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Muqbil Ahmar

Muqbil Ahmar writes on culture and poetry. He is a writer and theater activist, who wants to bring about harmony and amicability in the present day society. Music, poetry and good food are his passions.

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Decoding the Nuts & Bolts of the Goods and Services Tax in India

Understanding the Goods and Services Tax and its history

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The Goods and Services Tax law goes further for implementation by 1 July 2017. Parliament approved 4 supplementary legislations of the tax law. The Central GST Bill, 2017; the Integrated GST Bill, 2017; the GST (Compensation to States) Bill, 2017; and the Union Territory GST Bill, 2017 were passed despite amendments suggested by Opposition parties in the Lok Sabha. Rajya Sabha too followed suit.

Finance Minister, Arun Jaitley, has said the implementation of the GST, which will bring about a uniform tax system in India, will make prices of commodities "slightly cheaper." Jaitley added the GST rates will be contingent on whether a specific commodity was used by common man or an affluent person. He says once the tax regime is implemented, harassment of businesses and enterprises by various authorities will end and that there will be a single rate for a commodity throughout the country.

Understanding the Goods and Services Tax and its history

V P Singh, in 1986, started a tax reform process aimed at India’s indirect tax regime through the introduction of the Modified Value Added Tax (MODVAT). Post that a significant number of changes have already been made leading to the GST rollout in its current form this year.

“The GST will be a comprehensive indirect tax aimed at the manufacture, sale, and consumption of goods as well as services throughout the country. The new law will replace a plethora of taxes that Central and State governments levy separately. Taxes will be collected at every stage based on the input tax credit method, according to which taxes paid in the other states could be claimed,” said Shashank Dixit, CEO, Deskera, a global provider of cloud ERP—a software for tax computation.

The feature will allow GST-registered businesses to be able to claim tax credit equal to the value of the GST that an enterprise paid on the purchase of the goods or services in the other states as part of normal commercial activity. The Goods and services will not be distinguished and will be taxed at a flat rate throughout the supply chain till it reaches a consumer. The administration will rest with one authority to levy tax. Additionally, exports are to be zero-rated supply while imports are to be charged the same taxes as the ones on domestic goods and services (sticking to the destination principle).

Such merging of various Central and State taxes into a single tax would remove double taxation (also called cascading taxation)—helping facilitate a common national market. Industry experts feel the simplicity of tax structure would lead to improved and better enforcement as well as administration. Looked at from a consumers’ point of view, certain commodities and products may get costlier whereas some will get cheaper. Many feel that the GST rollout may lead to a reduction in the overall tax burden on goods—estimated at 25–30%. It is however a wait-and-watch till now.

"Today you have tax on tax, you have cascading effect. When all of that is removed, goods will become slightly cheaper," said FM Jaitley, while talking about the impact of the GST on prices. This introduction of GST should be a big step in the direction of the reforms of indirect taxation in India.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


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