GST is the biggest economic reform in India. So, what is the impact of GST on Indian economy and what are the Major Advantages and Disadvantages of GST for businesses and individual taxpayers?.
The government of India has implemented long much awaited GST bill on July 1st, 2017. Goods and Service Tax is a long-awaited tax reform in India, it was first proposed by an empowered committee which was led by Asim Dasgupta in the period of Atal Bihari Vajpayee government in the year 2000. He was then Finance Minister of West Bengal. Here we discuss the major advantages and disadvantages of GST bill and what is the impact of GST on Indian economy, businesses and on individual taxpayers.
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In 2003, the Kelkar Task Force had suggested comprehensive Goods and Service Tax based on VAT principle on Indirect tax. But, the GST was introduced in 2016 in India, after a long journey and the GST rollout postponed to 1st July 2017. Here are the Overview, pros and cons of GST in India.
GST (Goods And Services) Tax in Foreign Countries:
- France was the first ever country to introduce the GST in 1954.
- 160+ countries are using GST all over the world.
- India will have the dual GST model as proposed by the drafted law, the tax model which Canada already following.
Complete Overview on Indian GST:
GST Act as per Indian Constitution
The One Hundred and First (101st) Amendment Act of Indian constitution has received presidential acceptance on 8th of September 2016. This act made all the way clear for the introduction of GST bill by making Special provision with respect to goods and services tax.
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What is GST (Goods and Service Tax)?
The GST is a Value-added Tax (VAT) which is proposed to be a comprehensive indirect tax levy on manufacturing, sales and consumption of goods and services at the national level. It will replace all indirect taxes levied on goods and services by both the Central and State governments
What is Dual GST?
It has been a year it is the much-discussing topic in India, as GST will be one tax across the Country. Is it so? Let’s have a look. Currently, Indian government implemented a dual GST in the country. So there will be Central GST, State GST and Integrated GST for inter-state supplies of goods and services. While the Canada has already implemented a dual structure GST on January 1st, 1991. All states in the country will have their GST Act. The Central and State governments will combine administer the dual GST in India.
What is CGST and SGST?
Both the Centre and States will simultaneously levy GST on every supply of goods and services across the value chain. Centre will levy and collect Central Goods and Services Tax (CGST), and States will levy and collect the State Goods and Services Tax (SGST) on all transactions within the States.
The GST bill inserts a new Article in our Constitution to give concurrent power to both the central and state governments to make laws on the taxation of goods and services.
What is Integrated GST (IGST)?
However, in interstate commerce also the only centre will have to levy GST. The collected tax will be divided between the Centre and states in a manner recommended by GST Council.
What is GST Council?
The President must constitute a Goods and Services Tax Council within sixty days of this Act coming into force. The GST Council aim to develop a systematic market of goods and services in India.
The Composition of the GST Council:
The GST Council is to consist of the following three members:-
- Union Finance Minister (as Chairman).
- Union Minister of State in charge of Revenue or Finance.
- Minister in charge of Finance or Taxation or any other, nominated by each state government.
Functions of the GST Council:
The council make recommendations on:-
- Subsuming all the taxes, cesses, and surcharges levied by the Centre, states and local bodies which may under the GST.
- Goods and services which may be included or exempted from GST
- Model GST laws, principles of the levy, apportionment of IGST and principles that govern the place of supply.
- The entry limit of turnover below which goods and services may be exempted from GST.
- Rates including floor rates with bands of GST
- Special rates to raise additional resources during any natural calamity.
- Special provision with respect to Arunachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
- And any other matters.
HOW HAS THE UNION BUDGET IMPACTS ON THE TAXATION IN INDIA IN 2017.
Additional Tax on the Supply of Goods:
In the course of interstate commerce or trade centre may levy and collect an additional tax which is not to exceed 1%, will be assigned to states. This additional tax will follow for the first two years from coming to the GST bill to force, or as recommended by GST Council.
Compensation to States:
Parliament may provide compensation to states for revenue losses on the implementation of GST. This would be up to a period of five years or on the recommendation of GST Council.
Taxes That Subsumed Under Central GST (CGST):
Central Excise & additional Excise duty, Service tax, Addl. customs duty, CST, Cesses and Surcharges levied by the Centre Like:-
- Central Excise Duty
- Duties of Excise (medicinal and toilet preparations)
- Additional Duties of Excise (Goods of special importance)
- Additional Duties of Excise (Textiles and textile products)
- Additional Duties of Customs (commonly known as CVD)
- Special Additional Duty of Customs (SAD)
- Service Tax
- Cesses and surcharges in so far as they relate to supply of goods or services
Taxes That Subsumed Under State GST (SGST):
VAT, Purchase Tax, State excise duty (except on liquor), Entertainment tax Like:-
- State VAT
- Central Sales Tax
- Purchase Tax
- Luxury Tax
- Entry Tax (all forms)
- Entertainment Tax (not levied by local bodies)
- Taxes on advertisements
- Taxes on lotteries, betting and gambling
- State cesses and surcharges
What is Exempt from GST:
Goods that are not yet included in GST as follows:-
- Alcoholic liquor for human consumption
- Petroleum crude
- Diesel & Petrol
- Natural gas
- Aviation turbine fuel
Goods and Services Tax Rate Slabs:
The GST Council proposed two standard tax rates for GST- 12% and 18%, and a minimum tax rate @ 5% for the essentials goods and a maximum @ 28% for the luxury and sin goods. Possibly there can be cess also on and above GST rates.
