On completion of this lesson, you will be able to understand:
· Basics about Direct and Indirect taxes.
· Implementation of GST in India and its features.
· Taxes to be subsumed into GST.
· Framework of GST
· Advantages / Benefits of GST.
Please go through the First Video of the Chapter I.
Overview of GST - Introduction
A tax (from the Latin tax) is a mandatory financial charge or some other type of levy imposed upon a taxpayer (an individual or other legal entity) by a governmental organization in order to fund various public expenditures.
• Law and Safety
A failure to pay, along with evasion of or resistance to taxation, is punishable by law.
Tax is a contribution by the Individual for the development of the country.
Direct Taxes are the taxes that are levied on the income of individuals or organisations. They include Income tax, corporate tax, wealth tax and inheritance tax. Direct Tax is depends upon the status of the person responsible for paying tax. The person bearing the tax is aware of his tax burden.
Indirect taxes are those paid by consumers when they buy goods and services. These include excise, service tax (or GST) and customs duties. Indirect tax is same on the end user of any goods / services irrespective of whether the person is rich or poor. The person i.e. ultimate customer bearing the tax burden may not be aware of the tax burden.
GST is levied on Goods and Services
We have so many taxes under Direct and Indirect Taxes. As per the constitution of India, Indirect Taxes are administered by the Central Government and State Governments.
· The Centre has the powers to levy tax on the manufacture of goods (except alcoholic liquor for human consumption, opium, narcotics etc.)
· As for services, it is the Centre alone that is empowered to levy service tax.
· The States have the powers to levy tax on the sale of goods.
· In the case of inter-State sales, the Centre has the power to levy a tax (the Central Sales Tax) but, the tax is collected and retained entirely by the States.
Change in Constitution
Currently, the fiscal powers between the Centre and the States are clearly demarcated in the Constitution with almost no overlap. Introduction of the GST required amendments in the Constitution so as to simultaneously empower the Centre and the States to levy and collect this tax. The Constitution of India has been amended by the Constitution (one hundred and first amendment) Act, 2016 recently for this purpose. Article 246A of the Constitution empowers the Centre and the States to levy and collect the GST.
GST in India
In India, the idea of adopting GST was first suggested by Mr. Atal Bihari Vajpayee, former Prime Minister in the year 2000.
§ In 2004, a task force headed by Mr. Vijay L Kelkar, Advisor to the Finance Ministry, indicated that the existing tax structure had many issues that would be mitigated by the GST system.
§ In 2006, the then Union Finance Minister Mr. P Chidambaram discussed about GST during his FY 2006-07 budget speech.
§ In 2014, the Constitution Amendment Bill was introduced in both Lok Sabha and Rajya Sabha for its approval and was also referred to Joint Committee of Lok Sabha and Rajya Sabha for its report.
§ On submission of committee’s report the bill was passed by the lower house and upper house of Parliament in the year 2016.
§ After ratification by required number of state legislatures and the assent of the Honorable President of India, the Constitution Amendment Bill has been notified as Constitution (101st Amendment) Act, 2016, which paved way for the introduction of GST.
After the approval of GST Council, the GST bills have been enacted as GST Acts, in the year 2017, after the approval in both the houses of the Parliament and the President’s assent:
a) Central Goods and Services Tax Act, 2017
b) Integrated Goods and Services Tax Act, 2017
c) Union Territory Goods and Services Tax Act, 2017 and
d) Goods and Services Tax (Compensation to States) Act, 2017
What is GST?
GST is nothing but a system similar to VAT system levied at national level with the following features
a) GST is a comprehensive indirect tax levy
b) GST is levied only on manufacture, sale and consumption of goods and services etc.
c) GST is consumption based multi-point sales tax.
d) When the goods are sold, taxis calculated on value addition only. i.e. Tax is on the difference between sale value and purchase value and not on the entire sale value.
e) GST is ultimately borne by the final consumer and it is considered as a consumption tax.
f) The tariff contains following rates: 0, 0.25, 3, 5, 12, 18 and 28.
g) The supplies referred to in GST system are classified as intra-state supplies (within the state), inter-state supplies (between two or more states), zero rated supplies (Export and SEZ supplies) and nil rated / exempt supplies.
h) GST is charged by giving set-off of the tax suffered by purchases (called input tax credit) against the tax payable on the sales.
