By Shabir Ahmad Shah
GST is a single tax on the supply of goods and services right from the manufacturer to the consumer. The Credits of input taxes paid at each stage is available in the subsequent stage which makes GST a tax only on “value addition” at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages. The GST in different countries are introduced and implemented even in some countries not implemented because of some political and financial implications.
In Canada, the goods and services tax (GST) levied on most goods and services sold for domestic consumption. The tax is levied to provide revenue for the federal government. The GST is paid by consumers, but it is levied and remitted to the government by selling the goods and services.
In Australia the goods and services tax (GST) is a value added tax of 10% on most goods and services sales. GST is levied on most transactions in the production process, but is refunded to all parties in the chain of production other than the final consumer.
The goods and services tax (GST) was a proposed value added tax in Hong Kong. On consultation over a period of nine months it was launched on 19 July 2006 and was under severe controversy. The issue was debated amongst local taxpayers, lawmakers, journalists, politicians. The plan to levy GST was dropped on 5 December 2006 by Hong Kong Government.
GST in India
More than 150 countries in the world have GST system of tax collection. In India we follow central VAT and state level VAT. Same is the case with GST. We do not follow ideal GST which all indirect taxes will be subsumed in to one. We follow an Indian version of Goods and services tax called as all India goods and services tax. Central sales tax which the central imposed on the sale of goods from one state to another will continue in the different form called Integrated GST. There are some items exempted from GST at present. The major items exempted from GST are Alcoholic liquor for human consumption, Aviation turbine fuel, Diesel, Petrol etc. In other words, GST council has to decide when those items should be covered under GST. If those items excluded from GST, again the purpose of GST is defeated.
The Goods and Services Tax (GST) is an upcoming system of taxation in India which will merge many individual applied taxes, Central and State, into a single taxation system. Both the Central and State Governments in India love indirect taxes label them innovatively under different heads. The GST sweep “subsume” many indirect taxes into a single label. Presently, the Central and State level taxes are.
Central Taxes are:-
- Central Excise Duty
- Additonal Excise duty
- Service Tax
- Additional Customs duty known as countervailing duty
- Special additional duty of customs
Similarly State Taxes are
- Subsuming of State Value added taxes / sales tax
- Entertainment tax other levied by local bodies and central sales tax
- Octroi and Entry tax,
- Purchase tax
- Luxury tax
- Taxes on Lottery, betting and gambling
The Centre Government has agreed to sweep excise duty and additional excise duty, service tax, countervailing duty, surcharge and cess and central sales tax into GST. The states have agreed to give up VAT (sales tax), entertainment tax, luxury tax, taxes on gambling, octrio and entry taxes and purchase tax into GST. So in post GST, one has to pay only GST instead of service tax, VAT and cesses or entertainment tax- all paid in pieces.
GST will replace the variety of indirect tax rates with four standard rates (brackets), 5% on essential commodities, 12% on mobile phone calls and restaurants, 18% on oil products and last 28% on tobaccos decided by the GST council meeting held on SKICC Srinagar on 18th May 2017 though the rates of Gold remained undecided.
0% bracket 5% bracket 12% bracket 18% bracket 28%bracket
7% items 14% items 17% items 43% items 19% items
Foodgrains, cereals, milk and curd etc, Health, Education. Life saving drugs, coal, sugar, tea, coffee (barring instant coffee) and edible oil, spices Butter, cheese. Animal fats and oils and their fractions, boiled, oxidised, hair oil, soaps and toothpastelactose, maple syrup, glucose, dextrose, fructose, invert sugar, artificial honey, ACs and refrigerators, Aerated drinks & luxury cars, Marble and travertine,
Though the taxation system is already on “value-added” tax regime where taxes paid on inputs supposed to be deducted from taxes due on final products. A variety of taxes central sales tax, additional excise and customs duty, luxury tax are not eligible for such set-offs. As a result, both producers and sellers end up paying taxes on the same inputs over and over again. The GST will cut out the insidious tax on tax. How GST applies.
