IMPACT OF GST IMPLEMENTATION

Author: Rishav Singla

 

Goods and Services Tax (GST) is an indirect tax applicable throughout India which replaced multiple taxes levied by the central and state governments. It was introduced by One Hundred and First Amendment Act 2017, following the passage of Constitution 122nd Amendment Bill. The GST is governed by a GST Council and its Chairman is the Finance Minister of India.Under GST, goods and services are taxed at the following rates, 0%, 5%, 12% and 18%. There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold. In addition a cess of 15% or other rates on top of 28% GST applies on few items like aerated drinks, luxury cars and tobacco products.The concept of GST was visualized for the first time in 1999. On 8 August 2016, the Constitutional Amendment Bill for roll out of GST was passed by the Parliament, followed by ratification of the bill by more than 15 states and enactment of the bill in early September. Goods and Services Tax (GST) was finally launched on the midnight of 30 June 2017 by the NarendraModi, though the process of forming the legislation took 17 years (since 2000 when it was first proposed). The launch was marked by a historic midnight (30 June – 1 July 2017) session of both the houses of parliament convened at the Central Hall of the Parliament but it was boycotted by the opposition due to the predicted problems that it was bound to lead to for the middle and lower class Indians.

 

 

GOODS AND SERVICES TAX(GST)[2] :-

The historic GST or goods and services tax has become a reality. GST, which embodies the principle of “one nation, one tax, one market” is aimed at unifying the country’s $2 trillion economy and 1.3 billion people into a common market. For corporates, the elimination of multiple taxes will improve the ease of doing business. And for consumers, the biggest advantage would be in terms of a reduction in the overall tax burden on goods. India’s GDP will be benefitted and extra resources will be used for welfare of poor and weaker section.Finance reduced cost because of availability of GST credit on items are not available, the price of services will come down which will benefit the consumers. GST replaces multiple taxes, multiple interfaces, multiple compliances regime into one. India is moving towards tax-compliant society where filing of returns will not just be easy but transparent too. This tax compliance will lead to higher revenue for both the central and state governments and enable them to fulfil their social objectives. Small traders with annual turnover less than Rs. 20 lakh are exempt from GST registration. In further relief to small businesses, they will benefit from not having to meet with detailed compliances under GST. If businesses opt for the composition scheme, traders with turnover below Rs. 75 lakh will have to pay 1 per cent tax on turnover. Manufacturers will have to pay 2 per cent while restaurant businesses will have to pay 5 per cent.GST Council has set up 18 sectoral groups to iron out sectorial issues faced by trade and industry to ensure smooth transition to GST. Sectors include banking, telecom, IT/ITES, financial, textile, oil and gas, gems and jewellery, transport and logistics, Small and medium enterprises, media & entertainment, drugs & pharmaceuticals, mining, handicrafts, travel & tourism, big infra, e-commerce, food processing.A single GST replaced several existing taxes and levies which include: central excise duty, services tax, additional customsduty, surcharges, state-level value added tax and Octroi. Other levies which were applicable on inter-state transportation of goods has also been done away with in GST regime

 

 

COMPOSITION OF GST COUNCIL[3] :-

The Goods & Services Tax Council {GST Council} has been created in September 2016 under Article 279-A of the Constitution of India. The main objective of GST is to develop a harmonized national market of goods and services. It has its Secretariat office in New Delhi.

 

GST Council is a federal forum with both centre and states in India on board. It is made of:

  • The Union Finance Minister (as Chairman),
  • The Union Minister of State in charge of Revenue or Finance, and
  • The Minister in charge of Finance or Taxation or any other Minister, nominated by each state government.

The decisions of the GST Council are made by three-fourth majority of the votescast. The centre has one-third of the votes cast, and the states together have two-thirdof the votes cast. Each state has one vote, irrespective of its size or population.

Apart from the above:

  • The Secretary (Revenue) will be appointed as the Ex-officio Secretary to the GST Council.
  • The Chairperson, Central Board of Excise and Customs (CBEC), will be included as a permanent invitee (non-voting) to all proceedings of the GST Council.
  • One post of Additional Secretary to the GST Council in the GST Council Secretariat (at the level of Additional Secretary to the Government of India) will be created.
  • Four posts of Commissioner in the GST Council Secretariat (at the level of Joint Secretary to the Government of India) will also be created.

