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Corporate and Individual Taxation

New era of Goods and Service Tax is about to begin

Written by:
Antim Amlan
Published on

The passing of GST Bill in Rajya Sabha on 3 rd August 2016 has added another feather in the cap of Modi Government and reflects their determination to bring fruitful economic reforms in the country. It is still unclear i.e. how the enforcement of GST will prove beneficial for consumers and the Indian Government? But, for now, let’s just appreciate the triumph of its journey to a destination and analyze the things it has to offer.

Why there is a need for GST?:-

Currently, India’s indirect structure is highly complicated and contains an array of central and state taxes. The list includes excise tax, octroi, entry tax, service tax, customs duty, VAT, central sales tax etc. The entire tax regime has been burdening companies and tax-payers with its cascading effect because there are no set-offs for taxes paid on inputs or raw materials and on previous purchases. It can be explained via this example:-

manufacturer of readymade shirts has to buy raw materials for their manufacturing like cloth, buttons, thread etc. His cost of the manufactured shirt will include the taxes paid by him in his purchase of inputs also. When this shirt will be passed to wholesaler and retailer, they will add their margin value and tax in the value of the shirt. The final burden of the tax falls on the consumer and includes the cascading effect due to a restriction on credit utilization in the current regime of indirect taxes.

After the implementation of GST, the GST will subsume all the state indirect taxes and replace all the central indirect taxes, resulting in, ‘One nation, One tax’.


What is GST offering?:-

  •  The GST will be divided into Central and State GST where both GST will be governed by Central and State Government respectively in terms of legislation, administration, and implementation. GST, in short, will be applicable to manufacturing, sale, and consumption of goods and services.
  •  As per the latest amendments in the draft bill, the tax collection proceeds after levying of GST on an interstate supply of goods and services will be equally shared between Central and State Government.
  • The amendments also approve to keep an adaptive language on dispute resolution and have assured compensation to states for 5 years, in case there is any revenue loss to states after the implementation of the bill.
  • All the goods except petroleum products, alcohol and tobacco products will fall under the purview of GST.
  • The rate of GST may be around 18 to 21%, though it is not yet finalized.

Pros of GST:-

Let’s take a look at the positive outcomes of GST:-

  • It will strengthen the credit chain in the system as it will remove the restrictions on credit utilization in the process of manufacturing.
  • GST implementation will bring better efficiency in both administration and legislation of tax. It will bring in more comprehensive as well as a uniform tax structure leading to greater transparency.
  •  There will be a vast improvement in tax compliances in the companies. It will be faster, easier as well as economical.
  •  It will bring economic growth in terms of increase in revenue and GDP as it will lead to higher tax collections, reduce evasions and increase the ease of doing business.

Issues under oblivion:-

There is a certain amount of apprehension about the uncertainty associated with it. At present, the tax rate is not yet finalized and a dispute resolution mechanism is yet to be established by GST council. The rollout of GST and its impact on different sectors will hinge on the final rate of GST decided by the Government and on its final implementation.