A complete guide to GST - GST is Good or Bad?

Good and Services Tax (GST)

The Goods and Services Tax (GST) has been heralded as the biggest indirect tax reform in India after Independence. After much deliberation, the GST bill has been passed in the Rajya Sabha and is set to be discussed in the state legislative assemblies in this winter session. With the ball set to roll for a unified country-wide tax reform, the market is filled with new found optimism among industry leaders and government officials.
This sets the necessary momentum for the passage of the two Bills—Central GST (CGST) and Integrated GST (IGST) Bills—during the winter session along with the State GST Bill by different state assemblies. According to industry experts and government sources, the GST roll out date of April 1, 2017 is likely to be met. With this, enterprises, particularly SMEs, across a wide range of industries are caught in a state of flux. The comprehensive indirect tax GST will replace various other taxes such as Excise, Vat and Service Tax with a single tax structure. Driven by wide-ranging skepticism, several startups and SMEs are wary of the adverse impacts that may come into the picture with the GST roll out. According to various state governments the GST regime will benefit SMEs the most. As opined by industry experts, the much proclaimed benefits of eliminating the cascading effect of multiple central and state taxes and the ease of starting a business will impact them the most. However, market optimism aside, they are not very sure of the ways the new tax regime will affect their business and alter their bottom line. To comprehend the full repercussion of the tax reform, it becomes crucial to know the intricate aspects of GST and the associated tax reform in detail.

The Objectives of GST, it’s implementation and Impact will make you clear that it’s good or bad-
The tax revenue mix can change as per the economic condition of the country. In developing countries, indirect taxes comprise a higher share of total taxes; in developed countries, their contribution is significantly lower.

1. Petroleum products

2. Entertainment and amusement tax levied and collected by panchayat /municipality/district council

3. Tax on alcohol/liquor consumption

4. Stamp duty, customs duty

5. Tax on consumption and sale of electricity

GST objectives

1. Ensuring availability of input credit across the value chain

2. Minimizing cascading effect of taxation

3. Simplification of tax administration and compliance

4. Harmonization of tax base, laws, and administration procedures across the country

5. Minimizing tax rate slabs to avoid classification issues

6. Prevention of unhealthy competition among states

7. Increasing the tax base and raising compliance.

Implementation challenges

1. Lack of adaptation

2. Lack of trained staff

3. Double registration can increase compliance and cost

4. Lack of clear mechanism to control tax evasion

5. Hard to estimate the exact impact of GST.

For more knowledge regarding Implementation click here.

Impact on inflation

Under the proposed GST, effective tax rate on goods (comprising around 70-75 per cent of the CPI basket) will decline.

A significant proportion (35-40 per cent) of goods (majorly agriculture products) are not subject to tax and we expect a status quo in future.

At present, services-oriented components constitute ~25-30 per cent of the CPI basket with a major share belonging to housing, transport and communication sector. Service tax is not imposed on certain (12 per cent of the CPI basket) services and these services are expected remain exempt under GST regime. A hike in tax rate on services is unlikely to have any material direct impact on CPI. For more knowldege about the impact of GST click here.GST - Goods And Service Tax
India is notorious for its complex tax system. For new businesses and startups, it becomes impossible to navigate through various direct and indirect taxes. Constant changes to taxes like Service Tax are making things even worst. But now, the things are set to change with new Goods and service tax – commonly known as GST.

Lets understand what is GST, how it is different from other taxes, GST applicability, GST rates, its impact on your business and latest updates about GST bill. To make things easy to understand, I will start with an example..

Mr. Sharma is a businessman who wants to start a business. For this he needs various raw materials which have to be imported from China and will need to be brought to Gurgaon – where he has his factory – by road through various states. Once he gets down on the process of estimating his costs he is a little troubled.

First, he needs to pay a customs duty for importing the materials on top of the shipping charges. This is fine but there are a lot of other taxes which he seems to be unable to comprehend. Also he finds out that when he has his final product ready he will have paid the Central and State Governments at least 10 different taxes not all of which are exclusive of each other. On diving deeper he finds many cases where a tax is also taxed by the government.

Petrol prices are the perfect example. The price charged to dealers by the Oil Marketing Companies is Rs. 25.46 currently for a litre of petrol. Now Excise Duty is collected at Rs. 21.48 per litre by the Central Government and adding the dealer commission the price now is Rs. 49.22. This is not the end and Value Added Tax is now charged at 27% which takes the final price to Rs. 62.51 in Delhi. At first it may seem fair that both the Governments tax the product but it is not that innocuous. There is a tax on a tax here! The State Government charges 27% of the final amount in which Central Excise Duty has already been borne by the businessman.

