September,2013
MACAURO
March 2017
A Study on Biggest tax
reform in India - Goods and
Service Tax
Chaithra B S
Student
Sri Aurobindo First Grade College for Women
College for Women
ABSTRACT
The introduction of GST in Indian Economy is a concrete
step of Government of India as one of the biggest Indirect
Tax Reform & is all set to integrate state economies &
boost overall growth.
The current indirect tax structure is full of uncertainties
due to multiple taxes and multiple rates. GST is one
indirect tax for the whole nation creating one unified
common market. It will substitute all indirect taxes levied
on goods and services by the Central & State
Governments in India. GST is consumption based tax &
based on Destination Principle. GST is expected to
remove the cascading effect of the existing tax structure
& result in uniting the country economically.
The objective of this paper is to know the concept of
GST, impact of GST & challenges in implementation of
GST in India.
The implementation of GST will have a positive impact
on the Indian Economy in the long run.
Key Words: Indirect tax reform, Indian Economy,
Common Market, Cascading Effect, Destination Principle
NEWSLETTER TO EDUCATE AND EMPOWER
INTRODUCTION:
Tax policies play an important role on the economy. A good
tax system should keep in view the issues of income
distribution & at the same time also endeavor to generate tax
revenues to support government expenditure on public
services and infrastructure development. India as worlds one
of the biggest democratic country follow the federal tax
system for levy & collection of various taxes. Taxes are levied
by the central government and state governments. The
authority to levy tax is derived from the constitution of India
which allocates the power to levy various taxes between the
centre and state.
VAT when introduced was considered to be major
improvement over the pre-existing Central Excise Duty at the
national level & Sales Tax at the State level. Now is
considered as a logical step towards a comprehensive indirect
tax reform in the country. GST is the substantial indirect tax
reform since 1947. The main idea of GST is to replace
existing taxes like VAT, Excise Duty, Service Tax and Sales
Tax. Small & medium sized cos prefer not to grow rather
than have to deal with the administrative burden of becoming
national enterprises. Compared to this mess, even a less than
perfect GST would be an improvement.
Historical Background of GST:
Our former Prime Minister Shri AB Vajpayee started the
discussion on GST for the first time in Indian History. In 2000
he set up a committee which was headed by Asim Dasgupta.
Kelkar task force in the year 2003 suggested a comprehensive
GST based on VAT principle.
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COVER ARTICLE
The empowered committee of state finance ministers
releases their first discussion paper on Nov, 10, 2009.
The discussion paper recommended the dual GST Model
for India.
On 22nd Mar 2011the 115th constitutional Bill was
introduced in Parliament to enable the levy of GST.
However the bill lapsed with the dissolution of the 15th
LokSabha.
Subsequently, in Dec 2014, the constitution (122nd
Amendment) bill, 2014 was introduced in LokSabha. The
bill was passed by Loksabha in May 2015 & referred to a
select committee of RajySabha for examination. GST bill
passed in RajyaSabha on 3rd Aug 2016.
On 8th Sep 2016 history writes itself when president gave
his nod to the GST bill. GST bill is now the law of land.
What is GST?
GST is a tax on goods and services with value addition at
each stage having comprehensive and continuous chain of
set of benefits from the producers / service providers
point up to the retailers level where only the final
consumer should bear the tax.
GST is one indirect tax for the whole nation, creating one
unified common market. It is a single tax on the supply of
goods and services. Credits of input taxes paid at each
stage will be available in the subsequent stage of value
addition. The final consumer will buy only the GST
charged by the last dealer in the supply chain.
Why GST?
The point about indirect taxes is that they tend to
cascade, with taxes levied on several inputs that have
already been taxed, along with inputs to those inputs. It
leads to a high cost and inefficient tax structure prone to
evasion and revenue leakage.
In 2005-2006, VAT was introduced where by every next
stage person gets credit of the tax paid at earlier stage.
Similar concepts came in Excise Duty & Service Tax
also, which is called CENVAT Credit Scheme. To a
huge extent the problem of cascading effect of taxes is
resolved by these measures.
However, there are still problems with the system that
have not been solved till date.
Credit of input VAT is available against output
VAT. The credit of input excise/service tax is
available against output excise/service tax.
However, the credit of VAT is not available
against excise & vice versa.
VAT is computed on a value which includes
excise duty. This shows that there is still a tax on
tax.
VAT rates & regulations differ from state to
state. It has been observed that states often resort
to slashing these rates for attracting investors.
This results in loss of revenue for both the
central as well as state government.
The present structure of indirect taxes is very
complex in India. There are various definitions
of the same transaction in different States as well
as Central laws.
The current indirect tax structure is full of
uncertainties due to multiple taxes; there are
multiple forms and intern cumbersome
compliances.
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The drawbacks of current tax structure can be removed

