GST, the ‘game-changer’: How Goods and Services Tax will alter status quo
The Goods and Services Tax (GST) has been touted as the single-most significant tax reform since Independence. Aimed at creating one market and reduce taxes on goods and services that people avail, the reform, in the long run, eyes reshaping the country’s business landscape. One of the crucial tenets of the GST spelt out by the government is to turn world's fastest-growing economy into an easier place for business establishments.
Besides subsuming several central and states taxes, it will help the government check inflation and create a friendly and hassle-free environment by easing the complex process to do business in the country.
What Changes with GST
In the present system, there are at least 17 taxes that centre and states levy on goods and services at different stages. Under the GST regime, all these taxes will be replaced by Central GST, State GST and Integrated GST – decided by the powerful GST Council headed by Union Finance Minister. This unification of taxes will affect all stakeholders - the government, industries and citizens. In simple words, one of the biggest benefits of the GST is that it aims to unify the USD 2 trillion economy and bring 125 crore people into a single market.
So far, taxes were imposed on products at various levels by Centre and states, a process that involved several complications. Multiple taxes were not only a burden on businessmen but also on the consumers who would ultimately pay the price for all the taxes that the manufacturer, wholesaler and retailer have borne. The new taxation regime under the GST intends to remove these tax barriers between states and create a single market, doing away with the complications that exist in the tax system in the process.
Input tax credit
The introduction of the input tax credit mechanism will reduce tax burden on the consumers. Input tax credit is a mechanism of tax calculation which allows a business in the value chain to avoid double taxation or tax on tax. This, in turn, reduces the tax burden. In simple terms, input credit means you can reduce the tax you have already paid on inputs at the time of paying tax on output.
GST Network (GSTN)
The Goods and Services Tax Network (GSTN) is set to come into operation with the launch of the new tax regime. The GSTN is said to be the information technology backbone of the GST. GSTN, a not-for-profit private limited company, has 51 per cent equity of five private institutions. The central government has 24.5 per cent equity in the GSTN and state governments, two Union Territories and empowered committee of state finance ministers hold 24.5 per cent stake.
Among 80 lakh taxpayers, over 66 lakh have already enrolled on the online portal till date. The GSTN opened up for new registrations and enrolments on June 25. Under the new system, it is on this network that taxpayers will now have to generate all their challans with details of the payer and amount of tax. GSTN will also facilitate a consolidated tax return filing to Centre and State GST authorities.
An anti-profiteering clause has been provided in the Centre GST (CGST) and State GST (SGST) laws. It has been introduced to protect the interest of consumers and at the same time not harming the industry interest. Clause 171 provides that it is mandatory to pass on the benefit due to reduction in rate of tax or from input tax credit to the consumer by way of commensurate reduction in prices.
This clause further provides for the establishment of an authority against anti-profiteering in order to ensure its compliance. While the end consumer may have some reason to cheer, the industry is still doubtful of its implementation due to a complete lack of clarity on rules.
Impact on Economy
The reform intends to improve the ease of doing business in the country, one of the key promises of the current government during its high-pitched campaign. The government, it is learnt, has already approached the World Bank to improve its ranking citing the decision to put an end to a complicated multi-layered tax system, dismantling border check posts and eliminating the need for face-to-face meetings between executives and field officers of the tax department.
The overall growth, according to the government, will be increased by 1.5 to 2 per cent.
- The GST will make registration of business necessary because under the new tax regime, tax will be levied on the dispatch. Every dispatch will be taxable under GST, so at every stage i.e. factory, warehouse etc. registration is must.
- It will increase tax collections due to wide coverage of goods and services.
- It will provide better compliance and revenue buoyancy replacing the cascading effect created by existing indirect taxes.
- It will help creating a very clear and transparent system by bringing every operator into the ambit. Electronic processing of tax returns, refunds and tax payments through ‘GSTNET’ without human intervention, will reduce corruption and tax evasion.
- Built-in check on business transactions through seamless credit and return processing will reduce scope for black money generation leading to productive use of capital.
- Improvement in cost competitiveness of goods and services in the international market.