India is known for its complex tax system. It’s almost impossible for new businesses and start-ups to understand the direct and indirect tax systems. This problem gets even more aggravated when constant changes are made to taxes with each financial year. But things change with the new Goods and Services Tax commonly known as GST.
Taxes can be Divided into Two Categories
First is Direct taxes and the other one is indirect taxes. Direct taxes are charges which are imposed on individuals and are straightforwardly paid to the public authority by the citizen himself. For instance Income tax. Indirect Taxes then again are imposed on merchandise and ventures and are paid indirectly to the public authority or government by means of the third party. For instance: Service Tax. At the point when individuals proceed to feast out in a restaurant, they pay administration charge which is remembered for the bill to the proprietor of the cafe. That restaurant owner pays service tax to the government. Indirect taxes are required by the Central just as the state government. Some major Indirect taxes levied by the central government were excise duty, service tax, central sales charge, custom duty. Some major Indirect taxes imposed by the state governments were Value added tax, luxury tax, octroi /entry tax. There are three strategies for tax assessment i.e., Progressive Tax, Regressive Tax and Proportional Tax.
The landmark Goods and services tax was introduced on July 01, 2017. It was introduced as the biggest tax reform and showcase as One Nation One Tax is India’s biggest tax reform. One Nation One Tax or the GST regime has completed 3 years. The underlying months have been unpleasant for the trade and the government yet over the long run the framework has balanced out to an enormous degree. Till date the GST Council had various issues including the rate of tax, amendments required in law, simplification of procedure and others. The GST Council is led by the Finance Minister and the State Finance Ministers. The underlying period was extremely stressful for the trade just as the public authority. Yet, throughout some stretch of time it has settled to an enormous degree. The GST presently has four slabs 5%, 12%, 18% and 28%. On top of the 28% a cess is imposed on automobiles, luxury, demerit and sin goods. When it was started from July 01, 2017 industry faced a lot of challenges. There were issues on technology, not able to comply, initial understanding gap etc. Parliament passed four bills to implement GST: Central GST Bill 2017, Integrated GST Bill 2017, GST (Compensation to states) Bill 2017 and Union territory GST Bill 2017.
Advantages of Goods and Services Tax
– Eliminates the cascading effect of multiple taxes.
– Higher threshold for registration.
– Government can make composition schemes for small businesses.
– Improved efficiency of logistics.
– Simple and easy online procedure.
– Simple tax regime and increase of ease of doing business.
– No multiple tax procedures. GST is now a more simplified and unified law regime.
– Simplified procedure of registration, refund, return ,tax payment, etc.
– It is more technology driven and user friendly.
– It is federal in structure.
– Transparent and unambiguous Tax system.
– Reduces Tax evasion.
– Helps to evade corruption.
GST includes central excise duty, custom duty, service tax, surcharges, state level VAT, Octroi. It is levied on the transaction related to sale, purchase, transfer, lease, export or import of Goods and Services.
The Ministry of Finance additionally presented changes in the e-way bill framework remembering auto calculation of distance based for pin codes to produce e-way bills and block the generation of multiple bills on one receipt or invoice to take action against the GST invaders. Questioned as an anti-avoidance tool, the electronic way or the e-way bill was turned out on April 01, 2018 for moving goods worth over Rs 50,000 starting with one state then onto the next. The equivalent for intra state development was turned out in a staged way from April 15th. With cases of acts of malpractices in e-way bill generation, the revenue department chose to revise the framework to create e-way bills by transporters and businesses.
GST which subsumed 17 local taxes was turned out on July 01, 2017. The GST at present has four slabs 5%, 12%, 18% and 28%. Notwithstanding the 28% slab, a cess is levied on automobiles, luxury, demerit and sin goods. The introduction of GST has reasonably streamed the process of refund. Exporters of goods are accepting refunds straightforwardly from the customs and service exporters are getting 90% refund right away. The issue of working capital blockage because of refusal of GST refund that was seen in the underlying period has now been genuinely sorted. With GST starting a business has become easier, transactions have become transparent, from returns to refunds everything is online. The introduction of the goods and services tax marked a significant indirect tax reform in the country. When it was introduced on July 01, 2017 the basic idea was to remove the multiple tax system prevalent in India. Before GST businesses in India paid a range of taxes to the centre and states. These arrangements had advantages and disadvantages.
