A just and viable tax regime is vital for the sustainable economic growth and fiscal consolidation of any economy in the world.
This assumes a greater importance in a developing economy like India where although we have a high demographic dividend, we are yet to convert it to the proportionate human capital, which will in turn benefit the social and economic growth of the country.
In order to facilitate this, we need a conducive environment as we push forward towards becoming a better developed nation.
In order to become a more economically developed nation, we need a transparent, just, equitable and fair taxation system that is easy to administer.
The essential rationale behind this is that the taxation system should be reasonable and non-discriminatory in respect to both the direct taxes payable by individuals and the indirect taxes payable by corporations and industries so as to make them more tax-compliant and bring the larger populace in the taxation net to in turn aid the government in taking development projects.
Goods and Services Tax (GST) is a reformatory legislation which is a single tax on the supply of goods and services, right from the manufacturer to the consumer.
Credits of input taxes paid at each stage will be available in the subsequent stage of value addition , which makes GST essentially a tax only on value addition at each stage.
The final consume will thus bear only the GST charged by the last dealer in the supply chain with set-off benefits at all the previous stages.
NEED FOR GST LEGISLATION
The tax-GDP ratio of a country is an important indicator that helps understand how much tax revenue is being collected by the government as compared to the overall size of the economy and unfortunately, this ratio is a dismal low for India despite having years of high growth, the lowest in BRICS countries.
From 2001 to 2015 the Indirect Tax-GDP ratio has increased from 10.28-11.6 only and therefore there is an urgent need to raise this ratio.
The burden of regressive taxes is another issue that the GST aims to redress. Direct taxes are progressive taxes as they are contingent on the ability of the taxpayer to pay.
In India, more than 60% of the total tax collected is accounted for indirect taxes, implying that the tax structure is extremely regressive and since the rich and poor are subject to the same tax rate which is unfair and therefore the indirect taxes need to be hauled.
Furthermore, the sharing of financial resources and revenue from the tax system between the Centre and the State is made simpler by the GST tax reform.
Furthermore the cascading of taxes with both the Centre and State levying taxes as the taxes levied by the State Government are not available to set off against the taxes being levied by the State Governments.
At the central level GST will subsume Central Excise Duty, Additional Excise Duty, Service Tax, Additional Customs Duty (Countervailing Duty), and Special Additional, Duty of Customs. At the State level, Subsuming of State Value Added Tax/ Sales Tax, Entertainment Tax, Central Sales of Tax, Octroi and Entry Tax, Purchase Tax, Luxury tax, Taxes on lottery, betting and gambling.
Also, the variety of VAT tax laws in the country with disparate tax rates and dissimilar tax practices divides the country into separate economic spheres thereby creating tariff and non tariff barriers thereby hindering the free flow of trade in the country.
This in turn also constitutes high compliance cost for the taxpayers disadvantageous to economic growth of a country.
GSTN, the Goods and Services Tax Network:
Along with GST, there are a number of reforms that the Government is bringing in to strengthen the manufacturing bone of India.
GSTN, the Goods and Services Tax Network is being setup with the objective to provide the requisite IT infrastructure and services for the proper roll-out and implementation of GST.
It is a company under Section 25 which implies that its is a non government, private limited company which will not work for profit.
The division of powers is such that the Central Government holds 24.5% equity in GSTN while the states inclusive of NCT of Delhi and the union territory of Puducherry and the Empowered Committee of the State Finance Ministers collectively hold another 24.5%, the remaining 51% vests with other Government financial institutions.
This company will work towards providing a proficient GST Eco-System. It will encourage and collaborate with GST Suvidha Providers to roll out GST applications for providing simplified services to the stakeholders.
It is also entrusted to carry out research in order to conclude better and best practices and to indulge in staff training and also consultancy to the Tax Authorities and other stakeholders.
Another very important feature of the GSTN is to develop Tax Payer Profiling Utility which is a very important aspect in ensuring efficient administration and achieve the GST goals.
This is the most important aspect of the Goods and Services Tax, in ways bigger than the GST bill too, as the entire structure of GST is contingent on this foundation.
It is an apex body headed by the Union Finance Minister Mr. Arun Jaitley with the State-nominated ministers and the Union Minister of State for Finance( In charge of Revenue) as members.
It is imperative to note that the decisions of the GST Council will shape whether this ambitious tax reform will achieve its due desired effect or not.
IMPACT OF GST:
Major Benefits to the Economy As A Whole:
• The present scenario of differing tax rates in different states obstructs cooperative federalism.
GST will bring uniformity and also deplete the cascading consequence of these taxes by giving input tax credit, having a comprehensive tax inclusion with minimum exceptions which will in turn help the Industry to benefit from the proposed common procedures and claim credit for the tax paid.
• GST is expected to increase the mobilization of resources available for property alleviation and development of the country as pointed out by the Prime Minister, Narendra Modi.
This will take place in two ways: (a) directly the resources available to the poorer states will increase substantially; (b) indirectly as the tax base becomes more buoyant.
• The common base and common rates across goods and services and very similar rates across Centre and States will result in effective administration and increase compliance while also ensuring the better management of taxes collected in the State.
Also, there is a provision to maintain the requisite fiscal autonomy to the States with the power to levy additional excise taxes on certain “sin” goods like, tobacco, alcohol, etc.
• The complicated tax-levy system categorized by distortions between States and Cente which divides the country into separate economic zones with the help of GST will become one common national market.
This impedes the Make in India process which will get a boost through GST as it is making tax compliance easier and removing ambiguity and at the same time as GST will be applied on imports, domestic manufacturing would be encouraged.
• Tax Governance will get a positive boost through this regime, mainly, through the feature of input tax credit.
To claim input tax credit, each dealer has an incentive to request documentation from the dealer behind him in the tax chain which will ensure tax compliance. Also this would further require producers to buy materials from registered dealers and therefore will bring in more and more vendors in the taxation net.
Furthermore, the dual monitoring structure of the GST by both Centre and State will make tax evasion more prone to detection.
• There will be reduction in prices of goods as taxes would now be exempted from the production cost and at the same time it will put better goods and services within the reach of a larger number of the populace and as such increase the living standards of the country.
• The successful implementation of GST would give a strong signal to the foreign investors about India’s increased creditworthiness, lesser compliance and procedural costs in the taxation sphere and remove the complexities faced by the foreign investors who were reluctant to invest in consonance with the existence of virtual economic zones throughout the country.