When the Goods and Service Tax (GST) was first proposed, the government had envisioned a unified Indian market to strengthen the economy. The GST was proposed as a comprehensive tax on manufacture, sale and consumption of goods and services at a national level rather than at individual state levels. But three missed deadlines later, the last one being August 2012, one of India’s biggest tax reforms is yet to make its debut on India’s economic stage.
By integrating state economies, the GST aims to boost overall economic growth. The main objective is to remove the currently existing multiple layers of taxation and unify the whole under a single system and the system proposed is a dual GST which will levy a Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST) on the taxable value of a transaction i.e. the tax will be at the point of sale. Under the existing system, services are taxed at 10% while the combined charge of indirect taxes on most goods is around 20%.
The CGST will comprise central excise duty (CENVAT), service tax, and additional duties of customs at the central level while value-added tax, central sales tax, entertainment tax, luxury tax, octroi, lottery taxes, electricity duty, state surcharges related to supply of goods and services and purchase tax will be included under the SGST.
Under the GST, the Centre and the States will simultaneously be able to tax supply of goods and services but the tax burden will be divided equitably between manufacturing and services through a lower tax rate which will be achieved by increasing the tax base and minimizing exemptions. Additionally, there will be no distinction made between goods and services.
The system will allow the set-off of GST paid on the procurement of goods and services against the GST which is payable on the supply of goods or services. The onus of bearing the tax however, rests on the end customer who is the last person in the supply chain.
The GST will promote transparency by levying the tax only at the destination point i.e. the point of sale, and not at various points. Under the current system, a manufacturer pays tax when a finished product leaves the factory, and it is again taxed at the retail outlet when sold.
Since both the Central and State GST will be charged on the manufacturing cost, this is likely to bring down the prices.
If implemented, the GST will be a much simpler tax system with a broader reach that will improve tax collections which in turn will promote exports, raise employment and contribute actively to the country’s economic development. One might ask what is preventing the introduction of a measure which is obviously good for the economy. The implementation of the GST is being delayed till differences regarding the measure are sorted out between the Centre and the States. A number of states have voiced concerns that if the uniform tax rate is lower than their current rates, they will lose revenue. The states are also concerned about the dispute settlement mechanism and exclusion of certain products like petroleum, alcohol and tobacco.
As the situation stands, the combined rate of GST is being discussed by the government. The CGST and SGST rates will only be decided after a consensus is reached on the total GST rate. A final stance on the issue is expected to be taken soon by the Finance Minister P. Chidambaram and the empowered committee (EC) of state finance ministers so that the much delayed GST can be implemented by April 2013.
By Udyog Software Marketing