Goods & Services Tax

Need for GST

With evolving business processes, the taxing line between state
list and central list have started to blur leading to double
taxation
The disparity in the rate of taxes have led businesses to structure
their transactions only to achieve a tax advantage
The central and state taxes are not fungible within each other
nor are they fungible inter se, leading to cascading effect
The current system is an origin based taxation system, as
opposed to destination based leading to disparity in revenue
collection
Simplification of compliance procedures to reduce errors and
increase efficiency
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Main feature of GST

The main feature of the GST is that there is a tax credit available at each stage of the
value chain. There is a value added at each stage right from manufacture to each
additional stage of sale but the tax to be paid is only on the value added instead of the
whole amount.

Framework
The proposed framework will subsume excise duty, customs duty and service tax into
the Central GST (CGST). Similarly, VAT and other local taxes are proposed to be
subsumed into State GST (SGST) and inter-state transactions shall be covered under
IntegratedGST (IGST).
Taxes at panchayat, municipality or district level to continue.
Administration of GST will be the responsibility of the GST Council, which will be the
apex policy making body for GST. Members of GST Council comprised of the Central
and State ministers in charge of the finance portfolio
Problems addressed:
Clearly defined goods or services
Covering latest concepts relating to e-commerce
Removal of uncertainties
Availability of input credits and avoidance of double taxation
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Benefits to traders and manufacturers

One tax
Common market
Distinction between goods and services will go
Invoicing will be simpler
No entry tax
Common exemption between Centre and states
Zero rated exports
The most important benefit for businesses:
Increase in consumption: The tax will be charged on the manufacturing cost which will benefit the
consumers as prices will come down. Thus, these lower prices will lead to more consumption, ultimately
helping the companies.
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Benefits to Consumer
It will do away with cascading of taxes or
the tax-on-tax phenomenon. In the long
run, the lower tax burden candecrease
the prices of goodsand services.
GST isbelievedto have the potential to
add to the revenuesof the exchequer.
You will know exactly how much tax you
are paying on the product you bought or
services you consumed.
It will also help to build a transparent
and corruption-free tax administration

Central Taxes subsumed under GST

Central Excise Duty (includingadditionalExcise
Duty)
Service Tax
AdditionalCustoms Duty
SpecialAdditionalDuty of customs
Central surcharges and Cess

State Government Taxes subsumed under GST

Value Added Tax (TAX)
Central Sales Tax
Octroi & Entry Tax
Purchase Tax
Luxury Tax
Taxes on lottery, betting and gambling
State Cesses and Surcharges
Entertainment Tax

Benefits to Govt.
A reduction in these cascading taxes increases the incentive for
more consumption, leading to higher revenues which compensate
for the reduction in tax rates.
It can bring more transparency and better compliance.
The proposed dual GST model (central GST and state GST)
proposes to replace around 29 state and federal taxes and tariffs
for a single tax at the point of sale. Number of departments (tax
departments) will reduce which in turn may lead to less corruption
More business entities will come under the tax system thus
widening the tax base. This may lead to better and more tax
revenue collections.
Companies which are under unorganized sector will come under
tax regime
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Benefits to Indian economy

The much-delayed GST rollout can help boost the India's GDP growth by 100-200
bps or (1 to 2 percent) as this will help faster and cheaper movement of goods
across the country with a uniform taxation structure.
GSTs successful implementation would give a strong signal to the foreign
investors about our ability to support business, besides; it will enable wide-scale
changes in the tax structure which will have long term positive effects on our
economy.
Logistics industry is likely to clip at CAGR of 15-20 percent during 2015-16-201920 and if GST is rolled out this year this can bring down the logistic costs by up to
20 percent from the present levels which would further reduce the price of goods
for the consumer.
It will lead to a fall in costs in many cases making several products competitive
leading to benefits for the manufacturers and also making some of them
competitive on the world stage
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Why states were opposing the bill?

