As the Indian economy enters a new phase of transformation, the much hailed GST bill will finally be a reality. The consolidation of the structure, which currently has more than 10 separate taxes and duties, is expected to benefit businesses, consumers and the economy. This might be a landmark step, but a lot of work and time is still left in GST being officially implemented. The historic passing of the bill is a new beginning, and the industry is excited about what GST has in store for the future.
GST Rates in Various Countries
| Country | Rate of GST |
| Australia | 10% |
| France | 19.6% |
| Canada | 5% |
| Germany | 19% |
| Japan | 5% |
| Singapore | 7% |
| Sweden | 25% |
| New Zealand | 15% |
| Pakistan | 18% |
| Malaysia | 6% |
| Denmark | 25% |
Wednesday 7th of August saw the Rajya Sabha pass the much anticipated GST bill with a majority vote with a deadline of April 1st 2017 to roll out the GST regime in the country. Being touted as the biggest revolution in terms of India taxation laws, the ruling party BJP believes it with have a huge transformational impact on the economy of the country. The GST bill had been stuck in the political corridors for decades till now but this landmark step is expected to go a long way in consolidating the economy.
For a layman, GST formally means Goods & Services Tax and it will replace the number of taxes levied by Central government including Central Excise Duty, Duties of Excise, Additional Duties of Customs (commonly known as CVD), Special Additional Duty of Customs (SAD), Service Tax, Cess and surcharges. It will also subsume state-driven taxes like State VAT, Central Sales Tax, Purchase Tax, Luxury Tax, Entry Tax, Entertainment Tax, cess and surcharges.
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“It will definitely be beneficial because it will reduce multiple taxes to one tax structure and bring uniformity across industries.”
CA Kunal Singhal
MD
Eazy ERP
[/quote]
GST, when in exercise, will enable a clutter-free tax environment, and also is expected to improve compliance and check on tax evasion. As a nation binder with the motto of One India One Tax, GST’s impact of the economy is being projected to improve check with dual monitoring by the Centre & states to reduce tax evasion, better compliance through real time matching of supplier & purchaser, reduction in approximately Rs 1.8 lakh crore annual loss due to excise duty exemptions and cut in Rs 1.5 lakh crore estimated loss to states due to tax exemptions. On the other hand, that is, from the enterprise perspective, GST has quite a few promises in store like tax credits to lower tax burden, improve profit margin for some, no distinction between product and service for tax, uniform tax across the country to ease business, and smooth movement of products across states.
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“With decentralised basis of taxation of services, the likely requirement of state-wise segregation of contracts/ billing may prove a huge challenge for the industry.”
Mahesh Jaising
Partner
BMR Associates
[/quote]
The concept of unified taxation laws is not a new one. Countries like Singapore and New Zealand tax almost all commodities at a single rate. In China, GST applies only to goods and services like repair, replacement and processing. In Canada, GST replaced the federal manufacturer’s sales tax which was levied at 60%, and was similar to the Indian CENVAT.
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“The low tax to GDP ratio of the country will go up, helping the government to adhere to fiscal discipline and keep the inflation in check.”
Ashok P. Hinduja
Chairman
Hinduja Group
[/quote]
One of the biggest positives of GST for industry is that it will make India a unified market for business with uniform laws and easy access to state markets. Unified state taxes will erase the need for duties and cess and in turn this will check cascading of tax. The IT industry has welcomed the GST as it will definitely improve the ease of doing business across the country, however many players are still unsure about its long term impact.
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“As the market opportunities for electronics keep getting larger, especially in a growing economy like India, GST will encourage in the seamless transfer of goods and services across the country.”
Jaswinder Ahuja
Corporate Vice President & Managing Director
Cadence Design Systems
[/quote]
With a wider tax base GST comes as a landmark impact of the economy. CA Kunal Singhal, MD of Eazy ERP believes that with a simpler tax structure and streamlining of duties, GST will spur business. He says, “GST will bring multifold changes in the business scenario in India. It will definitely be beneficial because it will reduce multiple taxes to one tax structure and bring uniformity across industries. Further the statutory compliances will reduce down to one department.” Mahesh Jaising, Partner, BMR Associates believes the effect is bound to ease the tax headache of businessmen, he remarks, “Presently, the IT industry is plagued with dual taxation in respect of supply of software electronically, AMC contracts, etc – this would get sorted out under GST. IT/ Telecom service providers were ineligible to avail VAT credits on purchase of goods used for provision of services and with seamless flow of credit offered under GST, tax cost in the system will be reduced to a great extent.”
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“About the Rate of Tax which is 18%, prices of services are likely to go up with the 3% increase from service tax. The effect on goods is complex and would vary with products.”
J.B. Hooda
Director
Progression Infonet
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Ashok P. Hinduja, Chairman of Hinduja Group welcomed GST as the biggest transformation since 1991, saying, “GST will be the biggest reform since 1991 which will make India an attractive destination for foreign investments. Manufacturing will get more competitive due to the emergence of a national market as against the present fragmented one. The low tax to GDP ratio of the country will go up, helping the government to adhere to fiscal discipline and keep the inflation in check. It will improve productivity and transparency. Elimination of tax cascading is expected to place the economy in the growth trajectory of 8% and above with seamless flow of goods and services.”
