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
April 2017.
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.