Introduction of a GST is very much essential in the
emerging environment of the Indian economy.
There is no doubt that in production and distribution of goods, services are increasingly used or consumed and vice versa. Separate taxes for goods and services, which is the present taxation system, requires division of transaction values into value of goods and services for taxation, leading to greater complications, administration, including compliances costs. In the GST system, when all the taxes are integrated, it would make possible the taxation burden to be split equitably between manufacturing and services. GST will be levied only at the final destination of consumption based on VAT principle and not at various points (from manufacturing to retail outlets). This will help in removing economic distortions and bring about development of a common national market. It will also help to build a transparent and corruption-free tax administration. Presently, a tax is levied on when a finished product moves out from a factory, which is paid by the manufacturer, and it is again levied at the retail outlet when sold.
GST (Goods and Services Tax) is a tax levied when
a consumer buys a good or service. The current tax regime is riddled with indirect taxes which the GST aims to subsume with a single comprehensive tax, bringing it all under a single umbrella. The bill aims to eliminate the cascading effect of taxes on production and distribution prices on goods and services. India is adopting a dual GST, wherein the Central GST will be called CGST and state SGST. The main road block is the coordination among states. Centre and states have to come to a consensus on uniform GST rates, inter-state transaction of goods and services, administrative efficiency and infrastructural preparedness to implement the new tax reform. How will GST remedy the situation? GST will do away with Gordian knot of multiple taxrates which is a burden on the common man. Dual GST means it will have a federal structure. The GST will basically have only three kinds of taxes - Central, state and another one called integrated GST to tackle inter-state transactions. Under the current GST tax reform, all forms of 'supply' of goods and services like transfer, sale, barter, exchange, and rental will have a CGST (central levy) and SGST (state levy). GST will also help usher-in an era of a transparent and corruption-free tax administration. It is set to weed out the current shortcomings of the supply chain owing to the complicated, multi-layered policies.
First GST is fundamentally anti-federal. This is why
states have been resisting it so hard for years. Of course, they can be compensated for any loss of revenue, as Arun Jaitley has promised, but it still means they will not be able to raise or lower taxes as they see fit politically. Also, once in, states will not be able to opt out of GST. Second GST more or less equalises taxation across products, and hence may be iniquitous. For example, currently centre and states can levy higher taxes on luxury goods and services (five-star dinners, cars above a certain size) and this is fair. Once GST kicks in, all goods and services may end up paying the same tax. This means the rich who buy luxury goods may pay less tax and the poor more than they should. This goes against the basic tenets of taxing the rich more and the poor less. Of course, states and centre will make exceptions (like food items and drugs), but this cant be done endlessly. Too many exemptions and low duties for some categories of products will defeat the very purpose of having a simplified tax structure. It will also create endless disputes between company and taxman as companies try to show their products are entitled to lower taxes and the taxman the reverse. Third, if we assume that those evading excise (legally or otherwise) currently will henceforth start paying the tax, it means they have to raise prices to stay profitable. Taxes up, prices up. In the short-term, GST may boost the prices of some segments of the economy Second, if the unorganised sector is going to lose some of its competitive edge initially, it means there will be pressures for layoffs in companies that cant compete as a result of GST implementation. In the short run, GST may end up costing jobs till the smaller companies learn to compete. And small companies are the biggest job creators anywhere in the world.