Jaswinder Ahuja, Corporate Vice President & Managing Director, Cadence Design Systems believes GST is the key to the success of ‘Make in India’, “We welcome the proposed move to the GST regime by the Government of India. It will help herald a more comprehensive and congruent tax structure benefitting the electronics and semiconductor industries and the business communities at large. As the market opportunities for electronics keep getting larger, especially in a growing economy like India, GST will encourage in the seamless transfer of goods and services across the country. It will also give a boost to the ‘Make in India’ campaign.”
One thing is certain that implementation of GST will go a long way in boosting the Indian market and also foreign investment with much clearer tax laws. J.B. Hooda, Director, Progression Infonet believes that though GST is going to vastly improve the ease of doing business, how the tax base affects the industry will only be seen with time, “With GST, the business process is sure to get easier as now we won’t have to worry about taxes and registrations. About the Rate of Tax which is 18%, prices of services are likely to go up with the 3% increase from service tax. The effect on goods is complex and would vary with products.”
With the positives, GST sure has some drawbacks. There is bound to be some inflation with the increased tax rates. The Finance Minister put this at a minimum 0.3-0.7%. The dual Central and State government compliance is another issue that is being said could turn out as a huge challenge for exports to different states. Mahesh Jaising opines, “Centralised billing and accounting for service transactions with respect to pan India contracts under the present regime ensured that taxation of services is simple and clear. However, with decentralized basis of taxation of services, the likely requirement of state-wise segregation of contracts/ billing may prove a huge challenge for the industry. GST may also prove to be a nightmare for service exporter having pan India export units, especially in a case where the service providers are forced to apply for refunds in each state where such services are consumed.”
Rajeev Dimri, Leader, Indirect Tax, BMR & Associates believes there are unknown price fluctuations in store with the implementation of GST, “GST is likely to subsume some major Central and State levies such as duties of excise, additional duties of customs (applied in lieu of excise and local taxes), service tax, value added tax, central sales tax, entry tax, octroi and luxury tax. These taxes in aggregate constitute typically 25 percent to 40 percent of the price of products with certain categories being taxed at lower rates. There could be a reduction of tax incidence for several product categories if the standard GST rate is notified in the range of 18 percent to 20 percent. Headline tax rate on services is likely to increase as these are currently taxed at 15 percent even though expansion of the input credit base should partially offset the increase.”
Apart from this clarity on older exemptions and way forward is a must according to Ashok Hinduja, “Clarity is needed on the continuance of existing exemptions especially those linked to investment made both at the centre and state levels. Input tax credit possible only after ensuring vendor remit the tax to their authorities – provision will be difficult to comply.”Easy ERP MD Kunal Singhal wishes the government clarifies the position of old stocks and transactions soon, “However, with its benefits it brings in a lot of complications. The Input for GST can be claimed only if the seller has posted the details in his return. The complete invoice wise data needs to be uploaded to the department. What will happen to the old stocks and contracts?”
As the initial opinion on the viability of GST builds, one thing that industry players have a common belief on is the role on information technology in the successful implementation of GST. Ashok Hinduja believes apart from implementation, timing will also be crucial, “Full-fledged IT system should be in place so that there is no dispute in arriving at the losses incurred by States in the first five years. Roll over on the 1st of April 2017 may affect the last quarter business of 2016-2017. Hence, implementation during mid 2017-18 would be ideal and preferable.” Singhal believes role of technology is key, “These are issues that need to be addressed, and that’s exactly where technology will play a Key role. To be GST compliant every business will have to be IT compliant. All IT companies will have to update their software to support GST and auto-creation of GST returns. A huge work is going to come for the IT industry to make India GST Ready.”
There is no doubt that the GST is a welcome change in the financial system which had grown and branched into a complex structure. The equal state tax everywhere in the country will come as a huge plus making India a unified market not just for domestic businesses, but foreign traders too. There will be better compliance and check too and tax cascading is also bound to come down. But the true impact of such a major step will only be witnessed through time. Before its implementation, next year, the government needs to ready the infrastructure for its implementation. IT and digital are expected to play a big role, but the real impact of this Economical Revolution can only be gauged with time.
All the taxes that GST Absorbs
Central taxes that the GST will replace
- Central Excise Duty
- Duties of Excise (medicinal and toilet preparations)
- Additional Duties of Excise (goodsof special importance)
- Additional Duties of Excise (textiles and textile products)
- Additional Duties of Customs (commonly known as CVD)
- Special Additional Duty of Customs (SAD)
- Service Tax
- Cesses and surcharges in so far as they relate to supply of goods or services
State taxes that the GST will Subsume
- State VAT
- Central Sales Tax
- Purchase Tax
- Luxury Tax
- Entry Tax (all forms)
- Entertainment Tax (not levied by local bodies)
- Taxes on advertisements
- Taxes on lotteries, betting and gambling
- State cesses and surcharges