 

 

Functions of GST Council[4] :-

As per Article 279A (4), the Council will make recommendations to the Union and the States on important issues related to GST, like

  • Taxes, cesses, and surcharges to be subsumed under the GST;
  • Goods and services which may be subject to, or exempt from GST;
  • The threshold limit of turnover for application of GST;
  • Rates of GST;
  • Model GST laws, principles of levy, apportionment of IGST and principles related to place of supply;
  • Special provisions with respect to the eight north eastern states, Himachal Pradesh, Jammu and Kashmir, and Uttarakhand; and
  • Other related matters.

 

GST rates will include the floor rates with bands, special rates for raising additional resources during natural disasters / calamities, special provisions for certain States, etc.

GOODS AND SERVICES NETWORK :-

As per the government website on GST, “Goods and Services Tax” Network (GSTN) is a nonprofit organisation proposed to be formed for creating a website / platform for all the concerned parties related to the GST, namely stakeholders, government and taxpayers to collaborate on a single portal. When up and running, the portal is supposed to be accessible to the central government which allows it to track down every transaction on its end while taxpayers are advertised to have the ability of connecting this to their tax returns. However its efficacy and efficiency is yet to be tested. The IT network was touted to be developed by unnamed private firms.[5]Goods and Services Tax Network (GSTN) is a Section 8 (under new companies Act, not for profit companies are governed under section 8), non-Government, private limited company. It was incorporated on March 28, 2013. The Government of India holds 24.5% equity in GSTN and all States of the Indian Union, including NCT of Delhi and Puducherry, and the Empowered Committee of State Finance Ministers (EC), together hold another 24.5%. Balance 51% equity is with non-Government financial institutions. The Company has been set up primarily to provide IT infrastructure and services to the Central and State Governments, tax payers and other stakeholders for implementation of the Goods and Services Tax (GST). The Authorised Capital of the company is Rs. 10,00,00,000 (Rupees ten crore only) The GST System Project is a unique and complex IT initiative. It is unique as it seeks, for the first time to establish a uniform interface for the tax payer and a common and shared IT infrastructure between the Centre and States[6].

RELATIONSHIP OF GSTN WITH TAX ADMINISTRATORS[7] :-

The common GST Portal developed by GSTN will function as the front-end of the overall GST IT eco-system. The IT systems of CBEC and State Tax Departments will function as back-ends that would handle tax administration functions such as registration approval, assessment, audit, adjudication etc. Nine States and CBEC are developing their backend systems themselves. GSTN is doing the backend for 20 States and 5 UTs. GSTN has been interacting with CBEC and States for ensuring mutual interaction between the front-end that would be operated by GSTN and the back-ends of the tax administrations.

ROLE OF GSTN IN PAYMENT FOR TAXPAYER[8] :-

Under GST, all challans will have to be prepared by taxpayers on the GST portal only. This has been done to ensure that bank tellers do not enter wrong TIN number from hand written challans as happens sometimes today. Once Challan is created with GSTIN, name of taxpayer, amount under various tax heads and sub-heads, the taxpayer has following two options to pay the tax:

  1. He can choose online option under which, he will have to choose one of the agency banks (i.e. banks authorized by RBI to collect GST on their behalf) from the dropdown menu and after that he will be taken to the website of chosen bank to make payment by providing user ID and password of bank. After completion of payment, he will be brought back to GST portal from where he can download the paid challan, which is generated by GST System on confirmation from the Bank.
  2. The other option of tax payment is to print the challan and present the same in the relevant bank for ‘Over the Counter Payment’ (OTC). The bank after realising the payment will transfer the money to RBI and send confirmation of payment to GST Portal for accounting.

 

 

ROLE OF GST IN FILING OF RETURNS[9] :-

Under GST, there will be common return for CGST, SGST and IGST, eliminating the need to file separate tax returns with Central and state GST authorities. Checking of claim of Input Tax Credit (ITC) is one of the fundamental pillars of GST, for which data of Business to Business (B2B) invoices have to be uploaded and matched. The Common GST Portal created and managed by GSTN will do this matching on the basis of invoice level data filed as part of return by all taxpayers. Similar exercise will be done for inter-state supplies where goods or services will move from the state of origin to the state of consumption and so will the taxes. The claim of IGST and its utilization will be settled based on returns filed at the Common GST portal.

 

ROLE OF GST IN REGISTRATION APPLICATION[10]:-

Under GST, the registration of taxpayers will be common under Central and State GST and hence one place of filing application for the same i.e. the Common GST portal. The application so received will be checked for its completeness by the GST portal, which will also carry out validation of data like PAN from CBDT, CIN/DIN from MCA and Aadhar of promoters, if provided, from UIDAI. After completion of validation, the registration application will be shared with respective central and state tax authorities. Query of tax authorities, if any and their final decision will be communicated to GST portal which in turn will communicate the same to the taxpayer.

 

 

 

LEVY[11] :-

GST is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of goods and/or services. India adopted a dual GST model, meaning that taxation is administered by both the Union and State Governments. Transactions made within a single state will be levied with Central GST (CGST) by the Central Government and State GST (SGST) by the government of that state. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government. GST is a consumption-based tax, therefore, taxes are paid to the state where the goods or services are consumed not the state in which they were produced. IGST complicates tax collection for State Governments by disabling them to collect the tax owed to them directly from the Central Government.

 

 

RATE CLASSIFICATION :-

 

RATE CLASSIFICATION FOR GOODS[12] :-

 

 

 

 

Exempt 5% 12% 18% 28% 28% + Cess
Food grains
Cereals
Milk
Jaggery
Common Salt
Coal
Sugar
Tea & Coffee
Drugs & Medicine
Edible Oil
Fruit Juices
Vegetable Juices
Beverages containing milk
Jams
Kitchenware
Hair Oil
Soap
Toothpaste
Glass fibre
Air conditioner
Refrigerators
Small cars
(1% / 3% cess)Luxury cars
(15% cess)

 

 

RATE CLASSIFICATION FOR SERVICES[13] :-

 

Exempt 5% 12%-18% 28%
·         Education

·         Healthcare

·         Residential

·         accommodation

·         Hotel/ Lodges with tariff below INR 1000

 

·         Goods transport

·         Rail tickets (other than sleeper class)

·         Economy class air tickets

·         Cab aggregators

·         Selling space for advertisements in print media

·         Works contract

·         Business Class air travel

·         Telecom services

·         Financial services

·         Restaurant services

·         Hotel/ Lodges with tariff between INR 1000 and 7500

·         Cinema tickets

·         Betting

·         Gambling

·         Hotel/ Lodges with tariff above INR 7500

Only rates of select goods and services have been mentioned here

 

GST rate on pearls, precious or semi-precious stones, diamonds (other than rough diamonds), precious metals (like gold and silver), imitation jewellery, coins – 3%

GST rate on rough diamonds – 0.25%

 

 

 

 

APPROACH TO GST[14] :-

GST is a destination-based tax that replaces the earlier Central taxes and duties such as Excise Duty, Service Tax, Counter Veiling Duty (CVD), Special Additional Duty of Customs (SAD), central charges and cesses and local state taxes, i.e., Value Added Tax (VAT), Central Sales Tax (CST), Octroi, Entry Tax, Purchase Tax, Luxury Tax, state cesses and surcharges and Entertainment tax (other than the tax levied by the local bodies). Petroleum products, i.e., petroleum crude, high speed diesel, motor spirit, aviation turbine fuel, natural gas and Alcohol for human consumption has been kept outside the purview of GST.

A well-designed GST in India is expected to simplify and rationalize the current indirect tax regime, eliminate tax cascading and put the Indian economy on high-growth trajectory. The GST levy may potentially impact both manufacturing and services sector for the entire value chain of operations, namely procurement, manufacturing, distribution, warehousing, sales, and pricing.

 

 

TAXES TO BE SUBSUMMED[15] :-

GST would replace most indirect taxes currently in place such as:-

Central Taxes State Taxes
·         Central Excise Duty [including additional excise duties, excise duty under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955]

·         Service tax

·         Additional Customs Duty (CVD)

·         Special Additional Duty of Customs (SAD)

·         Central Sales Tax ( levied by the Centre and collected by the States)

·         Central surcharges and cesses ( relating to supply of goods and services)

·         Value Added Tax

·         Octroi and Entry Tax

·         Purchase Tax

·         Luxury Tax

·         Taxes on lottery, betting & gambling

·         State cesses and surcharges

·         Entertainment tax (other than the tax levied by the local bodies)

·         Central Sales Tax ( levied by the Centre and collected by the States)

 

 

BENEFITS OF GST[16] :-

GST has been envisaged as a more efficient tax system, neutral in its application and attractive in distribution. The advantages of GST are:

  • Wider tax base, necessary for lowering the tax rates and eliminating classification disputes
  • Elimination of multiplicity of taxes
  • Rationalization of tax structure
  • Harmonization of centre and State tax administrations
  • Automation of compliance procedures to reduce errors and increase efficiency

 

SHAKING UP CORPORAL OPERATIONS[17] :-

The new tax regime will force many companies to restructure their operations. GST will make it impossible for firms to evade taxes. Big companies stand to benefit as they have a supply chain in order and can offset taxes paid on inputs.Smaller firms may end up spending more as compliance cost will rise. While the impact on companies varies following existence of production units in the excise exempted zones, implementation of GST should result in cost savings in the supply chain network and expedite a shift from unorganized to organised trade.

 PASSING ON THE BENEFIT OF LOWER TAX[18]:-

While the GST Council, headed by finance minister ArunJaitley, will keep a close vigil on whether companies are passing on the benefit of lower taxes to consumers, experts expressed doubt on the implementation of anti-profiteering norm. While GST laws include anti-profiteering measures—the benefits of the reduction in the tax rate and input credit shall be passed on by a commensurate reduction in prices—such measures are difficult to implement and would be a retrograde step, similar to price controls, if implemented in haste. Companies may use the savings from tax outgo under the GST regime to improve profit margin to some extent and invest the rest in building new capacities.

INFLATION MAY REMAIN LOW :-

Analysts have no doubt that inflation will remain low as GST rates on essential goods such as food grain, household consumer items and essential services have been either exempt or kept lower.  GST does have the intended effect of increasing tax compliance, the tax burden would increase. This could lead companies to pass the costs of higher tax compliance on to the consumer at a later stage.

Most of the services are not accounted in the consumer price CPI inflation basket and hence the higher GST rates may not get reflected on the retail price movement as measured by the government data. There are services like health, education, miscellaneous segment, transportation are outside the ambit of GST.

 

ECONOMIC GROWTH MAY NOT JUMP IMMEDIATELY[19] :-

Economists are not sure of the immediate impact of GST and some even say it may impeded growth in the short term as big companies reorganise their businesses and as small firms lose revenue. The GST implementation will be disruptive as there will be a major change in the supply chain. Tax reform will be beneficial to the economy in the medium to long term. GST is unlikely to be a “positive” for economic growth in the short term, the reform will improve the ease of doing business, bolster investor sentiment and lure more foreign investment in coming years.

 

EFFECTS AND IMPACTS[20] :-

The introduction of the GST increased the costs of most consumer goods and services in India including food, hotel charges, insurance and cinema tickets. Upon its introduction in the country, GST led to a number of protests by the business community, primarily due to an increase in overall taxes and hence the prices of goods. Check posts across the country were abolished ensuring free and fast movement of goods.

 

IMPACT ON REAL ESTATE[21] :-

With the launch of GST ‘how it works’ might already be on your mind. Since the GST is to subsume multiple indirect taxes, it will simplify tax compliance and minimise the scope for double taxation. So, there is clear reason for home buyers to cheer, even if they have to pay slightly more in case the standard GST rate is high. If there is a clear uniform rate for one tax that includes everything that they need to pay in taxes to authorities, the whole payment process would become very convenient for the buyer. In such a case, even a higher rate would be more acceptable to him than a lack of clarity. Since the GST is actually expected to bring down the project cost for developers, this would mean homes would, in fact, become cheaper.There are many taxes and duties that a developer pays on the procurement side, such as Customs duty, Central Sales Tax, excise duty, entry tax, etc. These are subsequently passed on to the final pricing of the units and, thereby, to the buyer. As GST proposes to roll multiple taxes into one, the cost of construction will come down. This will bring more liquidity into the market and boost home sales. Free flow of credit for developers will also translate into an increase in margin in their hands. For developers, the actual tax effect will be lower than the existing one mainly due to the input tax credit on raw materials that builders get against payment of taxes on inputs like steel and cement. Through market mechanism, GST will impart more transparency to the sector, which faces a perception issue. GST would provide an audit trail for better control and monitoring of the sector.

 

IMPACT ON WHOLESALERS AND RETAILERS[22] :-

Under the current indirect tax regime, wholesalers and retailers usually escape the tax liability as there is no mechanism by which their actual purchase and sale can be traced. Most of their transactions are done in black, meaning no invoice is issued to the buyer, and eventually no entry is posted in the books for such sales.
These taxpayers usually leverage the tax liability evaded and undercut the market to gain in volume. Their margin of profit remains as low as 1 percent. Since under the GST regime, every invoice pertaining to taxable supply has to be uploaded on GSTN’s common portal and has to be accepted by the buyer, wholesalers and retailers will now be unable to escape their tax liability. The only possibility for tax evasion would arise if the entire supply chain is outside the tax network and did not file a return under GST law, which is very unlikely. Post GST implementation, these wholesalers and retailers will not be able to evade tax as the complete value chain will be tracked online. This may also result in a change in the modus operandi of the businesses working on thin margins. Also, we may observe a steep rise in demand for goods as a result of re-stocking by wholesalers and retailers.

 

IMPACT ON INDUSTRIES :-

The cotton textile industry is also feeling positive. The move to bring the entire cotton textile value chain at the lowest slab rate of 5% GST. Industry had been suffering with numerous taxes and different types of cess which were adding to the cost indirectly. The GST will incentivise exports, help expand the tax net, contribute to the ease of doing business and accelerate new business ventures. Input tax credit will curb inflation by avoiding tax-on-tax. We believe that most businesses would pass on the benefits of input tax credit to consumers so that inflation would be curbed.

 

IMPACT ON EXPORTS:-

The Federation of Indian Export Organisations (FIEO) has approached the government to reduce the restrictions on using duty credit scripts.  A duty credit scrip is an incentive provided by the government to exporters. It is given to promote exports by providing tax incentives to exporters. It is a pass that allows holders to import goods by not paying a certain amount in import duties. But with the implementation of GST, the new rules say that these scrips can now be utilised only for payment of basic Customs duty and not Integrated Goods and Services Tax (IGST). Earlier, manufacturing exporters who import raw material for export purposes were allowed to utilise these scrips for payment of Customs, excise duty and service tax.

Exporters are worried as they have to arrange funds for payment of GST, which will be refunded to them upon exports. This may lead to a blocking of funds for over six months in many cases, thus affecting competitiveness of exports.

 

 

 

IMPACT ON JEWELLERY[23] :-

It doesn’t mean that all throughout the rate will be 3%. When we delve a little deeper, the effect of the tax is a little more complex. There are two important GST rates which will affect the industry. The first is the 3% tax on gold products, such as jewellery. In addition, there is an 18% tax on services that will apply to firms and individuals providing manufacturing services across the gold supply chain. This is a significant part of the industry. Taking these two rates into account, our analysis of the supply chain indicates the effective tax rate consumers face could increase to between 13.5 -14%. This range depends on whether the jewellery is manufactured in-house or is outsourced. Firms manufacturing jewellery in-house will have an advantage.This, however, overlooks the broader tax efficiencies GST will bring. A key benefit of the new regime is that a firm can offset the tax it pays against its revenues using input tax credits.Any tax efficiencies gained in the supply chain will be passed on to the consumer. One might be concerned firms could use input tax credits to fatten their margins. But anti-profiteering legislation will ensure this is policed, and that firms pass on the benefits to the end consumer.