with the introduction of GST. GST brings in uniform
GST is a dual indirect tax structure wherein
tax laws across all the states spanning across diverse both centre and states have the power to
industries. Here, the taxes would be divided between levy tax.
the Central and State government based on a predefined GST to be levied by the centre would be
and pre-approved formula. In addition, it would
become much easier to offer services and goods called as Central GST (CGST)
uniformly across the nation, since there wont be any GST to be levied by the States would be
additional state-levied tax. called as State GST (SGST)
Salient Features of GST:
An Integrated GST (IGST) would be levied
GST would be applicable on supply of goods and
services.
on inter-state supply and import of goods
GST rate is determined keeping in view that it would and services.
yield at least the same revenue to the centre and states Input Tax Credit in GST.
as collected through the various indirect taxes that Credit of IGST to be adjusted with IGST,
would be subsumed under GST. Such rate is known as CGST & SGST.
Revenue Neutral Rate (RNR). Credit of CGST to be adjusted with
Inter-state supply of goods and services for CGST& IGST.
consideration are to attract additional tax.
Credit of SGST to be adjusted with SGST
GST would be payable on the transaction value.
& IGST.
Transaction value is the price actually paid or payable
No differentiation between goods and
for the said supply of goods and/or services between
un-related parties. services as GST is levied at each stage in
the supply chain.
It subsumes major indirect taxes under one umbrella Exceptions for GST:
Central Taxes State Taxes
Central Excise Duty VAT / Sales tax Alcohol for human consumption
Five specified petroleum products (Crude
Additional Excise Duties Entertainment tax
oil, Petrol, Diesel, ATF & Natural Gas)
(unless it is levied by
The Excise Duty levied would be applicable from a date to be
the local bodies)
under the Medicinal and recommended by the GSTC.
Toiletries Preparation Act Luxury tax
Tobacco and tobacco products would be
Service Tax Taxes on lottery, subjected to GST. In addition the centre
betting and gambling would continue to levy Central Excise duty.
Additional Customs Duty,
commonly known as State, Cesses and 33 GST Laws:
Countervailing Duty (CVD) Surcharges in so far
One CGST law
as they relate to
Special Additional Duty of 31 SGST law for each of the states
supply of goods and
Customs 4% (SAD) including two Union Territories
services
Surcharges and cesses. One IGST law.
Entry tax not in lieu
of Octroi
 -4-
Registration: Threshold limit in GST: While achieving broad based
Businesses up to annual turnover of Rs.20 Lacs
tax structure under GST, Both empowered committee
(Rs.10 Lacs for special category states) would
be exempt from GST. and Central Government must ensure that lowering of
Rate of GST: threshold limit should not be a taxing burden on small
Rates in GST regime will be 0%, 5%, 12%, 18% & 28% (plus cess businessmen in the country.
on specified luxury and sin goods).
OBJECTIVES OF STUDY:
Challenges in implementation:
To understand the concept of proposed GST in India.
Training to Staff: GST is absolutely different from
To know the challenges in Implementation of GST in
existing system. It, therefore, requires that tax
India.
administration staff at both Centre and state to be trained
To compare the existing indirect taxes with Goods and
properly in terms of concept, legislation and Procedure.
Services Tax.
Additional Levy on GST: The Purpose of additional
To analyze the impact of Goods and services tax.
Levy is to compensate states for loss of revenue while
moving to GST. We acknowledge that fundamental RESEARCH METHODOLOGY
purpose of GST is to make INDIA as one state where Sources of data: Both primary and secondary data has been used
inter-state movement of goods is common. In this for the study.
situation, it would defeat the very purpose of GST in the Primary Data: Primary information has been gathered through
country. questionnaire to business people.
Secondary Data: Data is collected from various Reports, Books,
Revenue Neutral Rate: In the proposed GST regime, the Reputed Journals, Magazines, Newspapers, online sources and
revenue of the Government would not be the same in international publications.
Sample Size: Information related to study has been collected from
comparison with the present tax structure due to tax 60 respondents.
credit mechanism or otherwise. Therefore, an Sampling Method: Respondents are selected by using Random
Sampling Method.
adjustment in tax rate is required to avoid reduction in Tools & Techniques: The data collected are analyzed &
revenue of the Government. Hence, the rate of tax will interpreted by using simple percentage, tables & graph to draw
meaningful conclusion.
have to be suitably adjusted to ensure that tax revenue
does not reduce. This rate is termed as Revenue Neutral LIMITATION OF THE STUDY
Sample size was limited to only 60 respondents.
rate (RNR).
Time Constraint.
Co-operation among the states is required for the
smooth successful implementation between revenue
sharing, deciding the RNR.
Robust IT Network: Government has already
incorporated Goods and service tax network (GSTN).
GSTN has to develop GST portal which ensure
technology support for registration, return filing, tax
payments, IGST settlements etc. Thus there should be a
robust IT backbone.
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DATA ANALYSIS AND