Framework of GST
i. In India, concept of dual GST has been adopted wherein both Centre and State governments levy tax on goods and services.
ii. GST extends to the whole of India including the state of Jammu & Kashmir.
iii. Under GST, the goods are classified using HSN Codes (Harmonized System of Nomenclature). A new system of classification for services has been introduced. Services are classified into various groups, headings and sections.
iv. GST requires every dealer whose aggregate turnover during the financial year is more than Rs. 20 lakhs to get registered in the state where he makes the taxable supply. The turnover limit is Rs. 10 lakhs if the person is carrying out business in special category states specified in article 279A i.e. Arunachal Pradesh, Assam, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand.
v. Composition Scheme is available to small tax payers who are making intra-state supply (supply only within the state). Under this method a fixed percentage on the turnover should be paid as tax.
vi. There is exemption on payment of tax for specific goods and services in special cases.
The existing taxes are proposed to be subsumed under GST
The GST would replace the following taxes:
(i) Taxes currently levied and collected by the Centre:
a. Central Excise duty
b. Duties of Excise (Medicinal and Toilet Preparations)
d. Additional Duties of Excise (Textiles and Textile Products)
c. Additional Duties of Excise (Goods of Special Importance)
e. Additional Duties of Customs (commonly known as CVD)
f. Special Additional Duty of Customs (SAD)
g. Service Tax
h. Central Surcharges and Cesses related to supply of goods and services.
(ii) State taxes that levied and collected by the States / Union Territories.
a. State VAT
b. Central Sales Tax
c. Luxury Tax,
d. Entry Tax (all forms)
e. Entertainment and Amusement Tax (except when levied by the local bodies)
f. Taxes on advertisements
g. Purchase Tax
h. Taxes on lotteries, betting and gambling
i. State Surcharges and Cesses so far as they relate to supply of goods and services
The GST Council shall make recommendations to the Union and States on the taxes, cesses and surcharges levied by the Centre, the States and the local bodies which may be subsumed in the GST.
The principles adopted for subsuming the above taxes under GST
The various Central, State and Local levies were examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind:
(i) Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services. The taxes, levies and fees that are not specifically related to supply of goods & services should not be subsumed under GST.
(ii) Taxes or levies to be subsumed should be part of the transaction chain which commences with import/manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other.
(iii) It should result in free flow of tax credit in intra and inter-State levels.
(v) Revenue fairness for both the Union and the States individually would need to be attempted.
Benefits which the Country will accrue from GST
Introduction of GST would be a very significant step in the field of indirect tax reforms in India.
a) Removal of cascading effect:
In the earlier Indirect Tax system, there were multiple taxes i.e. VAT, Excise duty, Service tax which might have charged on same goods repeatedly from the time of production till the last point of sale. There is a tax on tax, since the purchase price includes tax referred too. As GST has subsumed all indirect taxes, now there is no room for cascading effect.
b) Common National Market
GST has almost removed check posts. E-way bill is implemented with a specific rule that a vehicle should not be stopped for more than 30 minutes; it ensures transportation in India i.e. between the states faster and easy.
c) Common Classification Mechanism
GST has common system of classification such as HSN for goods and Services Codes for Services. Unlike the earlier indirect tax laws, it is same across India. So it is reducing the classification dispute.
d) Input Tax Credit
In the earlier Indirect Tax system, there were multiple taxes i.e. VAT, Excise duty, Service tax and tax paid under one cannot be set off with the other tax. After implementation of GST, almost any input tax paid for services or goods can be set off with output tax for any goods or services. This will decrease the tax burden on customers also.
e) Higher Threshold
As compared to threshold limit mentioned under VAT and Service Tax which were Rs. 5 lakhs and Rs. 10 lakhs respectively, in GST, the same has been increased to Rs. 20 lakhs. It has exempted many small dealers.
f) Reduction in the overall tax burden
For the consumers, the biggest gain would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%. This is mainly due to the facility for claiming input tax credit across goods and services, removal of cascading effect etc.
g) Reduction in Price for Exports
Introduction of GST would also make our products competitive in the domestic and international markets. Studies show that this would instantly spur economic growth.
h) Gain for Central and State Governments
There may also be revenue gain for the Centre and the States due to widening of the tax base, increase in trade volumes and improved tax compliance. For example, earlier State Governments had the power to levy tax on goods only i.e. VAT. And service tax was collecting by Central Government. But in GST system, State Governments will get tax on supply of goods and services.
i) Simple and Transparent System
Last but not the least, this tax, because of its transparent character, would be easier to administer. And as all processes are online like registration, filing of return, matching of credit etc., therefore reducing departmental interaction.