The Constitution Amendment Bill for Goods and Services Tax (GST) has been approved
by The President of India post its passage in the Parliament (Rajya Sabha on 3 August
2016 and Lok Sabha on 8 August 2016) and ratification by more than 50 percent of
state legislatures. The Government of India is committed to replace all the indirect
taxes levied on goods and services by the Centre and States and implement GST by
India is on the fast track to usher in the Goods and Services Tax (GST).
GST is intended to remove inefficiencies in the supply chain due to breakage of
credit chain and cascading effect of taxes. It will subsume a plethora of indirect
taxes presently levied at the central and state level in India. GST envisages a
common national market for goods and services and removal of trade barriers. GST
will have impact on supply chain, value additions and pricing of final outputs.
Thus, businesses will have to examine transaction restructuring, supply chain optimization,
business processes, training enterprise personnel, book keeping and making changes
in the IT infrastructure so that they are GST ready.
The model GST law as proposed, adopts many aspects of the existing indirect taxes
sought to be subsumed - Excise, Service tax and VAT. Transition to the new tax regime
will require businesses to plan properly, taking into account existing issues as
also understanding the issues likely to arise.
With GST, it is anticipated that the tax base will be comprehensive, as virtually
all goods and services will be taxable, with minimum exemptions.
GST will be a game changing reform for the Indian economy by creating a common Indian
market and reducing the cascading effect of tax on the cost of goods and services.
It will impact the tax structure, tax incidence, tax computation, tax payment, compliance,
credit utilization and reporting, leading to a complete overhaul of the current
indirect tax system.
GST will have a far-reaching impact on almost all the aspects of the business operations
in the country, for instance, pricing of products and services, supply chain optimization,
IT, accounting, and tax compliance systems.
Goods and Services Tax would be levied and collected at each stage of sale or purchase
of goods or services based on the input tax credit method. This method allows GST-registered
businesses to claim tax credit to the value of GST they paid on purchase of goods
or services as part of their normal commercial activity. Taxable goods and services
are not distinguished from one another and are taxed at a single rate in a supply
chain till the goods or services reach the consumer. Administrative responsibility
would generally rest with a single authority to levy tax on goods and services.
Exports would be zero-rated and imports would be levied the same taxes as domestic
goods and services adhering to the destination principle.
The introduction of Goods and Services Tax (GST) would be a significant step in
the reform of indirect taxation in India. Amalgamating several Central and State
taxes into a single tax would mitigate cascading or double taxation, facilitating
a common national market. The simplicity of the tax should lead to easier administration
and enforcement. From the consumer point of view, the biggest advantage would be
in terms of a reduction in the overall tax burden on goods, which is currently estimated
at 25%-30%, free movement of goods from one state to another without stopping at
state borders for hours for payment of state tax or entry tax and reduction in paperwork
to a large extent.
What changes there would be if India launches GST- “The tax rate under GST may be
nominal or zero rated for the time being. It has been proposed to insulate the revenues
of the States from the impact of GST, with the expectation that in due course, GST
will be levied on petroleum and petroleum products.” The central government has
assured states of compensation for any revenue losses incurred by them from the
date of introduction of GST for a period of five years.
GST would bring in significant change in doing business in India. Advocacy for best
practices, gearing up for changes in processes, training teams and developing IT
systems for being GST compliant are the key areas to be assessed.
The Government is committed to introduce GST by April 2017. Tax payers need to be
GST compliant to be able to test system changes in time. Depending on the operating
geographies, size and sector, the changes would be substantial and may require proactive
planning with a time-bound action plan.
In order to prepare for the implementation of GST, companies need to understand
GST policy development and its implications for scenario planning and transition
In keeping with the federal structure of India, it is proposed that GST will be
levied concurrently by the Centre (CGST) and the states (SGST). It is expected that
the base and other essential design features would be common between CGST and SGST
across SGSTs for individual states. Both CGST and SGST would be levied on the basis
of the destination principle. Thus, exports would be zero-rated, and imports would
attract tax in the same manner as domestic goods and services. Inter-state supplies
within India would attract an Integrated GST (aggregate of CGST and the SGST of
the destination State).
In addition to the IGST, in respect of supply of goods, an additional tax of up
to 1% has been proposed to be levied by the Centre. Revenue from this tax is to
be assigned to origin states. This tax is proposed to be levied for the first two
years or a longer period, as recommended by the GST Council.
GST has been envisaged as an efficient tax system, neutral in its application and
distributionally attractive. The advantages of GST are:
GST would replace most indirect taxes currently in place such as: