Goods and Services Tax

Goods and Services Tax

Goods and Services Tax (GST), one of the most significant reforms introduced in the history of the Indian fiscal evolution

Goods and Services Tax (GST), one of the most significant reforms introduced

Goods and Services Tax (GST), one of the most significant reforms introduced in the history of the Indian fiscal evolution, is likely to come into effect in 2016. GST is expected to have a far reaching impact, much beyond taxes on business, economy and the society.  

Globally, GST is acknowledged as a progressive tax regime, with inbuilt efficiencies to broaden the tax base, decrease cascading effect and reduce revenue leakages. The proposed GST in India is expected to bring in uniform tax rates and provisions to simplify the compliance requirements across the country, supported by automated systems and processes. A well designed GST structure can foster common market and economic growth. 

India is expected to adopt a dual GST model where the central and state governments will levy GST simultaneously, on a common taxable value, on the supply of goods and services. However, in the case of imports and interstate supplies, an IGST (Integrated GST) shall be levied by central government. The proposed GST will subsume most of the existing central
and state taxes on the supply of goods and services including central excise,
service tax, state level Value Added Tax (VAT) and other local levies on goods.

While there is a consensus on the nature of levies that shall be subsumed in the GST, however, there is no consensus on the final GST rate. It has been
recommended in the Chief Economic Advisor’s report (December 2015), that the GST regime should have a dual rate structure – low GST rate of approximately 12 per cent on merit goods (e.g. essential commodities), and standard GST rate of approximately 18 per cent on other goods. That apart, it is expected that there may be a higher GST rate of approximately 40 per cent on a few demerit goods (like tobacco, aerated beverages, etc.), lower GST rate of approximately 2 per cent on bullions, and exemption from GST on a few select goods. Over and above GST, there is a proposal to levy 1 per cent additional tax on all interstate supply of goods, which is non creditable and will be retained by the selling state.

With GST, there will be a significant shift from origin-based taxation to a destination-based tax structure impacting not only the operating business models but also the revenues of the centre/states. The proposed levy of an additional 1 per cent origin-based non creditable tax on the interstate supply of goods is a deviation from the destination-based taxation system. 

GST has the potential to impact cash flow, pricing, working capital, supply chain and IT systems and hence provides an opportunity to transform your business.

Potential benefits of GST:

Smooth credit mechanism by decreasing the cascading effect of multiple indirect taxes. Broadening of the tax base with reductions in exemptions/concessions.
Creation of a unified common market. Simplified/uniform tax compliance and administration across India.

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