Awdhesh Singh, former IRS (C&CE) Commissioner with 25 years experience at Government of India (1991-2016)
It is important to understand that GST is not a tax concession scheme where the government has reduced the tax rates and hence all the goods and services would become cheaper once GST is implemented.
Government was attempting to fix a single Revenue Neutral Rate (RNR) on the goods and services so that the total tax revenue of the State and the Central Government remain the same. However, due to practical considerations and keeping in view the social conditions of India, four GST slabs have been set at 5%, 12%, 18% and 28% for different items or services. There is also a special rate for precious metals. The rate of 18% would however be applicable for most goods and services.
Government is trying to see that the new GST rates remain more or less similar to the effective tax rates of excise, service tax and VAT in the present time. Hence, the prices of most commodities would remain the same. However, the immediate impact of GST would be as following.
All the services would become more expensive immediately since the present Service Tax rate is only 15% which is now raised to 18% in GST.
Some goods would become cheaper due to lower rates levied on such items
Most goods would become more expensive since the GST rate of 18% or 24% is much more than the present VAT rates which is around 12-15 %. The dealers and retailers are NOT likely to pass on this extra rate immediately to the consumer and they would profit from the increase Input Credit Tax (ICT). However, soon the consumer would reap the benefit and the prices would come down.
Real Benefits of GST
The real benefits of GST to the consumer and businesses are long term and can be stated as following:-
1: Merger of Taxes
At present, there are a large number of taxes at central and state level. They shall all be merged and become one GST as shown in figure.
2: One Law One Country
At present, you have multiple central laws and state laws for taxations. If you are trading your goods at all India level, you must know and follow all the different laws of India. It is due to this reason that many people avoid trading goods in different states. Once GST is implemented, India would become one market and you can trade anywhere in India hassel-free.
3: Increased Input Credit
At present, input credit is not available for inter-state sales of goods. This would now be available under GST regime. Thus the next tax liability to businesses would come down.
4: More Export Incentive
An exporter presently gets the refund/drawback on mostly the central taxes. Now they shall be able to get the refund/drawback of State taxes as well. This will boost export.
5: GST Network
Since all registration and return filing shall be done online, the scope of evasion shall be reduced considerably. This will boost the tax revenue and cause more development of the country.
Awdhesh Singh, former IRS (C&CE) Commissioner with 25 years experience at Government of India (1991-2016)
It would be extremely difficult to evade taxes under the GST regime due to integration of the entire India as one market and the extensive use of information technology in the GST regime.
Let us understand some important features of the GST regime
1: Electronic Filing of Returns
- All taxpayers must file separate electronic returns only
- Returns must provide invoice level details
- Input tax credit shall be allowed only after matching
- If the service provider don’t file return and don’t pay taxes, the recipient would lose credit
Department shall know the details of each person who has received goods or services and hence immediately catch the defaulters, if they fail to deposit taxes
2: Mode of Payment of Taxes
- System of electronic cash ledger and electronic ITC ledger
- Tax can be deposited by internet banking, NEFT / RTGS, debit/credit card and Over The Counter
- Date of credit to the Govt. account in the authorized bank is the date of payment for credit in electronic cash ledger
- Payment of Tax is made by way of the debit in the electronic cash or credit ledger
3: Common portal of GST Network
GSTN to develop back end modules for 27 States (MODEL –II) and rest of the states would have their own backend system.
GST Portal to function as a Common Pass-through portal for taxpayers to
- submit registration application
- file returns
- make tax payments
GSTN experts would also do data mining and they would intimate the tax officials in case a person fail to pay the GST in time.
4: Severe Punishment to tax defaulter
GST law is very strict to the tax defaulters. There is provision for arrest and prosecution for the tax defaulters in addition to severe penalty and fine.
Awdhesh Singh, former IRS (C&CE) Commissioner with 25 years experience at Government of India (1991-2016)
The manufacturing states are liable to lose the revenue of CST (Central Sales Tax) levied @ 2% between the inter-state sales of goods. Some states would also lose the revenue due to octorai and local taxes.
However, the states shall be able to tax the services which they were earlier taxed only by the Central Government. Hence, most of their losses shall be duly compensated due to it.
The central government has also approved the Compensation Law that will legally provide for the Centre making up for any loss of revenue to states in the first five years of the rollout of the GST regime.
States need not worry for any loss of revenue in GST regime as Central government is duty bound to compensate their losses.
Awdhesh Singh, former IRS (C&CE) Commissioner with 25 years experience at Government of India (1991-2016)
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