The GST Constitution has 101st Amendment Act, 2016 which consists of provisions that are necessary to implement the GST regime. The Act replaces the all indirect taxes levied on goods and services by the central and the state governments. It is aimed at being comprehensive for most goods and services. Before this amendment the power to levied tax was split between the centre and states. The Amendment Act contains twenty amendments to make the effort more comprehensive, the law also created a Goods and Services Tax Council or GST Council that consists of Union Finance Ministers and representatives from each state government. As a nodal agency, the council can suggest numerous things for instance; the list of taxes that will be subsumed by the GST. The Goods and Services which will be absolved from the levy of tax have special guidelines made for the supply of goods and services. Under this fundamentally a tax can either be origin based or production based. Starting origin based tax or production based tax is levied where goods and services are produced. Destination based tax or consumption tax are exacted where goods and services are consumed. Besides the e-way bill ensured easy movement across the state borders helping in increasing productivity.
It generated revenues for state governments and allowed them a degree of financial autonomy. On the other hand it created confusion for companies, slowed movement of goods from one state to another while allowing tax evasion due to weak supervision and GST changed all that. All central and state taxes were replaced by a single country wide tax levied on goods and services and India became a unified market. Earlier there were some complications related to understanding tax slabs but after the government efforts and multiple reforms, GST procedure became simpler for every citizen as well for the companies.
Single authority for authorizing and handling GST refunds has been proposed as the Ministry of Finance hopes to accelerate and improve the process for exporters. Under the proposed single authority component, when the refund claim is documented with the Tax officer whether centre or state, the official will check, a cess and approval full tax refund both central and state GST portion consequently eliminating troubles faced by the taxpayers. India is not the only country with problems in GST compliance. Many countries that follow a single tax system have had their share of problems. Comparatively India has been able to overcome difficulties at a rapid pace. Brazil is the first country to proposed One Nation One Tax i.e., Unified Tax regime. A few states brought up objections on executing GST compelling the centre to agree to a formula for remunerating or compensating them if there is the occurrence of loss of revenue. The fourteenth Finance commission advised the centre to give 100% compensation to the states for their revenue misfortune or loss after implementation of GST for the initial three years. In view of the Make in India initiative, the government is also trying to bring down the overall production cost of the manufacturing industry. Similarly, electricity is an element that needs to be brought under the purview of GST.
Before GST, long queues of trucks and containers could be seen at every state border. Check post at borders has become a centre of corruption and there was no strict system to check tax evasion. Goods and Services were costlier due to multiple tax levies. The numbers of registered businesses were very few which resulted in loss of revenue for the government. With the time of GST tax payer count is increasing. GST has grown from 38.5 lakh taxpayers as on July 2017 to 1.22 Crores registration up to June 2019. According to the Central Board of Direct taxes, more people are filing income tax returns after the implementation of GST. The introduction of GST has led to digitalisation which is making adoption of technology necessary for all and thus increases in transparency. The government says the GST has significantly helped in curbing corruption.
- Goods and Services Tax Council, available at: http://www.gstcouncil.gov.in (last visited on December 28, 2020).
- India Taxes, available at: http://www.indiataxes.com (last visited on December 28, 2020).
- Tax Club India, available at: http://www.taxclubindia.com (last visited on December 29, 2020).
- Dr. Ambrish ”International journal of Arts, Humanities and Management studies”, Goods and Service Tax and Its Impact on Start-ups.
- Satya and Amaresh Bagchi, “Revenue-neutral rate for GST”, The Economic Times, November 15, 2007.
- Kelkar, Vijay “GST Reduces Manufacturing Cost and Increases Employment”, Times of India, 2009.
BY ANUKRITI | INSTITUTE OF COMPANY SECRETARY OF INDIA