How GST works
Purchase value of input Value addition Sale price Rate of GST GST on sale Input tax credit NET GST (GST on output-input
Manufacturer 100 30 130 10% say 13 10 3
Whole seller 130 20 150 10% say 15 13 2
Retailer 150 10 160 10% say 16 15 1
The Goods and Services Tax (GST) will be levied at multiple rates ranging from 0 per cent to 28 per cent. GST Council finalised a four-tier GST tax structure of 5%, 12%, 18% and 28%, with lower rates for essential items and the highest for luxury. The services being taxed at lower rates, owing to the provision of abatement, such as train tickets, will fall in the lower slabs.
One clear benefit from the GST is that it will crunch the time taken for goods to go across the country. If a truck ferrying produce from J&K to Azadpur Delhi passes through two different states, it is stopped at the checkpost and subjected to entry tax before being flagged off at each state. It is estimated that around 6 hours out of 24 hours daily travel time for trucks minimized, that means that products will arrive in better farm-fresh condition.
As per the Finance Minister, J&K will be ready for July 1 rollout of the GST and what will be exemptions expected under GST for J&K besides important concern of handicrafts and handlooms will be a tourist refund. The above said countries like Australia having GST module providing refunds to tourists.
GST and Power Sector
The tax treatment of the power sector in India has not yet been rationalized inspite of the fact that the power is one of the most important inputs in the process of production of goods and services. For the seamless flow of input tax across all the processes / activities in the power sector it is necessary to rationalize the tax treatment of this sector. As the coal will attract 5% bracket which means the rates will down from 11.7% in the current tax regime seems a major breather in “Power Sector” as it would help to reduce the final tariff which passed on to the consumers.
A Senior Executive of NTPC, the countrys largest power generating company said that We were paying 6% excise duty and other cess and taxes over and above, the new five per cent rate does not have the coal royalty amount subsumed, hence would still be lower than the current rate.
Also there is absence of tax levy on Power generation, Distribution and Consumption as it is not possible to avail the input tax credit. Similarly, there is no benefit of input tax credit in respect of state VAT on inputs used in the process of power generation and distribution.
GST and constitution of J&K
The GST in India is govern by the Constitution 101st Amendment Act 2016, the 122n Amendment Bill. The GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. As the Constitution of Jammu and Kashmir is the legal document and came into effect on 26 January 1957 (as of 2002) having 29 amendments which reads Part VIII as Finance, Property and Contracts (114-123) and Part IX the Public Services (124-137). With the implementation of GST, the overall control would be at Central Level as the GST is considered as simple and easy to administer at Central Level. Keeping in mind the federal structure of India, there will be two components of GST – Central GST (CGST) and State GST (SGST). Both Centre and States will simultaneously levy GST across the value chain. Kashmir Traders Manufacturers Federation flayed the government for not taking the business community on board who would give their suggestions on the tax rates. KTMF said GoI can’t implement GST in the state keeping in view the State’s special status owing to the Article 370. In view of constitution of J&K KTMF won’t allow implementation of the GST in the state unless it doesn’t temper with state’s special status and the financial autonomy.
Tax will be levied on every supply of goods and services. Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State. The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output. No cross utilization of credit would be permitted.
Due to multiple indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at progressive stages of value addition, the cost of most goods and services in the country today are laden with many hidden taxes. Under GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer.
Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit consumers.
GST & IT
By GST multiple indirect taxes at the Central and State levels are being replaced. Backed with a robust end-to-end IT system, GST would be simpler and easier to administer than all other indirect taxes of the Centre and State levied so far. The GST is considered as a better control of leakages, hence will result better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of GST that would incentivize tax compliance by traders. The higher revenue efficiency is expected to decrease the cost of collection of tax revenues of the Government, and will therefore, lead to higher revenue efficiency.
Today, most IT service providers have a multi-locational presence with the preferred mode of service tax compliance being on a centralized basis from a single location. As opposed to paying service tax to a single jurisdictional service tax authority, the service provider may well be required to pay GST (State GST, Central GST, IGST, as the case may be) to GST authorities across multiple States. What is presently not clear whether the rules will provide for the service provider to pay an IGST on such supplies from his location or in effect require for the service provider to obtain a GST registration in each relevant State. Either way, the service provider would need to map the relevant place of supply for each of his supplies and report compliance basis the same. An important related aspect in this regard is for the service provider to ensure that GST credits pertaining to the supplies are captured and availed in the location from where output GST is paid.
(The author is Socio Economic Analysis by profession and can be reached atshabir_anas@yahoo.com)
Comments are closed.