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GST: An Overview And Analysis

The implementation of the Goods and Services Tax (GST) in India was a historical move, as it marked a diverse change in indirect tax system in the country. The amalgamation of a large number of taxes (levied at a central and state level) into a single tax is expected to have big advantages. One of the most important benefits of the move is the eradication of double taxation or the elimination of the cascading effect of taxation. Indian goods are also expected to be more competitive in international and domestic markets post GST implementation.

The history of the Goods and Services Tax (GST) in India dates back to the year 2000 and culminate in 2017 with four bills relating to it becoming an Act.

History of GST in India

2000: In India, the idea of adopting GST was first suggested by the Atal Bihari Vajpayee Government in 2000. The state finance ministers formed an Empowered Committee (EC) to create a structure for GST, based on their experience in designing State VAT. Representatives from the Centre and states were requested to examine various aspects of the GST proposal and create reports on the thresholds, exemptions, taxation of inter-state supplies, and taxation of services. The committee was headed by Asim Dasgupta, the finance minister of West Bengal.
2004: A task force that was headed by Vijay L. Kelkar the advisor to the finance ministry indicated that the existing tax structure had many issues that would be mitigated by the GST system.
February 2005: The finance minister, P. Chidambaram, said that the medium-to-long term goal of the government was to implement a uniform GST structure across the country, covering the whole production-distribution chain. This was discussed in the budget session for the financial year 2005-06.
February 2006: The finance minister set 1 April 2010 as the GST introduction date.
February 2007: The 1 April 2010 deadline for GST implementation was retained in the union budget for 2007-08.
February 2008: At the union budget session for 2008-09, the finance minister confirmed that considerable progress was being made in the preparation of the roadmap for GST. The targeted timeline for the implementation was confirmed to be 1 April 2010.
July 2009: Pranab Mukherjee, the new finance minister of India, announced the basic skeleton of the GST system. The 1 April 2010 deadline was being followed then as well.
November 2009: The EC that was headed by Asim Dasgupta put forth the First Discussion Paper (FDP), describing the proposed GST regime. The paper was expected to start a debate that would generate further inputs from stakeholders.
March 2011: The government led by the Congress party puts forth the Constitution (115th Amendment) Bill for the introduction of GST. Following protest by the opposition party, the Bill was sent to a standing committee for a detailed examination.
June 2012: The standing committee starts discussion on the Bill. Opposition parties raise concerns over the 279B clause that offers additional powers to the Center over the GST dispute authority.
November 2012: P. Chidambaram and the finance ministers of states hold meetings and set the deadline for resolution of issues as 31 December 2012.
February 2013: The finance minister, during the budget session, announces that the government will provide Rs.9000 crore as compensation to states. He also appeals to the state finance ministers to work in association with the government for the implementation of the indirect tax reform.
August 2013: The report created by the standing committee is submitted to the parliament. The panel approves the regulation with few amendments to the provisions for the tax structure and the mechanism of resolution.
October 2013: The state of Gujarat opposes the Bill, as it would have to bear a loss of Rs.14000 crore per annum, owing to the destination-based taxation rule.
May 2014: The Constitution Amendment Bill lapses. This is the same year that Narendra Modi was voted into power at the Center.
December 2014: India’s new finance minister, Arun Jaitley, submits the Constitution (122nd Amendment) Bill, 2014 in the parliament. The opposition demanded that the Bill be sent for discussion to the standing committee.
February 2015: Jaitley, in his budget speech, indicated that the government is looking to implement the GST system by 1 April 2016.
May 2015: The Lok Sabha passes the Constitution Amendment Bill.
August 2015: The Bill is not passed in the Rajya Sabha. Jaitley mentions that the disruption had no specific cause.
March 2016: Jaitley says that he is in agreement with the Congress’s demand for the GST rate not to be set above 18%. But he is not inclined to fix the rate at 18%. In the future if the Government, in an unforeseen emergency, is required to raise the tax rate, it would have to take the permission of the parliament. So, a fixed rate of tax is ruled out.
June 2016: The Ministry of Finance releases the draft model law on GST to the public, expecting suggestions and views.
August 2016: The Congress-led opposition finally agrees to the Government’s proposal on the four broad amendments to the Bill. The Bill was passed in the Rajya Sabha.
September 2016: The Honorable President of India gives his consent for the Constitution Amendment Bill to become an Act.
2017: Four Bills related to GST become Act, following approval in the parliament and the President’s assent:
Central GST Bill
Integrated GST Bill
Union Territory GST Bill
GST (Compensation to States) Bill

# The GST Council also finalized on the GST rates and GST rules. The Government declares that the GST Bill will be applicable from 1 July 2017.

