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GD TOPIC : ALL ABOUT GST

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JANUARY 20 , 2017

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GD Topic : All About GST

For:

The GST (Goods and Services tax) is basically an indirect tax that brings most of the taxes
imposed on most goods and services, on manufacture, sale and consumption of goods and
services, under a single domain at the national level. The GST is a consolidated tax based on a
uniform rate of tax fixed for both goods and services and it is payable at the final point of
consumption. So, this GST bill is going to make life simpler as it has replaced 17 indirect tax
levies and compliance costs will fall due to this bill.

Separate taxes for goods and services, which is the taxation system earlier, 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.

The GST reform is expected to bump up GDP by about a percentage point or even more. HSBC
estimates an 80 basis point rise in GDP growth over 3-5 years. NCAER pegs this at 0.9-1.7%
thanks to the elimination of tax cascading.

Revenue will also get a boost due to GST bill. Evasion is all set to drop as input tax credit will
encourage suppliers to pay taxes. States and Centre will have dual oversight. The number of
tax-exempt goods will decline.

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. Earlier, the tax was
fragmented along state lines, pushing costs up 20-30%.

Logistics, inventory costs will fall as a result of GST. Manufactured goods could become
cheaper resulting in lower logistics and tax costs. There will be slow movement of trucks at
checks at state borders. In India, they travel 280 km a day compared with 800 km in the US.

GST bill will also result in investment boost in India. For many capital goods, input tax credit
is not available. Full input tax credit under GST will mean a 12-14% drop in the cost of capital
goods. Expected: A 6% rise in capital goods investment, 2% overall.

GST bill is also going to promote Make in India policy. Manufacturing will get more
competitive as GST addresses cascading of tax, inter-state tax, high logistics costs and
fragmented market. It will also result in increased protection from imports as GST provides for
appropriate countervailing duty.

GST bill will be beneficial for less developed states of our country. The current 2% inter-state
levy means production is kept within a state. Under the GST national market, this can be
dispersed, creating opportunities for others.

GST bill will result in freeing up online state restrictions and levies that has complicated the
entire e-commerce. Some sellers do not even ship to particular states. All this will end with GST.

GST bill will also help to build a transparent and corruption-free tax administration. Earlier, a
tax was levied when a finished product moves out from a factory, which was paid by the
manufacturer, and tax was again levied at the retail outlet when sold. GST bill is now going to
solve this problem.

GST is beneficial for centre as well as states. According to experts, by implementing the GST,
India will gain $15 billion a year. This is because, it will promote more exports, create more
employment opportunities and boost growth. It will divide the burden of tax between
manufacturing and services.

In the GST system, taxes for both Centre and State will be collected at the point of sale. Both
will be charged on the manufacturing cost. Individuals will be benefited by this as prices are
likely to come down and lower prices mean more consumption, and more consumption means
more production, thereby helping in the growth of the companies.

Against:
 The Service Tax in India was 15% but the proposed GST is about 18-20%. So, all the services
will become costlier due to introduction of GST bill.

Our aviation industry is witnessing much awaited growth with increasing domestic traffic.
GST might stagnate its growth since flying will become costly. Service Tax on fares currently
range between 6% and 9% (depending on the class of travel). With GST, the rate will surpass
15%, if not 18%, effectively doubling the tax rate.

Our country has the lowest insurance penetration in the world (less than 5% of Indian
population & half of the global average). GST will make the insurance products dearer. Life,
health & motor insurances will begin to cost more from April 2017 as taxes will go up by up to
300 basis points.

Banking and financial sector might take a hit as currently, the effective tax rate in the sector is
14%, which is levied only on fee component (and not interest) of the transaction. Under GST,
effective tax rate on fee-based transactions is expected to increase to 18-20%. With the
implementation of GST, a moderate increase in the cost of financial services such as loan
processing fees, debit/credit card charges, insurance premiums, etc. is expected.

There are some retail products where the Tax rate is only 4 % like Garments and clothes but
with GST, these items will become costlier. Moreover, If actual benefit is not passed to
consumer and seller increases his profit margin, the prices of goods can also see a rising trend.

GST bill is going to affect our inter-state relations. The GST system will change our taxation
principle from origin-based to destination based. This change will lead to a shift in revenues
from the production-heavy States to the consumption-heavy States. For instance, Delhi has a
huge consumer base that imports goods from different States including Haryana, a State which
generates a high volume of industrial output. With the GST, the Haryana government may lose a
large portion of its revenues to Delhi.

Rates cannot be adjusted to the specific needs of a state due to GST bill. This can lead to
various problems for a particular state. For instance, earlier, to foster regional equality, the
Centre sometimes reduces the Excise chargeable in particular states (not just SEZs) like Sikkim
and Himachal Pradesh, to give them a competitive advantage in attracting investments. These
States, left to themselves, will be stuck in a vicious cycle of low development therefore low
investment therefore low development due to implementation of uniform tax system.

Earlier, some States used to enjoy an inelastic supply of investments. With the introduction of
GST, these states will lose out the extra revenues they could have earned, if they were allowed
to set rates for themselves.

Earlier, some states used to exempt goods that are of local importance to that State
examples- Uttar Pradesh does not tax Banarasi Saree as they are of cultural significance, and In
Maharashtra, VAT is not levied on Solapuri Chaddars. This redemption in tax will not be possible
after introduction of a uniform tax system.

The GST will be non-applicable to the tax on petroleum products, electricity, alcoholic liquors,
and stamp duty on immovable property. Instead, the current system of Excise and VAT/CST will
remain applicable to these items. If these exemptions are not phased out timely, it can have
cascading effects.

Crude Products form a majority import value in the Indian ecosystem. However, key petroleum
 products like crude, natural gas, high-speed diesel and ATF have been kept out of GST,
compliance costs are likely to rise because of dual indirect tax mechanism.

Petroleum is an indispensable input that powers machinery in the manufacture of every

commodity. If it is not under the GST system, the input tax paid on it (VAT/CST) will be ineligible
to be set off against the output SGST/CGST/IGST receives from the consumer. Therefore, there
will be cascading of tax that will form a part of the manufacturers cost.

GST would impact negatively on the real estate market. It would add up to 8 percent to the
cost of new homes and reduce demand by about 12 percent.

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