iNM Magazine Volume 7 | August 2015
Current Buzz
Mihir Shah
First year, PGDM
NMIMS, Hyderabad
“Billed as India's biggest indirect tax reform since independenceGoods and Service Tax once introduced has the potential to
boost economic growth and according to analyst add around
0.9%-1.5% to our GDP”
have the power to levy taxes on the above mentioned
goods.
Billed as India's biggest indirect tax reform since
independence- Goods and Service Tax once introduced
has the potential to boost economic growth and
according to analyst add around 0.9%-1.5% to our GDP.
GST has been implemented by over 150 countries owing
to its transparency and revenue increasing capabilities.
e bill has proposed to have a GST council chaired by
the union finance minister having finance minister of
states and various other minster nominated by the state
government as its member. In addition, there is also
provision for a Dispute Settlement Authority that would
look into various disputes that could arise as a result of
GST. In order to address the disputes expeditiously the
disputes would directly be heard by the Supreme Court.
As opposed to a single comprehensive tax which is a
global norm India has decided to adopt the dual GST
model where there are two components- central GST
(CGST) and a state GST (SGST) hence the Centre and
state will legislate and administer the taxes concurrently.
GST will subsume various disparate taxes viz. Central
excise duty, VAT, Service tax and also other taxes like
luxury tax, entry tax thereby reducing the compliance
cost and at the same time simplifying the tax structure.
Subsuming various taxes under a single rubric will
reduce multiplicity and eliminate cascading effect of
various taxes also it will eliminate multiple point of
contacts reducing corruption all these factors will
contribute to reducing the price of the goods for the
consumer. For example a shopkeeper sells product X
worth 10000 in a month and collects 1500 as GST (15%
assumed) . He would have bought product X worth 8000
from the wholesaler paying 1200 as GST so in the end he
would remit 300 to the government.
GST is primarily a destination based tax and requires that
the SGST accrues to the destination state this caused
dissent among some predominantly manufacturing
states like Maharashtra, Gujarat and Tamil Naidu as they
would be losing a sizable chunk of their SGST. To alleviate
their concern an additional 1% tax was imposed on
interstate movement of goods which would be kept by
the manufacturing state.
Due to the merging of various taxes the GST will be much
less then what the consumer pays today as individual
taxes. e consumer as of now pays excise duty of 12%
and VAT/service tax of 14% in addition to various other
small taxes. e rate of GST is expected to be anywhere
between 12% and 26% the world average is 18%. is will
result in more liquidity in the market and more money
with the investors indirectly pushing the GDP upwards.
Further, to assuage the states and to get the desired 2/3 rd
majority in Rajya sabha with support from various state
level parties like AIADMK, TMC , BJD the centre has
promised to write off any losses due to implementation of
GST for the first three years on the lines of a formula
suggested by the 14 th finance commission. Also, certain
goods like petrol, high speed diesel, natural gas