Advantages of GST

Advantages for the government:
Will help to create a unified common national market for India, giving a boost to foreign investment and “Make in India” campaign;
Will mitigate cascading of taxes as Input Tax Credit will be available across goods and services at every stage of supply;
Harmonization of laws, procedures and rates of tax between Center and States and across States;
Improved environment for compliance as all returns are to be filed online, input credits to be verified online, encouraging more paper trail of transactions at each level of supply chain;
Similar uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate arbitrage between neighboring States and that between intra and inter-state sales;
Common procedures for registration of taxpayers, refund of taxes, uniform formats of tax return, common tax base, common system of classification of goods and services will lend greater certainty to taxation system;
Greater use of IT will reduce human interface between the taxpayer and the tax administration, which will go a long way in reducing corruption.

Advantages of GST to the Trade/Industry:

Single tax system would subsume multiple taxes.
For instance, the direct-to-home (DTH), film producers and multiplex players will be saved from levy of multiple taxes such as high rates of service tax and entertainment tax. It may also lower the average ticket price, and increase the footfalls in multiplexes;
This single tax system would solve the issue of cascading/double taxation;
This system would help to create a single unified national market;
The one nation one tax system would facilitate companies to generate savings in logistics and distribution costs as there would be free movement and supply of goods in every part of the country without the need to depend on multiple sales depots across the country.

For instance, companies manufacturing mobile handsets may no longer need to set up and invest in specific entities and warehouses state-wise and transfer goods and stocks to them. This will not only yield ease of doing business for the companies, but also reduce the handset prices across the states. Manufacturers may also pass on the cost benefits, to the consumers, which they would get from consolidating their warehouses and efficiently managing inventory.

The tax transparency and ease of doing business, as resulted from the implementation of GST, is expected to lead to increased tax compliance and attract more foreign direct investments across sectors.
This simpler tax regime will levy fewer rates of tax and allow fewer cases of exemptions.

Disadvantages of GST

# Petroleum Products Undefined Under GST
Petroleum products have not been defined under the GST which means the states will continue levying their taxes and no input tax credit will be available in this industry and the related ones.

# Implementation of GST in the Mid-Year
GST will roll out on July 1 which means for the new financial year starting from April 1, old tax structure will be carried out and as soon as GST is implemented, new structure would be enforced. This would create confusion as the change would not take place in a day and two systems (old and new) would be running parallel for a while.

# Inevitable Inflation
In many sectors, GST would result in inflation and there have been no measures to curb the same. While there were steps taken to initiate anti-profiteering at retail level, there have been no concrete steps as such.

# Operating Cost Hike
For smaller enterprises that do not hire professionals to manage accounts and taxes, the new system would compel them to require professional assistance as the structure would be completely new.

# Business Software Updating
Businesses, up till now have been using accounting software with VAT, Service tax incorporated in it but as the reform would take place, these software would need to be updated and that means extra cost of purchasing software and training the employees.

# Multiple Registration
For a business, GST requires to be registered in as many states in which the business is operating and that means multiple registration leading to compliance burden.
Once the GST gets implemented, these challenges would follow it for a long time but as the benefits of GST are sure to bind India into one tax, the end result is hoped to be positive.

GST Analysis And Impact

GST has brought in ‘one nation one tax’ system, but its effect on various industries is slightly different. The first level of differentiation will come in depending on whether the industry deals with manufacturing, distributing and retailing or is providing a service.

GST is to boost competitiveness and performance in India’s manufacturing sector. Declining exports and high infrastructure spending are just some of the concerns of this sector. Multiple indirect taxes had also increased the administrative costs for manufacturers and distributors and with GST in place, the compliance burden has eased and this sector will grow more strongly.