Loss of revenues
Manufacturing states are more at loss because the existing system i.e. VAT is a
source based tax while GST is destination based tax.
Tamil Nadu, Maharashtra and Gujarat are the states among the most affected
Though the Constitution amendment assures to compensate the loss for a fixed
limited period, still states are over anxious about the loss.

Opposition Demands & Acceptance

Demands:
I. Insists on GST rate bill being a finance bill and not a money bill
II. Insists that GST rate to be 18% and should be included in the
bill or the constitutional amendment so that any change in rate is
parliament approved and not on the discretion of executive.
Government Stand:
III. The Finance minister has assured to talk to the opposition
members before introducing the bill as a money bill or finance
bill. No assurance given.
IV. The government may not have put the rate in constitutional
amendment bill, but they will put in the central bill as said by
Finance minister Arun Jaitley.
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GST Bill : The story so far

After the Constitution Amendment Bill was passed by the Lok Sabha in May 2015, the Bill was
awaiting the passage in the Upper House of the Parliament. The Bill could not be cleared in the
past three sessions of the Parliament, including the Budget session due to various reasons.
The release of Model GST Law released in the public domain last month was an important
milestone in GST journey.
Union Cabinet in its meeting on 27 July 2016, has approved the amendments to the Constitution
(122nd Amendment) Bill for GST with respect to the following:
Deletion of 1% additional tax which had been earlier proposed on all inter-state supply of goods; and
Full compensation to the States for first five years towards revenue loss if any, incurred by the States due to
implementation of GST.

A consensus has also been reached on the non-inclusion of cap on GST rate in the Constitution and
the dispute resolution mechanism.
Disputes between the States and the Centre will be adjudicated by the GST Council which will
have representation from both, Centre and the States
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GST : The biggest reform of our lives and

times
On 03rd August, 2016 the Rajya Sabha approved the 122nd constitutional amendment
bill to turn the bill into law.
203 members of the upper house voted in favour while no members voted against it.
AIADMK only party to express dissent and staged a walkout during the voting
process.

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Way Forward
The Bill passed by the Parliament will need to be ratified by at least 15
States in their respective legislative assemblies before the President
can give assent for its enactment.
GST Council, a decision making body, will be formed within 60 days of
the enactment of the Bill.
Central and State GST legislations will have to be finalised together
with Place of Supply provisions.
A robust GST Network, an IT backbone of GST, will need to be in place
before the implementation of GST in 2017.

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References

http://www.gstindia.com/gst-to-benefit-consumer-durables-most-crisil/
http://businesseconomics.in/?p=1973
http://www.businesstoday.in/moneytoday/tax/will-it-help-cut-prices/story/8473.html
http://www.mapsofindia.com/my-india/government/gst-one-step-towards-simplifying-the-muddled-up-tax-system
http://www.business-standard.com/article/opinion/how-gst-will-benefit-traders-and-manufacturers-115011100797_1.html
http://www.moneycontrol.com/news/business/why-india-inc-wants-gst-so-badly-faq_818078.html
http://www.planmoneytax.com/gst-rules-benefit/
http://swarajyamag.com/economy/so-what-is-gst-and-what-are-its-benefits
http://articles.economictimes.indiatimes.com/2009-11-11/news/27664651_1_state-taxes-input-taxes-exporters
http://www.ey.com/Publication/vwLUAssets/GST_News_Alert_Union_Cabinet/$FILE/GST_News_Alert_Union_Cabinet.pdf
http://www.gstindia.com/basics-of-gst-implementation-in-india/
http://www.internationaltaxreview.com/Article/3526581/Why-India-needs-GST.html
http://zeenews.india.com/business/news/economy/how-gst-will-benefit-indian-economy_1908475.html
http://www.moneycontrol.com/news/business/why-india-inc-wants-gst-so-badly-faq_818078.html?utm_source=ref_article

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Thank you!
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