The count-down to GOODS AND SERVICE TAX (GST) is over, it will rollout from 1st July 2017. Will it bring in happiness and cheers in the market or will it obstruct the growth rate?
As the five-year term of Prime Minister Narendra Modi inches towards the finish line, the National Democratic Alliance government plans to launch one of its most ambitious Goods and service tax (GST) bill to revive Indian economy. Economists are divided, traders are worried, industrialists are vexed, farmers are on the warpath, the service class is holding its breath as the government pulls out another bunny from its hat to win over the people.
The GST is being hailed as the game changer for India’s economy. It is being labelled as Sanjivini Booti by NDA government to boost Indian economy. Foreign media is looking at GST as one of the biggest change in the Constitution since India’s independence to bring uniformity in taxation laws and policies. The GST will replace the indirect taxes levied by the Central and State Governments and provide for a single and streamlined process. It presents India as a unified market to business owners and also aims at bringing a lot of black money back into the mainstream economy. The tax will be implemented at every step of value creation.
After the much-hyped demonetisation failed to deliver results, GST has become the last hope of the government to fix the Indian economy. India is infamous for its complex tax system in most of the developed countries. For new businesses and startups, it becomes impossible to navigate through the tax labyrinths. It becomes almost impossible for a new investor to sail through the muddy waters of various direct and indirect taxes. Constant changes to taxes like Service Tax are making things even worst. But now, the things are expected to change with the implementation of GST in all the states of India. The Goods and Services Tax (GST) will be levied at multiple rates ranging from zero per cent to 28 per cent.
Goods and Services Tax Council has finalised a four-tier GST tax structure. The four slabs of taxes are 5%, 12%, 18% and 28%. The government wanted to make GST tailor fit for the rich and the poor. The government has kept lower tax rates for essential items and the highest tax rates for luxury items, the de-merit goods would attract an additional cess.
Service Tax will go up from 15% to 18%, which will hurt the middle class, hotel industry, travel industry and restaurants. In order to control inflation after GST comes into force, most of the essential items including food, which presently constitute roughly half of the consumer inflation basket, will be zero taxed.
BOX ITEM ONE
No tax will be imposed on items like Jute, fresh meat, fish chicken, eggs, milk, buttermilk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, prasad, salt, bindi. Sindoor, stamps, judicial papers, printed books, newspapers, bangles, handloom, Bones and horn cores, bone grist, bone meal, etc.; hoof meal, horn meal, Cereal grains hulled, Palmyra Jaggery, Salt – all types, Kajal, Children’s’ picture, drawing or colouring books, Human hair
Hotels and lodges with tariff below Rs 1,000, Grandfathering service has been exempted under GST. Rough precious and semi-precious stones will attract GST rate of 0.25 per cent.
The lowest rate of 5% tax would be for common use items.
BOX ITEM TWO
Items such as fish fillet, Apparel below Rs 1000, packaged food items, footwear below Rs 500, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, kerosene, coal, medicines, stent, lifeboats, Cashew nut, Cashew nut in shell, Raisin, Ice and snow, Bio gas, Insulin, Agarbatti, Kites, Postage or revenue stamps, stamp-post marks, first-day covers
Transport services (Railways, air transport), small restaurants will be under the 5% category because their main input is petroleum, which is outside GST ambit.
There would be two standard rates of 12 per cent and 18 per cent, which would fall on the bulk of the goods and services. This includes fast-moving consumer goods.
BOX ITEM THREE
Apparel above Rs 1000, frozen meat products , butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, fruit juices, Bhutia, nankeen, Ayurvedic medicines, tooth powder, agarbatti, colouring books, picture books, umbrella, sewing machine, cell phones, Ketchup & Sauces, All diagnostic kits and reagents, Exercise books and notebooks, Spoons, forks, ladles, skimmers, cake-servers, fish knives, tongs, Spectacles, corrective, Playing cards, chess board, carom board and other board games, like ludo,
Non-AC hotels, business class air ticket, fertilisers, Work Contracts will fall under 12 percent GST tax slab
BOX ITEM FOUR
Most items are under this tax slab which includes footwear costing more than Rs 500, Bidi Patta, Biscuits (All categories), flavoured refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, mineral water, tissues, envelopes, tampons, notebooks, steel products, printed circuits, camera, speakers and monitors, Kajal pencil sticks, Headgear and parts thereof, Aluminium foil, Weighing Machinery [other than electric or electronic weighing machinery], Printers [other than multifunction printers], Electrical Transformer, CCTV, Optical Fiber, Bamboo furniture, Swimming pools and paddling pools, Curry paste; mayonnaise and salad dressings; mixed condiments and mixed seasonings
AC hotels that serve liquor, telecom services, IT services, branded garments and financial services will attract 18 per cent tax under GST.