INTERPRETATION 3. Do you believe that introduction of GST will
Do you think GST will have an impact on your result in better Input Tax Credit for your business
business? resulting in better profitability?
Particulars No of Respondents Percentage
Particulars No of Respondents Percentage Yes 40 66.67
Substantial Impact 30 50 No 20 33.33
Moderate Impact 10 16.67 Total 60 100
No Impact 15 25
Impact not assessed as yet 5 8.33
Total 60 100

From the above graph it is clear that introduction of

From the above graph it is clear that GST will have a GST will result in better ITC for the business resulting
substantial impact on the business. in better Profitability.

1. Grade the biggest challenge for your business 4. State the degree of readiness of your business
during the transition to GST regime. for the implementation of GST.
Particulars No of Respondents Percentage
Supply Chain Restructuring 25 41.67 Particulars No of Respondents Percentage
IT system Changes 15 25 1%-25% 10 16.67
Product Pricing 20 33.33 26%-50% 30 50
Total 60 100 51%-75% 15 25
Above 75% 5 8.33
Total 60 100

From the above graph it is clear that Supply Chain

Restructuring is considered as the biggest challenge From the above graph we can analyze &
during transition to GST regime interpret that the business sectors are ready to
the extent of 26%-50% for the implementation
of GST.
 -6-

5. Which area do you find that is affecting The business sectors are not completely
implementation- 5of- GST? ready for the implementation of GST as

Particulars No of Percentage they require some clarification on some

respondents
Lack of information 5 8.33 matters.
Lack of training facility 10 16.67
Proposed GST model is too technical & complicated 28 46.67 According to the majority of business people
It will Increase the startup Compliance Cost 17 28.33
Total 60 100
GST model is too technical & complicated,
where they need proper training facilities to
equip themselves.
SUGGESTIONS:
The Government should come forward in giving
proper training facilities & make the business people
comfortable for the implementation of GST.
As it is beneficial in the long run, the concerned
authorities have to create awareness among the
From the above graph it is clear that GST model is too common people along with the business.
technical & complicated which needs proper training
facilities for the people using it, so that they can overcome The Government should ensure that GST is
the difficulties. implemented throughout the country.

FINDINGS: The Government should act as change agent in

Majority of the respondents are of the convincing & accepting GST by all the states as it is

opinion that GST will have a substantial a uniform tax structure.

impact on their business. Public & Common people should also join their

Most of the respondents are of the opinion hands with the Government in implementation of

that Supply Chain Restructuring is new tax structure without their support it cannot be

considered as the biggest challenge during successful.

transition to GST regime.

Majority of the respondents are of the CONCLUSION:

opinion that introduction of GST will result
in better ITC for the business resulting in
better Profitability
The implementation of GST will have a positive impact on the
Indian Economy in the long run. If it is for the well being of the
society, everyone should encourage for the changes in the tax
structure & also the government should take suitable measures for
providing training facilities & creating awareness.
The major role is to be played by the Government as it has a
substantial impact on the business sector.
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ACHIEVEMENTS

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Chitra B S received the best paper presenter award. Chairman
and Secretary of Rajajinagar Education Society congratulated reactions to any of the article published.
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