Financial freedom at midnight

While the economy across the globe is gasping to breathe like fishes out of water, India has posed a flare of hope with the ambitious Goods and Services Tax (GST), which is expected to provide the much-needed pick-me-up for economic growth in India. A very noteworthy step in the field of indirect tax reforms in India, GST, with the merger of a large number of Central and State taxes into a single tax, is expected to significantly ease double taxation and make taxation overall easy for the industries. GST is destination-based consumption tax levied at multiple stages of production and distribution of goods and services. It combines various other taxes such as state and local tax, entertainment tax, excise duty, surcharges, octroi and others. The tax is applicable on transaction value which includes packaging, commission and other expenses incurred during sales. It allows full tax credit from inputs and capital goods on procurement which can later be set off against the GST output liability.

Under GST, the goods and services are considered alike and within the supply chain, they are taxed at a flat single rate till the customers can access them. The tax reform thus gives equal footing to large enterprises and SMEs and taxes the stock transfers uniformly. The GST rollout in India would be dual based—that is, both the Centre and various state governments will levy GST separately. The Central government will levy CGST and the state governments will levy SGST respectively. However, the basis for classification of taxes, measure of levy and chargeability of taxes will be same for both. This is necessary keeping in mind the federal structure of the government, provided the governments at both levels have the liberty to administer their own taxes. In addition, GST will be levied on import of goods and services into India. GST appears to be eliminating the cascading effect of various state and central taxes. State taxes that will be subsumed within the GST are VAT, entertainment tax, entry tax, luxury tax, tax on betting and gambling. Various Central taxes that will be subsumed are Central Excise Duty, Additional Excise Duty, Service Tax, Additional Customs Duty, Special Additional Duty and Central Sales tax. Most beneficial in terms of reduction in the overall tax burden on goods and services for the end customer, the introduction of GST will also make Indian products competitive in the domestic and international markets. It appears transforming the existing base of indirect taxation towards the free flow of goods and services. To eradicate the cascading consequences of taxes through GST, India is projected to play an important role in the world economy in the years to come.

With the removal of bundled indirect taxes such as VAT, CST, Service tax, CAD, SAD, and Excise and removal of cascading effect of taxes i.e. removes tax on tax, it would reduce manufacturing costs due to lower burden of taxes on the manufacturing sector. The current taxation structure, pumped with myriad tax clauses, prevents manufacturers from producing to their optimum capacity and retards growth. GST would take care of this problem by providing tax credit to the manufacturers. Even the prices of consumer goods are likely to come down. As a result, while the common man would have to shed less money to buy the same products that were costly earlier, it would also increase the demand as well as supply of goods – which would subsequently lead to rise in the production of goods. GST is also likely to control the black money circulation as the system normally followed by traders and shopkeepers would be put to a mandatory check. Last but not least, the GST, because of its transparent character, will be easier to administer. As per industry experts, SMEs and startups will be affected the most with the rollout of the GST and the impact will be favourable in ways more than one. A business having operations across different states needs VAT registration. Different tax rules in different states only add to the complications and incur high procedural fees. GST enables a Centralised registration that will make starting a business easier and the consequent expansion an added advantage for SMEs. Under the GST bill, no entry tax will be charged for goods manufactured or sold in any part of India. As a result, delivery of goods at interstate points and toll check posts will be expedited. According to an estimate by CRISIL, the logistics cost for manufacturers of bulk goods will get reduced significantly—by about 20 per cent. This is expected to boost e-commerce across the nation. Once implemented, the proposed taxation system holds great promise in terms of sustaining growth for the Indian economy.