Consumers currently get a bad deal. The industry is highly fragmented, dominated by small independent retailers where under-carating is rife. While most analysts think of India’s jewellery market as being dominated by 22k, the reality is that most of the jewellery sold has less gold in it than advertised. GST will bring greater transparency to the supply chain, and bring more of the gold market into the formal sector. We expect this to make it harder for retailers to under-carat their customers.

GST represents a radical step forward for India’s economy. While it could present short-term challenges to the gold industry, we believe it will boost the economy and make the gold industry more transparent to the benefit of gold buyers.

 

CONCLUSION :-

The GST System is basically structured to simplify current Indirect Tax system in India. A well designed GST is an attractive method to get rid of deformation of the existing process of multiple taxation also government has promised that GST will reduce the compliance burden at present there will be no distinction between imported and Indian goods & they would be taxed at the same rate. Many Indirect Taxes like Sales Tax, VAT etc., will be finished because there will be one tax system i.e. GST, that will reduce compliance present burden. GST will face many challenges after its implementation and will result to give many benefits. In overall through this study we conclude that GST play a dynamic role in the growth and development of our country.

 

REFRENCES :-

  1. http://www.ndtv.com/india-news/gst-is-here-how-it-will-impact-you-in-10-points-1719130
  2. http://www.ey.com/in/en/services/ey-goods-and-services-tax-gst
  3. https://cleartax.in/s/impact-gst-wholesalers-retailers
  4. https://www.jaagore.com/simplify/the-impact-of-GST-goods-and-services-tax-in-india
  5. http://www.hindustantimes.com/business-news/gst-impact-on-economy-five-things-to-watch-out-for/story-URnyE17tM0XyAFuEP4btVK.html
  6. http://economictimes.indiatimes.com/markets/stocks/news/how-gst-will-impact-sectors/cement/slideshow/59408721.cms
  7. https://www.quora.com/How-will-the-implementation-of-GST-Bill-effect-the-Gold-prices-in-India
  8. http://ijissh.org/wp-content/uploads/2017/01/IJISSET-010204.pdf
  9. https://en.wikipedia.org/wiki/Goods_and_Services_Tax_(India)
  10. http://www.gktoday.in/blog/composition-functions-of-gst-council/
  11. http://www.gstn.org/about-us/
  12. http://economictimes.indiatimes.com/markets/stocks/news/after-hours-fmcg-shines-indigo-tumbles-cdsl-makes-stellar-debut/52-week-high/slideshow/59386791.cms

 

 

 

[1]https://en.wikipedia.org/wiki/Goods_and_Services_Tax_(India)

[2]http://www.ndtv.com/india-news/gst-is-here-how-it-will-impact-you-in-10-points-1719130

[3]http://www.gktoday.in/blog/composition-functions-of-gst-council/

[4] Ibid

[5]https://en.wikipedia.org/wiki/Goods_and_Services_Tax_(India)

[6]http://www.gstn.org/about-us/

[7]http://www.gstn.org/about-us/

[8]Ibid

[9] Ibid

[10] Ibid

[11]https://en.wikipedia.org/wiki/Goods_and_Services_Tax_(India)

[12]http://www.ey.com/in/en/services/ey-goods-and-services-tax-gst

[13]http://www.ey.com/in/en/services/ey-goods-and-services-tax-gst

[14]http://www.ey.com/in/en/services/ey-goods-and-services-tax-gst

[15] Ibid

[16] Ibid

[17]http://www.hindustantimes.com/business-news/gst-impact-on-economy-five-things-to-watch-out-for/story-URnyE17tM0XyAFuEP4btVK.html

[18] Ibid

[19]http://www.hindustantimes.com/business-news/gst-impact-on-economy-five-things-to-watch-out-for/story-URnyE17tM0XyAFuEP4btVK.html

[20]https://en.wikipedia.org/wiki/Goods_and_Services_Tax_(India)

[21]http://economictimes.indiatimes.com/markets/stocks/news/how-gst-will-impact-sectors/brokers-and-equity-investments/slideshow/59408723.cms

[22]https://cleartax.in/s/impact-gst-wholesalers-retailers

[23]https://www.quora.com/How-will-the-implementation-of-GST-Bill-effect-the-Gold-prices-in-India




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