business national
captains of finance: FM Arun Jaitley and state finance ministers during the meeting of the GST Council in New Delhi
he will have to pay more and where his tax burden is coming
down. As of now, there is considerable uncertainty on what
kind of changes will come in the tax rates of specific goods
and services. Hence, the next big thing to watch out for is the
classification of items into different tax brackets.
The GST council didn’t really have many options in hand
to fix a single tax rate. In a vast country like India, which is
geographically and economically diverse, it isn’t easy to arrive
at one single rate unlike some of the developed countries which
are smaller in size. But, eventually, some of these slabs can be
merged with a lower band.
The GST council meeting will continue and discuss about the
issue of dual control. If there is consensus emerging there too,
the GST rollout will be a bigger possibility on 1 April as scheduled.
Two key legislation—Central and Integrated GST Bills—would
likely come up in the Winter Session, paving way for the final
rollout.
LARGER PERSPECTIVE
The benefits of having even a four-slab structure outweigh the
inadequacies. The cascading impacts on taxes on many items will
disappear; tax compliances will increase since every transaction
will be recorded at every stage by the GST infrastructure.
Foreign investors will be more comfortable to look at India with
a simplified tax structure. The myriad state levies such as entry
taxes and octroi will vanish. The common man stands to gain
with essential items which will either be excluded from the GST
or accommodated in the 0-5 percent bracket. Corporations will
have to wait for the final list of classification to know the actual
impact on their finances.
What is critical to watch is how effectively the new system can
encourage compliance of indirect tax payers. The reason being
that the whole compensation formula works on collection of
cess in the initial five years. If the tax collections do not pick up as
expected, then the government will face a crisis, notwithstanding
the gains of GST for the economy (expected 1-2 percent jump in
GDP over the long-term).
But, the point is that the GST council also had to address the
political compulsions of various states and parties while deciding
the structure. Seeing in this context, the council has come up
with a decent structure to begin with. Though the agreed GST
rate structure has deviated significantly from the idea of a one
nation, one tax, the currently agreed structure is good enough
for India to start with. The common man stands to gain most.
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November 16-30, 2016 The Dayafter
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