Essay on GST - Goods and Services tax for UPSC

Essay on GST - Goods and Services tax for UPSC : The Goods and Services Tax (GST) is an indirect tax reform scheme that is implemented and appreciated in many countries. In India, it will be value added taxes that will comprehensively replace multiple Central and State tax schemes. The GST will replace the Octroi Duty, the Excise Duty, the Central Sales Tax, the Value-Added-Tax, Entry Tax, Stamp Duty, etc. Some of these taxes were charged by the State Governments and some by the Centre. Because of this, it gives the State Governments to fix the tax bracket according to their requirements, thereby resulting in multiple tax schemes with different tax bundles that cause the businessmen heaps of paperwork trouble.

Essay on GST - Goods and Services tax for UPSC

The Goods and Services Tax (GST) is an indirect tax reform scheme that is implemented and appreciated in many countries. In India, it will be value added taxes that will comprehensively replace multiple Central and State tax schemes. The GST will replace the Octroi Duty, the Excise Duty, the Central Sales Tax, the Value-Added-Tax, Entry Tax, Stamp Duty, etc. Some of these taxes were charged by the State Governments and some by the Centre. Because of this, it gives the State Governments to fix the tax bracket according to their requirements, thereby resulting in multiple tax schemes with different tax bundles that cause the businessmen heaps of paperwork trouble. There is a much needed tax unification scheme that will ease the problems faced by the indigenous manufacturers, distributors and retailers.

The basic premise behind GST is that this is tax deducted on each point of sale or purchase. This is different from the prevalent tax scheme, under which the product is taxed once at the manufacturers' and once at the retailer's outlet. GST is a betterment of the current VAT system and will be introduced once there is a proper system in place: the GSTN (the IT network that will enable the collection of the tax) is being put in place and the government has instituted a Special Purpose Vehicle for this purpose. The SPV will be a private entity with the government's strategic control.

Implementation

In India, GST has been talked about for quite a long time now. Under the Atal Behari Vajpayee government, an empowered committee was set up to create a GST model for the nation and to oversee the development of an IT network that would enable the implementation of the scheme. Even the UPA government wanted to roll out the scheme and hence announced the formation of an empowered committee of the finance ministers of the states. 'This committee then formed a JWG (Joint Working Group) which submitted a report in 2007. After due discussion with the government and considering the report it was decided that a committee of Principal Secretaries of the states would be formed to take the process forward. Lengthy discussions have been done on GST and it is time now that this scheme is implemented. Even the business community is waiting eagerly because of the known benefits of GST as evidenced in other countries.

The recommendations of the empowered committee have broken GST into two parts: Central GST and State GST.

The rates for these taxes have not been decided and will be left at the discretion of the governments considering the revenue requirements of the state. The rationale behind this bifurcation is that this will encourage more harmonious tax sharing between the two governments. On the other hand, it is stated that this kind of a structure is nothing more than a new name for the old tax schemes. Truly, if the determination of the SGST is left at the will of the state governments, then there will be confusion and the actual intent of GST will be lost.

The second important recommendation is of using a two-rate scheme. In this, essential goods and services like certain food items, etc., are taxed at a lower rate, while all other products and services are taxed at the same rate. This move is supposed to lower the impact of the tax on the BPL families.

Also, GST will be levied on the imported goods and services, because as already made clear, although the scheme works on collecting the tax from the different stages of value addition in the product, but the actual brunt is borne by the end customer.

UBS AG (formerly Union Bank of Switzerland), the global financial giant, claimed in a report that in the coming years, three policy implementations would be crucial:

1. Aadhar Card   

2. Dedicated Freight Corridor (DFC)

3. Goods and Services Tax Reforms

It was claimed that in the coming three years, the impact of each of these would be of the order of 1% of the GDP. Thus it is important for India to now push for the GST.

GST will streamline the taxation and thus help reduce tax evasion and tax frauds. This in turn would mean that the government would be able to earn a lot more taxes than usual because of the expansion of the tax base, and that tax compliance would increase. in order that this benefit be passed down to the people, the governments normally price the GST at lower rates than the combined rates of the previously existing taxes. Overall, it will help the businesses as a lower rate would decrease the tax burden and increase export opportunities.

GST will also democratize the burden of tax on services and goods alike. Currently, services are exempted from taxation at the state level. GST would thus help increase the tax base. Also, it will solve the problem of tax cascading to a certain extent. The manufacturing sector would take a big sigh of relief because it currently faces one of the most complex tax structures in the developing or developed world.

One of the more resounding criticisms of GST is that it is a regressive tax scheme, in a sense that it benefits the rich more and makes the poor pay more as a percentage of their income. GST will be a flat-tax scheme and hence common logic indicates that rich and poor will have to pay the same tax on a particular commodity. In India, and other countries sensitive to this issue, there have been different rates of taxes for different types of commodities. The zero-rating of some commodities will help keep the regression in check.

The all-new Cenvat Credit Rules, 2014 do little to clarify eligibility for input credits by using general terms such as “any goods which have no relationship whatsoever with the manufacture of a final product” and  “services used primarily for personal use or consumption of any employee". Before penning the GST Act and Rules, the Empowered Committee would do well to take a hard look at all the present laws that GST subsumes and their complexities. It could tempt them to rethink on the necessity to draft even preamble.

There has to be a clear communication from the Government's side about the benefits of the GST and its likely implications on the general public and the businesses. Normally, with the negative connotation that goes with the word tax, any new tax scheme puts the people on a back foot and creates an unwelcome environment, With GST and its likely benefits, if the government can communicate the importance of this scheme, through public messages and proper communication channels, then the negative impacts can be lowered.

The popularity of GST has been increasing is evident from the fact that currently over 72 lakh excise, service tax and VAT payers have migrated to the GST, which from July 1 has unified over a dozen indirect levies like excise duty, service tax and VAT. Besides, 20 lakh new registrations have happened taking the total tally of GST registrations to over 92 lakh. This is against 6 crore businesses, including informal ones, in the country.