Introduction of GST, Applicability of GST in India: Goods and Services tax (GST) has been identified as one of most important tax reforms post independence. It is a tax trigger, which will lead to business transformation for all major industries.
Introduction of GST, Applicability of GST, Roadmap
Major step was to have the constitution amended which was done in the form of 101st Constitution Amendment Act, 2016 for GST in the Parliament on 8 August 2016 and thereafter recently four GST Bills also got clearance from the Lok Sabha on 29 March 2017 and also from Rajya Sabha on 6 April 2017, with the clear road map being laid down by the Finance Ministry, the Government of India seems to be on course to implementing GST with effect from 1 July 2017. On 12th April 2017 fours Acts are assented and notified. These are following:
- Central Goods and Services Tax Act 2017
- Integrated Goods and Services Tax Act 2017
- Union Territory Goods and Services Tax Act 2017, and
- Goods and Services Tax (Compensation to States) Act 2017.
The GST Council consisting of representatives from the Centre as well as the states, after being constituted, met on twelve occasions to discuss various issues including dual control, GST laws, exemptions, thresholds, rate structure, compensation cess etc. and reached consensus on the same. Council has also recommended four-tier GST rate structure and the thresholds.
GST in India and its coverage
GST is a destination-based tax that will replace the current Central taxes and duties such as Excise Duty, Service Tax, Counter Vailing Duty (CVD), Special Additional Duty of Customs (SAD), central charges and cesses and local state taxes, i.e., Value Added Tax (VAT), Central Sales Tax (CST), Octroi, Entry Tax, Purchase Tax, Luxury Tax, Taxes on lottery, betting and gambling, state cesses and surcharges and Entertainment tax (other than the tax levied by the local bodies).
It will be a dual levy with State/Union territory GST and Central GST. Moreover, inter–state supplies would attract an Integrated GST, which would be the sum total of CGST and SGST/UTGST.
Petroleum products, i.e., petroleum crude, high speed diesel, motor spirit, aviation turbine fuel, natural gas will be brought under the ambit of GST from such date as may be notified by the Government on recommendation of the Council. Alcohol for human consumption has been kept outside the purview of GST.
Consensus between Central and state governments has been reached on four-tier rate structure viz. 5%; 12%; 18% and 28% for essential commodities; Standard rate for goods and services; Standard rate for goods and services and for goods which are taxed at rate higher than 28% currently, respectively
A well-designed GST in India is expected to simplify and rationalize the current indirect tax regime, eliminate tax cascading and put the Indian economy on high-growth trajectory. The proposed GST levy may potentially impact both manufacturing and services sector for the entire value chain of operations, namely procurement, manufacturing, distribution, warehousing, sales, and pricing. It will also stimulate the need to relook at internal organization and IT systems.
With its proposed implementation from 1 July 2017 gaining intensity, it is critical for companies, which have business operations in India to understand the broad contours and framework of the proposed GST law, likely impact of the new levy on their business and start taking appropriate steps to meet its requirement and be GST ready.
Benefits of GST
GST has been envisaged as a more efficient tax system, neutral in its application and attractive in distribution. The advantages of GST are:
- Wider tax base, necessary for lowering the tax rates and eliminating classification disputes
- Elimination of multiplicity of taxes and their cascading effects
- Rationalization of tax structure and simplification of compliance procedures
- Harmonization of center and State tax administrations, which would reduce duplication and compliance costs
- Automation of compliance procedures to reduce errors and increase efficiency
The GST structure would follow the destination principle. Accordingly, imports would be subject to GST, while exports would be zero-rated. In the case of inter-State transactions within India, the State tax would apply in the State of destination as opposed to that of origin.
Taxes to be subsumed
GST would replace most indirect taxes currently in place such as:
|Central Taxes||State Taxes|
|Central Excise Duty [including additional excise duties, excise duty under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955] Service tax Additional Customs Duty (CVD) Special Additional Duty of Customs (SAD) Central Sales Tax ( levied by the Centre and collected by the States) Central surcharges and cesses ( relating to supply of goods and services)||Value Added Tax|
Octroi and Entry Tax
Luxury Taxes on lottery, betting & gambling
State cesses and surcharges
Entertainment tax (other than the tax levied by the local bodies)
Central Sales Tax ( levied by the Centre and collected by the States)
- The GST Bills have been passed by the Parliament.
- Subsequent to the passage of GST Bills in the Parliament, states will take up State GST Bills for clearance in the respective state legislative assemblies. Even few states such as Telangana, Bihar, UP have also passes the State Goods and Services Tax Act in their State Assembly.
- The list of exemption, classification of goods and service, and machinery provisions including valuation and other rules are yet to be notified. Rates etc. are expected to be announced after the next meeting of the Council that is scheduled on 18th and 19th May 2017.
- As per the office order issued by the Central Board of Excise and Customs, the Government has set up ten working groups to iron out sectoral issues faced by trade and industry to ensure smooth transition to GST. Sectors include banking, telecom, IT and ITES, financial, textile, oil and gas, gems and jewellery, transport and logistics, and MSMEs.
- Readiness of the Goods and Services Tax Network is a big question as GSTN is the backbone of GST and unless it is rolled out perfectly GST is not going to be successful.
- Training of Trade, Professionals and Department. This is an important aspect because all needs to be trained and educated in such a manner that they become capable of handling the massive date and work pressure under GST.