India being a federal country where both the centre and states have been
assigned powers to levy and collect taxes through appropriate legislations. Both
the levels of government have distinct responsibilities to perform according to
the division of powers prescribed in the constitution for which they need to
raise resource. A dual Goods and Services Tax was therefore proposed keeping in
mind the constitutional requirements.
Along with the amendments in the constitution, to empower the centre and states
to levy and collect GST, four legislation was introduced with assent of
President on April 12,2017, which were :- The central GST Act , The intergrated
GST Act, The GST (compensation to states) Act, The Union Territory GST Act.
"Goods And Services Tax
" means a tax on supply of goods or services, or both,
except taxes supply of alcoholic liquor for human consumption. It is a multi
stage, destination based consumption tax, replacing multiple indirect taxes
including VAT, excise duty, services taxes, etc. It is also a value added tax on
activity of supply of goods and/or services, irrespective of such activity being
manufacture of goods, sale of goods. It offers tax credit at every stage thereby
taxing only value addition. Supplier at every stage set off the credit and final
tax is paid by final consumer. Since seamless flow there will not be cascading
effect of taxes.
There are four slabs namely 5%, 12%, 18%, and 28% for all goods and services.
Alcohol for human consumption is out of GST. Five petroleum products ( crude,
petrol, diesel, ATF, and natural gas) are presently non- taxable under GST but
they will be brought into GST fold at later date by the recommendation of GST
council. There are also some Zero rated supply in GST which are for goods that
are exempted from GST.
Evolution of GST
Unfolding the runners of history, the idea of public GST in India was first
mooted by Kelkar Committee in the time 2004. The Committee recommended public
GST. The first advertisement for the preface of GST was made in Budget Speech on
28th April, 2006 by the also Finance Minister, P. Chidambaram. The proposed
target date to introduce civil GST was 1st April, 2010. The Empowered Committee
of State Finance Ministers( EC) which had formulated the design of State
Handbasket was requested to come up with a roadmap and structure for the GST.
Joint Working Groups of officers having representatives of the States as well as
the Centre were set up to examine colourful aspects of the GST and draw up
reports specifically on immunity and thresholds, taxation of services and
taxation ofinter-State inventories. Grounded on conversations within and between
it and the Central Government, the EC released its First Discussion Paper( FDP)
on GST in November, 2009. This spells out the features of the proposed GST and
has formed the base for discussion between the Centre and the States so far.
The Constitution of India was amended from 16th of September, 2016 to make
provision for the preface of GST. By this emendations in the Constitution both
the Centre and the States shall have concurrent power to levy and collect the
GST on both goods and services.
Models Of GST
Even though most countries have adopted similar principles of GST, there remain
significant differences in the way it is implemented. These differences result
not only from the continued presence of exemptions and special arrangements to
meet specific policy objectives, but also from differences of approaches in the
definition of the jurisdiction of consumption and therefore of taxation.
However, in view of the federal nature of Indian Constitution, dual model
(Canada based) of GST was planned, where the power to levy taxes would be
subjectively distributed between centre and states thus, GST is levied by both,
the centre as well as the states and there will be distinct levies in the forms
of central goods and services (CGST), State Goods and Services Tax (SGST) and
Integrated Goods and Services Tax (IGST) allowing the tax credit across these
three variants of taxes. Currently, Brazil and Canada also follow dual GST
Problems under GST
GST obedience which were envisioned to be easier and less complex, have turned
out to be a compliance nightmare with multiple and frequent changes in the tax
returns and reporting requirements. Further, GST portal has been a riddle and
cause of concern for many taxpayers since its commencement.
Some of the major problems are:
GST Rates: GST rates have been a topic of discussion since the introduction of the act. The high tax rates on essential goods and services have faced condemnation, as they have a direct impact on the common man. The government has made several changes of tax rates, reducing the rates on some goods and services. However, the high tax rates on certain goods and services continue to be a concern for businesses and consumers.