Ultra luxuries, demerit and sin goods (like tobacco and aerated drinks), will attract a cess for a period of five years on top of the 28 per cent GST. Highest tax slab will be applicable to items which are currently taxed at 30-31% (excise duty plus VAT).
BOX ITEM FIVE
Bidis, chewing gum, molasses, chocolate not containing cocoa, waffles and wafers coated with chocolate, pan masala, aerated water, paint, deodorants, shaving creams, after shave, hair shampoo, dye, sunscreen, wallpaper, ceramic tiles, water heater, dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum cleaner, shavers, hair clippers, automobiles, motorcycles, aircraft for personal use, will attract 28 % tax – the highest under GST system.
5-star hotels, race club betting, cinema will attract tax 28 per cent tax slab under GST
The government is fully aware of the roadblocks, it is already trying to create a kitty from where the states can be compensated. The collection from this cess as well as that of the clean energy cess would create a revenue pool which would be used for compensating states for any loss of revenue during the first five years of implementation of GST. Finance minister said that the cess would be lapsable after five years. India offers a well-structured tax system for its population. Taxes are the largest source of income for the government. This money is deployed for various purposes and projects for the development of the nation.
The GST will subsume the multitude of cesses currently in place, including the Swachh Bharat Cess, the Krishi Kalyan Cess and the Education Cess. Only the Clean Environment Cess is being retained, revenues from which will also fund the compensations.
Many economic pundits feel that the government is trying to play it safe, it is not including liquor and petroleum under GST’s ambit. These are major revenue sources for the government and experts feel this is being done due to a few crony capitalists who need some time to funnel away their black money as the GST promises to widen the tax paying population.
If you are running a shop, industry or business in India, it is important for you to become GST compliant. The government aims to simplify GST for business owners, but various business owners are unable to understand the complications mentioned in the forms of GST related to their Profit Books. The government claims to have developed a super simple accounting software to create GST compliant invoices, record expenses, track inventory and finally automatically prepare GST-ready tax returns.
How does GST work
A nationwide tax reform cannot function without strict guidelines and provisions. The GST Council has devised a foolproof method of implementing this new tax regime by dividing it into three categories. Wondering how they work? Let our experts explain this to you in detail.
When Goods and Services Tax is implemented, there will be 3 kinds of applicable Goods and Services Taxes:
CGST: where the revenue will be collected by the central government
SGST: where the revenue will be collected by the state governments for intra-state sales
IGST: where the revenue will be collected by the central government for inter-state sales
In most cases, the tax structure under the new regime will be as follows:
Transaction New Regime Old Regime Comments
Sale within the state CGST + SGST VAT + Central Excise/Service Tax Revenue will now be shared between the Centre and the State
Sale to another State IGST Central Sales Tax + Excise/Service Tax There will only be one type of tax (central) now in the case of inter-state sales.
So, now that we have defined GST, let us talk about why it will play such a significant role in transforming the current tax structure, and therefore, the economy.
Currently, the Indian tax structure is divided into two – Direct and Indirect Taxes. Direct Taxes are levied where the liability cannot be passed on to someone else. An example of this is Income Tax where you earn the income and you alone are liable to pay the tax on it.
In the case of Indirect Taxes, the liability of the tax can be passed on to someone else. This means that when the shopkeeper must pay VAT on his sale, he can pass on the liability to the customer. So, in effect, the customer pays the price of the item as well as the VAT on it so the shopkeeper can deposit the VAT to the government. This means that the customer must pay not just the price of the product, but he also pays the tax liability, and therefore, he has a higher outlay when he buys an item.
This happens because the shopkeeper has paid a tax when he bought the item from the wholesaler. To recover that amount, as well as to make up for the VAT he must pay to the government, he passes the liability to the customer who has to pay the additional amount. There is currently no other way for the shopkeeper to recover whatever he pays from his own pocket during transactions and therefore, he has no choice but to pass on the liability to the customer.
Goods and Services Tax will address this issue after it is implemented. It has a system of Input Tax Credit which will allow sellers to claim the tax already paid so that the final liability on the end consumer is decreased.
Results of GST may not be visible by the end of Modi’s first term, in 2019. But with only two years under Modi’s belt — a very short time in politics — hopes are still high for a brighter economic future.
23 Oct 2021
24 Oct 2021