The Goods and Services Tax promises to alleviate this problem among many others. It is being hailed as the game changer for India’s economy and is being labelled as the biggest change in the Constitution since India’s independence. The Goods and Services tax or commonly referred to as the GST will replace the indirect taxes levied by the Central and State Governments and provide for a single and streamlined process. It presents India as a unified market to business owners and also aims at bringing a lot of black money back into the mainstream economy. The tax will be implemented at every step of value creation.

Example Of GST Calculation

Let us assume that the GST is set at 20%. Suppose that the manufacturing cost of a Product A is 100 and assuming a GST of 20% the total amount is Rs. 120. The next step of taxation would be when the Product is sold to consumers, let’s say at a price of 150. So the GST will charge another 20% on just the difference of Rs. 150 and Rs. 120 i.e. only 20% on Rs. 30 which is equal to Rs. 6. So the final price is Rs. 150 + Rs. 6. Unlike the case of petrol pricing there is no tax on a tax now. This eliminates the cascading effect of taxes which is very prevalent in our economy and has been simplified to an elemental level in the example.

Since the GST will be applied at every step of value creation it will be very difficult for black money owners to participate anywhere in the value chain with the GST without accounting for all other transactions. The GST is estimated to provide an immediate boost of 0.9% – 1.4% of the GDP.

Advantages of GST 

• A unified tax system removing a bundle of indirect taxes like VAT,CST,Service tax,CAD,SAD,Excise etc.
• Less tax compliance and a simplified tax policy as compared to earlier tax structure.
• Removes cascading effect of taxes i.e. removes tax on tax.
• Due to lower burden of taxes on the manufacturing sector,the manufacturing costs will be reduced,hence prices of consumer goods likely to come down.
• Due to reduced costs some products like cars,FMCG etc.will become cheaper.
• This will help in lowering the burden on the common man i.e.you will have to shed less money to buy the same products which were earlier costly.

Disadvantages of GST 

• Service tax rate @ 15% is presently charged on the services. So,if GST is introduced at a higher rate which is likely to be seen in the near future,the cost of services will rise. In simple words,all the services like telecom,banking,airline etc. will become more expensive.
• Increased cost of services means, an add on to your monthly expenses.
• You will have to reschedule your budgets to bear the additional services cost.
• An increase in inflation might be seen initially.
• Being a new tax,it will take some time for the people to understand it completely.Its actual implications can be seen only when the rate of tax is determined.
• It is easier said than done.There are always some complications attached. It is a consumption based tax, so in case of services, the place where service is provided needs to be determined.
• Gst implementation in India A new law, a new tax will bring with it new challenges to face that need to be tackled with utmost care.

So apart from pocket-friendly GST, let us discuss some more Benefits:-

• GST will reduce the complexity of taxes.
• Can facilitate seamless movement of goods across states.
• Reduces the transaction costs of businesses.
• The procedure of GST registration would also be made simple, thereby improving the ease of starting a business in India.
• There are expectations among experts that with GST, we may see 2% jump in GDP growth.
• GST will plug the leakage of tax. This, in turn, gives more money in the government exchequer.
• Companies which are under unorganized sector will come under the tax regime.
• Number of tax departments will reduce which in turn may lead to less corruption.
• In the long run, the lower tax burden can decrease the prices of goods and services.
• Challenges
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• The main road block is the coordination among states and center and states.
• Another major hurdle is getting the constitution amended by agreement of both the houses.
• Consensus on uniform GST rates
• Inter-state transaction of goods and services
• Administrative efficiency
• Infrastructural preparedness to implement the new tax reform
• Criticisms

Some has argued that, whatever federal powers were bestowed upon States by virtue of their powers to tax, will be lost once the GST Bill becomes law.
As per the current arrangements, dispute settlement would be subjected to lengthy court procedures, if the Council is opposed, as GST Dispute Settlement Authority in the proposed Bill will only comply with the jurisdiction of the Supreme Court.
India is adopting a dual GST, wherein the Central GST will be called CGST and state SGST.
Some critics consider GST to be a regressive tax, meaning the poor pay more, as a percentage of their income, than the rich.
Opposition wants a provision capping the GST rate at 18 per cent to be added to the Bill itself.
Deferring the levy of GST on five petroleum products could lead to cascading of taxes.
Additional 1% tax levied on goods that are transported across states dilutes the objective of creating a harmonized national market for goods and services.
Inter-state trade of a good would be more expensive than intra-state trade, with the burden being borne by retail consumers.