Input Tax Credit (ITC): ITC is the significant feature of GST, which allows businesses to claim a credit against the tax paid on the goods and services. However, numerous issues have arisen with the ITC mechanism under GST. The major issue is the delay in receiving the ITC refund.
High Compliance Costs: GST compliance involves various activities such as GST registration, GST return filing, maintaining records, and undergoing audits. These activities involve substantial costs, which are borne by businesses. The high compliance costs have made it difficult for small and medium-sized enterprises to operate and compete with larger businesses.
Technology Glitches: Under GST system, the taxpayers are required to file returns online through the GST portal. However, the portal has faced many technical glitches, making it difficult for taxpayers to file returns on time. The technical issues have also resulted in incorrect GST return filing, leading to penalties and fines.
E-way Bill System: The E-way bill is a document that is required for the transportation of goods worth more than Rs.50,000. The E-way bill system under GST has faced many issues, including technical glitches and delays in generating the bills. The delay in generating the E-way bill has resulted in the detention of goods and increased compliance costs for businesses.
A uniform and rationalized tax rate structure is a central characteristic of any
effective GST legislation. Although the GST legislation has made some advances
on this front, much work is required to attain this target. Many nations
implementing GST have only one rate for all items. From zero to 28%, India has
seven rates, and this number goes up if we also take into account compensation
It would be better to reduce the GST tax rates to two or three. A GST in India
continues to be a compliance burden with multiple filing obligations and lengthy
returns. This has led to exorbitant compliance costs and efforts. An urgent need
is to have rationalized, simplified, robust, and decreased compliance conditions
with sufficient scope for rectification and amendment to guarantee that correct
disclosure can be made with the minimum difficulty and delay.
With technology impacting all parts of the business, greater investment in
technology for updating the user interface and making it simpler to use,
especially for the small and medium enterprises, could place GST in India on par
with rest of world and help achieve the bigger goal of the ease of doing
The government must set small business firms by lifting exemption limit. As per
GST data, out of 14 million registrations, companies less than INR15 million
annual turnover account for 84%, but contribute less than 7% of tax collected.
The exemption limit must be lifted to INR 15 million for goods and services.
This is a monthly turnover of INR1.5 million, which at 10% of profit margin
converts into just INR120,000.
One of the biggest challenges is that the GST Network (GSTN) compliance is yet
to reach full capacity. Even after the half decade of GST execution, the GST
Appellate Tribunal is yet to be established. This has resulted in multiple court
cases, heavy interest costs and GST refund being trapped. Also we require to
create another institution in the form of a GST state secretariat that can bring
together senior officers from centre and states in an institutional forum
registered under the Society Act. This forum could also provide a common point
of contract for trade and industry to redress grievances on non-policy matters.
There is also requirement to restructure the GST rate list and make it
compatible with machine processing. The GST uses harmonized structure (HS) codes
for classifying most items. All the GST rates should confirm to HS's six digit
GST is a positive step towards shifting Indian economy from the informal to
formal economy. It is important to use experiences from global economies that
have implemented GST before us, to overcome the forthcoming challenges. The
evolution to the GST regime which is accepted by 159 countries would not be
easy. Confusions and complexities were expected and will happen. India, at some
point, had to comply with such regime.
Though the structure might not be a perfect one but once in place, such a tax
structure will make India a enhanced economy favourable for foreign investments.
Until now India was a union of 29 small tax economies and 7 union territories
with different levies unique to each state. It is a much accepted and cherished
regime because it does away with manifold tax rates by Centre and States.
It has nurtured greater coordination, reduced tax barriers, and streamlined the
tax system, leading to improved efficiency and competitiveness in the Indian
economy. The successful implementation of GST relies on a cooperative and
consensus-based approach between the Central and State Governments. It has
changed financial relations, safeguarding greater coordination and efficiency in
the Indian tax system.