etc. xii. Simplified structure to reduce transaction cost xiii. Separate rules and procedures for the administration of CGST and SGST. xiv. Specific provisions for issues of dispute resolution and advance ruling.

IMPACT OF GST 1. Food Industry The application of GST to food items will have a significant impact on those who are living under subsistence level. But at the same time, a complete exemption for food items would drastically shink the tax base. Food includes grains and cereals, meat, fish and poultry, milk and dairy products, fruits and vegetables, candy and confectionary, snacks, prepared meals for home consumption, restaurant meals and beverages. Even if the food is within the scope of GST, such sales would largely remain exempt due to small business registration threshold. Given the exemption of food from CENVAT and 4% VAT on food item, the GST under a 4 http://www.wcoomd.org/en/topics/nomenclature/overview/what-is-the-harmonizedsystem.aspx 5 http://blog.reachaccountant.com/tin-number-apply-tin-number/ 6 https://www.tinxsys.com/TinxsysInternetWeb/index.jsp

single rate would lead to a doubling of tax burden on food. 2. Housing and Construction Industry In India, construction and Housing sector need to be included in the GST tax base because construction sector is a significant contributor to the national economy. 3. FMCG Sector Despite of the economic slowdown, India's Fast Moving Consumer Goods (FMCG) has grown consistently during the past three – four years reaching to $25 billion at retail sales in 2008. Implementation of proposed GST and opening of Foreign Direct Investment (F.D.I.) are expected to fuel the growth and raise industry's size to $95 Billion by 2018. Implemtayion of GST will also help in uniform, simplified and single point Taxation and thereby reduced prices. 7 4. Rail Sector There have been suggestions for including the rail sector under the GST umbrella to bring about significant tax gains and widen the tax net so as to keep overall GST rate low. This will have the added benefit of ensuring that all inter – state transportation of goods can be tracked through the proposed Information technology (IT) network. 5. Financial Services In most of the countries GST is not charged on the financial services. Example, In New Zealand most of the services covered except financial services as GST. Under the service tax, India has followed the approach of bringing virtually all financial services within the ambit of tax where consideration for them is in the form of an explicit fee. GST also include financial services on the above grounds only. 6. Information Technology enabled services To be in sync with the best International practices, domestic supply of software should also attract G.S.T. on the basis of mode of transaction. Hence if the software is transferred through electronic form, it should be considered as Intellectual Property and regarded as a service. And If the software is transmitted on media or any other tangible property, then it should be treated as goods and subject to G.S.T. 7. Impact on Small Enterprises There will be three categories of Small Enterprises in the GST regime. Those below threshold need not register for the GST Those between the threshold and composition turnovers will have the option to pay a turnover based tax or opt to join the GST regime. Those above threshold limit will need to be within framework of GST Possible downward changes in the threshold in some States consequent to the introduction of GST may result in obligation being created for some dealers. In this case considerable assistance is desired. CONCLUSION 7 According to a FICCI – Technopak Report

In respect of Central GST, the position is slightly more complex. Small scale units manufacturing specified goods are allowed exemptions of excise upto Rs. 1.5 Crores. These units may be required to register for payment of GST, may see this as an additional cost. The enumeration of benefits casts a welcome setting for GST.Proving GST as a superior and sufficient system depends upon the structure it is designed into and the manner of implementation. While it serves to be beneficial set up for the Industry and the Consumer, it would lead to increase in revenue to Government.