How to Register for GST?
Step-by-step process for register for GST:-
According to GST drafted law, a person who engaged exclusively in the business of supplying goods and services that are not liable to be taxed or completely exempted from GST Act, that the person is shall not liable to register under GST.
Let’s assume Mr Sanjay is only trading with exempted goods under GST and he need not register for GST. However, in any context, if he made an inter-state trade with at least one taxable product along with the regular exempted goods, then he is liable to register for GST. Otherwise, he will be defaulted on GST for not having the GST registration.
What are Major Advantages and Disadvantages of GST on Indian Economy?
Coming Advantages and Disadvantages of GST? This is the game-changing reform for the Indian economy. GST will create a common market and helps to maintain the flow of credit across the supply chain. And, reduce the cascading effect of the tax on the cost of goods and services.
The GST will impact the whole scenario of taxation in India. Here are the major Advantages and Disadvantages of GST (in India).
Major Advantages of GST in India:-
- is Taxation in India gonna easier, while GST will replace 17 indirect tax levies?
- Input Tax credit will encourage persons to pay tax who liable for, this will boost the economy in the country.
- It will create a common market across the supply chain, while the previous tax system divided by different state lines and pushing costs up 20-30%.
- Logistics, inventory costs will decrease.
- Investment may boost for many capital goods, input tax credit is not available.
- Full input tax credit under GST will mean a 12-14% drop in the cost of capital goods.Expected: A 6% rise in capital goods investment, 2% overall.
- As part of Make in India.
- a) Manufacturing will get more competitive as GST addresses downfall of tax, inter-state tax, logistics costs and fragmented market.
- b) GST provides Increased protection for Make in India goods from imports with appropriate duty.
- The national common market under GST can be dispersed and creating opportunities for less developed states.
- Manufactured goods could become cheaper with the lower logistics and tax costs.
- GDP will increase, HSBC estimates an 80 basis point rise in GDP growth for upcoming 3-5 years. NCAER pegs this at 0.9-1.7% thanks to the elimination of tax cascading.
- E-commerce will get even easier with new GST tax reform among the states.
Major Disadvantages of GST in India:
- Some experts expressed worry for GST in India would impact negatively on the real estate market. It may increase about 8 % to the actual cost of new homes and reduce demand by about 12 %.
- Some Experts described that Central GST (CGST), State GST (SGST) are nothing but new names for Central Excise/Service Tax, VAT and CST. Hence, there is no major reduction in the number of taxpayers.
- Many of retail products have only 4% tax on them in the previous tax system. After GST, garments and clothes could become more expensive.
- The airlines will be more expensive as Service taxes on airfares previous range from 6 – 9%. With GST, it is increased twice up to 15%.
- Adoption and migration to the new GST system would involve teething troubles and learn for the entire ecosystem.
How GST will Impact on Small Business In India:
1. High Tax Burden:
High tax burden for many small businesses (SME’s) in the manufacturing sector with reduced in the turnover limit (Rs. 20 lakh) than the previous (Rs. 1.50 Crores) system,
2. Increase in Expenditure:
Most of the small businesses prefer to pay taxes and file returns on their own to save cost. With the new GST system they will require expert assistance, so they have to bear the additional cost of hiring professionals. Also, businesses will need to train their employees according to the new GST will increase their expenses.
3. Changing the Old Software:
The accounting software or ERP’s for filing tax returns which consist of excise, VAT, and service tax system in them. With the GST, it will require them to change their ERPs. Purchasing new software and training employees will increase overhead costs.
4. Increased Prices:
Previously, some sectors are exempted from taxes or pay the minimum tax. But the GST has only 4 proposed tax rates of 5%,12%,18%, 28%. Thus, in most sectors, the tax burden will increase which in turn leads to the increased prices.
5. Petroleum Products Are Not Yet Included in GST:
Petroleum products are being kept outside of the GST means states will levy their own taxes on this sector leads to high prices. Input Tax credit also not available for the industries which are highly depended on petrol and diesel. This will lead to high prices of goods.
Recently, the finance minister Mr Arun Jautley said that petroleum will be subsumed under GST only after the states, through the GST Council, are agreed on it. So, there hope for inclusion of petroleum in GST.
GST Registration in the Multiple States:
GST requires businesses to register in all the states they are operating in. This will increase the burden of compliance.
Difficulties for E-commerce with GST Bill:
These days e-commerce is the most common way of trading. Many SME’s operate through their own online shopping websites or other third-party e-commerce websites to sell their products. They will require to registered for all the state they trade in, also they will not be eligible for composition scheme and will be required to pay taxes like any large organisation.
A conclusion to Advantages and Disadvantages of GST:
Change is definitely never easy. It is important to get inspired by the global economies that implemented GST and overcome the complex and experience the advantages of the unified tax system, reduced compliance and easy tax input credits.
With GST, most of the current challenges of this move will be a story of the past. India will become a single market where goods can move freely within the country and there will lesser compliance to deal with for businesses.
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