2019 – Posted in: Blog – Tags: GST Council

GOODS AND SERVICE TAX (INDIA) DAY

For: Preliminary & Mains

Topics covered: GST – Types, Features and significances, GST council, Criticism, way ahead

News Flash

The centre is celebrating two years of the Goods and Services Tax. 1st July is celebrated as the “GST Day”.

The tax came into effect from July 1, 2017, through the implementation of One Hundred and First Amendment of the Constitution of India by the Indian government.
The tax replaced existing multiple flowing taxes levied by the central and state governments.

Highlights

The GST Council will introduce the new return-filling system on a trial basis from 1 July and on mandatory basis from 1 October. It is expected to simplify the process.
At the event, a book on ‘GST for MSME’ will also be released.
Sahaj & Sugam returns for small taxpayers are proposed.
With regards to single cash ledger, the govt will rationalise the ledger in such a manner that earlier 20 heads are merged into 5 major heads.
There is only one cash ledger for tax, interest, penalty, fee and others.
The ministry also said that a single refund-disbursing mechanism will come into play wherein the government which sanctions refund disburses all four major heads of refunds namely CGST, SGST, IGST and cess.
Threshold limit of Rs 40 lakh is offered of suppliers of goods as per the choice of states.
Introduction of composition scheme for small service providers up to an annual turnover of Rs 50 lakh with a tax rate of 6 per cent.
The electronic invoicing system in a phase-wise manner for B2B transactions is proposed to be introduced.
GST Appellate Tribunals are being established at various state headquarters and area benches also.

Goods and Services Tax

The goods and services tax (GST) is a destination-based, value-added tax on final consumption by both the Centre and the states on the same tax base.

GST is a consumption-based tax/destination-based tax, therefore, taxes are paid to the state where the goods or services are consumed not the state in which they were produced.

It has reduced the cascading effect of taxes.

It cut down compliance, logistics and transportation costs which gives India a common economic market, and provided a technology driven tax system.

Taxes subsumed

The single GST subsumed several taxes and levies which included:

Central excise duty
Services tax
Additional customs duty
Surcharges
State-level value added tax and Octroi.
Other levies which were applicable to interstate transportation of goods have also been done away with in GST regime.
GST is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of goods and/or services.

Goods kept outside the GST

Alcohol for human consumption(i.e. Not for commercial use).
Petrol and petroleum products (GST will apply at a later date) viz. Petroleum crude, High speed diesel, Motor Spirit (petrol), Natural gas, Aviation turbine fuel.

Dual GST model

India adopted a dual GST model, meaning that taxation is administered by both the Union and State Governments.

Transactions made within a single state are levied with Central GST (CGST) by the Central Government and State GST (SGST) by the State governments.

For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government.

IGST complicates tax collection for State Governments by disabling them from collecting the tax owed to them directly from the Central Government.

Goods and Services Tax Council

The tax rates, rules and regulations are governed by the GST Council which consists of the finance ministers of centre and all the states.
GST Council is the governing body of GST having 33 members. It is chaired by the Union Finance Minister.
The GST council is responsible for any revision or enactment of rule or any rate changes of the goods and services in India.

Way forward

The Centre should not put too much burden of revenue on GST but focus on ensuring compliance becomes easy.
GSTN, the technology network, has a key role to play. While technical glitches are bound to happen, they should be urgently corrected.
Input tax credit, the basic premise of GST, has an inbuilt compliance incentive.
The producer who has paid tax on his inputs is keen to collect taxes from his buyer so that he can get credit input tax paid against the tax he collects.
The coverage of GST should increase. The inclusion of petroleum products as well as real estate, which remain a potent source of unaccounted money, and electricity, will cut down costs, expand the formal economy and make GST more complete.

Criticism

Technicalities of GST implementation in India have been criticized by global financial institutions, sections of Indian media and opposition political parties in India.

World Bank’s 2018 version of India Development Update described India’s version of GST as too complex, noticing various flaws compared to GST systems prevalent in other countries; most significantly, the second highest tax rate among a sample of 115 countries at 28%.

GST’s implementation in India has been further criticized by Indian businessmen for problems including tax refund delays and too much documentation and administrative effort needed.

Conclusion

Ultimately, the success of any tax policy depends on how it’s administered. Despite dual administration, GST has not been reduced to tax anarchy.

The Centre deserves credit for making the Central Board of Indirect Taxes and Customs (CBIC) the single point for the issue of clarifications.

A perennial area of concern in any tax administration is dispute resolution — it has to be timebound, consistent with the law and with clear channels of appeal.

Source: Economic Times and other standard sources

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