Update on 12th June 2017:
On 11th June ’17, the GST Council revised the tax rate on 66 items that mostly include household goods and some other basic items. The Finance Minister, Arun Jaitley, is of the opinion that this step will reduce the financial burden on small and medium enterprises (SME) as they will not have to bare the brunt of meeting detailed compliances under GST. Out of the 133 items that were recommended by the industries, the Council has decided to lower the tax on 66 items. Revised rate items include School bags, Packaged food products, Insulin, textiles, Gems and Jewellery, Cutleries etc. The revenue- neutral rate, however, is still not applicable on Sanitary Napkins, despite the mass protest from women’s organisations and signed petitions.
Some revised items that were highlighted in the new GST proposal include:
· Composition scheme can be availed by the traders, manufacturers, and restaurants with a turnover of Rs. 75 lakhs.
· Colouring books tax revised to Nil
· Tax on Insulin, Cashew, Agarbatti, Gold Jewellery reduced to 5 percent
· 18 percent tax on movie tickets under Rs.100, 28% tax on tickets priced above Rs.100
The Goods and Services Tax (GST) is a revolutionary taxation reform that is set to float in throughout India on the 1st of July. GST is an attempt of the Central government to turn India into one common unified market. It is unique in the sense, it is calculated only on value addition at each stage on the supply of goods and services, unlike the present tax structure in which goods and services are taxed at different rates across the nation. The proposed framework would subsume the plethora of indirect taxes levied by the central and state governments on goods and services.
The implementation of GST is being regarded as the culmination of the impending indirect tax overhaul started by Vishwanath Pratap Singh in 1986, the then Finance Minister. He has, however, expressed concern in a letter to the chairman of the GST Council, Finance Minister Arun Jaitley, about the efficiency and expertise of the Central Excise Department Officials to enforce GST, that has diminished the control of State Commercial Department over the tax scheme.
On 29th of March, 2017, ‘One Nation, One Tax, One Rate’ goal of the Central government inched closer to reality with the Lok Sabha passing the four Bills related to GST, namely, Central GST Bill, Integrated GST Bill, Union Territory GST Bill and GST Compensation Bill. GST is expected to limit cases of tax evasion, and unfair tax benefits as all the transactions will be taxed at identical rates in the entire country. It is also anticipated that it will boost GDP growth by approximately 2 percent and bring down inflation.
The rollout of GST will include four different tax rates along with some zero- rated items and exempted goods. The proposed tax rates were fixed by the GST panel at 5, 12, 18 and 28 percent. Half of the items in the consumer price index will not be taxed to safeguard interests of the poor. Essential items such as food grains would be zero- rated to help the less fortunate sustain their livelihood. The lowest rate of 5% is for the items of mass consumption while the highest rate of 28% is for the luxury goods. The standard tax rates of 12 to 18 percent would include Electronic items, home furnishings etc. There would be an additional cess as a mode of compensation apart from the levied highest tax on some items such as luxury cars, tobacco, sanitary napkins and aerated drinks. Around 80 items that are exempted from GST include edible Vegetables, Meat, Books, Salt, supplies to the Canteen Stores Department, Non- mineral water etc. Some items that are classified under the zero- rated category include Bread, Stamps, Milk, and a few Petroleum products.
The Indian GST system follows a dual model and allows both the Central and State governing bodies to administer taxation. All kinds of transactions such as sales, leases, transfers, and imports will be taxed under the GST umbrella. Transactions that are made within the territory of a state would be applicable to be levied with both, the Central GST (CGST) and the State GST (SGST). An integrated GST (IGST) would be applicable on inter- state transactions. IGST will be levied by the Central government. In the GST model of tax collection, consumption is given preference over production and has the provision of paying the tax to the state in which the goods and services are used or consumed, rather than the state in which they were produced.
The proposed GST rates have also invited some controversy even before its implementation. The categorization of Sanitary Napkins and Glucose biscuits under the luxury items section has caused much outrage throughout the country. Another factor that invited major backlash is the fact that there is a restriction on individual states to flexibly increase or decrease taxes to reap economic benefits. It is also being said that IGST would complicate the tax collection process for state governments as it will not allow the states to directly collect tax owed to them by the Central Government.
It is speculated that GST will benefit the consumers by increasing transparency in taxation. Consumers will not be forced to pay ‘tax on tax’ and hence, save a substantial amount of money. It is presumed to be beneficial for businesses and other industries as well, as it will increase the uniformity of tax rates and structures and provide direct profits to manufacturers and exporters. And lastly, it is also expected to stabilize and pave the path to a better economy as it is likely to help the State and Central governments by enabling easy administration, control on leakage of input tax credit and generating higher revenue.