But due to GST business which was not under the tax bracket previously will now have to register. This will lead to lesser tax evasion.

Sector-wise Impact Analysis

Logistics
In a vast country like India, the logistics sector forms the backbone of the economy. We can fairly assume that a well organized and mature logistics industry has the potential to leapfrog the “Make in India” initiative of the Government of India to its desired position.
E-commerce
The E-commerce sector in India has been growing by leaps and bounds. In many ways, GST will help the e-com sector’s continued growth but the long-term effects will be particularly interesting because the GST law specifically proposes a Tax Collection at Source (TCS) mechanism, which e-com companies are not too happy with. The current rate of TCS is at 1%.

Pharmacy

On the whole, GST is benefiting the pharmacy and healthcare industries. It will create a level playing field for generic drug makers, boost medical tourism and simplify the tax structure. If there is any concern whatsoever, then it relates to the pricing structure (as per latest news). The pharmacy sector is hoping for a tax respite as it will make affordable healthcare easier to access by all.

Telecommunications

In the telecom sector, prices will come down after GST. Manufacturers will save on costs through efficient management of inventory and by consolidating their warehouses. Handset manufacturers will find it easier to sell their equipment as GST has negated the need to set up state-specific entities, and transfer stocks. The will also save up on logistics costs.

Textile

The Indian textile industry provides employment to a large number of skilled and unskilled workers in the country. It contributes about 10% of the total annual export, and this value is likely to increase under GST. GST would affect the cotton value chain of the textile industry which is chosen by most small medium enterprises as it previously attracted zero central excise duty (under optional route).

Real Estate

The real estate sector is one of the most pivotal sectors of the Indian economy, playing an important role in employment generation in India. The impact of GST on the real estate sector cannot be fully assessed as it largely depends on the tax rates. However, the sector will see substantial benefits from GST implementation, as it has brought to the industry much-required transparency and accountability.

Agriculture

The agricultural sector is the largest contributing sector the overall Indian GDP. It covers around 16% of Indian GDP. One of the major issues faced by the agricultural sector is the transportation of agriculture-products across state lines all over India. GST will resolve the issue of transportation.

FMCG

The FMCG sector is experiencing significant savings in logistics and distribution costs as the GST has eliminated the need for multiple sales depots.

Freelancers

Freelancing in India is still a nascent industry and the rules and regulations for this chaotic industry are still up in the air. But with GST, it will become much easier for freelancers to file their taxes as they can easily do it online. They are taxed as service providers, and the new tax structure has brought about coherence and accountability in this sector.

Automobiles

The automobile industry in India is a vast business producing a large number of cars annually, fueled mostly by the huge population of the country. Under the previous tax system, there were several taxes applicable to this sector like excise, VAT, sales tax, road tax, motor vehicle tax, registration duty which will be subsumed by GST.

Startups
With increased limits for registration, a DIY compliance model, tax credit on purchases, and a free flow of goods and services, the GST regime truly augurs well for the Indian startup scene. Previously, many Indian states had different VAT laws which were confusing for companies that have a pan-India presence, especially the e-com sector. All of this has changed under GST.

Conclusion
Goods and Service Tax, with end-to-end it has tried to enable a tax mechanism, which is likely to bring more revenue to the government. It is expected that the activity of tax theft will go away under Goods and Service Tax regime in order to benefit both governments as well as the consumer. In reality, that extra revenue that the government is expecting to generate won’t come from the consumers pocket but from the reduction of tax theft which will benefit in future developments.

End-Notes:
# Student’s guide to GST and Customs Law, Author: Dr. Vinod K. Singhania
# Taxman’s Indirect Tax Laws and Practice, Author: V.S. Datey
# Study Material of Indirect Taxation of The Institute of Chartered Accountants of India
# http://www.gstcouncil.gov.in/gst-council
# https://yourstory.com/2019/01/gst-benefitted-businesses-impact-nbfcs-india
# https://en.wikipedia.org/wiki/Goods_and_Services_Tax_(India)#History
# The Journal of Taxation and Regulatory Frameworks

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