Discussion Initiative – Goods and Services Tax GST (March 17)

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9 responses to “Discussion Initiative – Goods and Services Tax GST (March 17)”

1. 

   Goms

   March 17, 2017

   Thanks sir
2. 

   ForumIAS

   March 17, 2017

   Regularly reading Editorials of The Hindu and Indian Express would help. For writing practice, regularly Write the Mains Marathon- Essay Test every Saturday. Ask others to review, so that you can improve.
   Good luck 🙂
3. 

   Goms

   March 17, 2017

   Sure Sir. Which book we will prefer for essay Sir
4. 

   ForumIAS

   March 17, 2017

   Welcome Goms.. Be ready for Mains Marathon Essay Test for tomorrow.
5. 

   Goms

   March 17, 2017

   Thanks sir
6. 

   ForumIAS

   March 17, 2017

   Good, Goms!
7. 

   Goms

   March 17, 2017

   What is gst ?
   GST will be levied on both on goods and services.A single comprehensive tax will subsume all the other smaller indirect taxes on consumption like service tax etc .

   What is revenue neutral rate ?
   In context of GST,the revenue neutral rate is a rate of GST at which the amount of taxes currently collected by the Govt and the amount expected to be collected after GST remains the same.

   Benefits of GST :
   a)The tax structure will be made simple and lean.
   b) The entire Indian market will be a unified market which may translate into lower business Costs.It can facilitate seamless movement of goods across state and reduce the transaction cost of business
   c)In thr long run the lower tax burden could translate into lower prices on goods for consumers.
   d) It can bring more transparency and better compliance
   e)Number of tax department will reduce which in turn will lead to less corruption.

   Challenges in its Implementation:
   a)To implement the bill there has to be lot of changes at administration level ,lT,integration has to be happen ,send IT infrastructure is needed, the state Government has to be compensated for the loss of revenue.
   b) GST being a consumption based tax ,states with higher consumption of goods and services will have better revenue .So the cooperation from states Government would be one of the key factors for the successful implementation of GST.

   Does GST affect the federal structure of the country
   With the advent of GST follows sues will likely to crop up in federalism.
   a)States will lose their autonomy in decking taxation rates based on their expenditure plan. ln GST regime rates will be decided by GST council. However as per the GST bill,the council will fix the floor rate along with banks.This will leave some autonomy for the states to tinker with the tax rates to suit themselves.
   b)There is also the issues of states having the ability to imposes sin tax on goods .

   However it is to be realised that GST is the need of the hour .Moreover the Indian GST regime offers advantages unl8ke the GST regime in other large federal politics where is system is either
   a)Too centralised, which deprives sub federal level of fiscal autonomy such as in Australia, Germany,Austria.
   b)or independently administered which creates too many differences in tax bases and rates that makes compliance difficult and also ages inter state transaction difficult to tax such as in South Africa
8. 

   ForumIAS

   March 17, 2017

   Great. Keep participating.
9. 

   Ashwini Sharma

   March 17, 2017

   Challenges in its Implementation
   ——————————–
   – Roll out of single MIS systems and inter-operable and compatible softwares across the entire value chain. In its absence, a lot of detection and assessment issues may crop up.
   – Turf competition between assessment officers of the Centre and the State.
   – Need appropriate rules for determining the place of supply of service in matters of inter-state supply of services.
   – A massive re-training required for the tax administration.
   – A lot of adminsitrative capital will be required in ensuring compliance with anti-profiteering clause for GST to deliver lower costs to consumers.
   – An appropriate system will be required to provide for interactions between sectors that are left out of GST such as oil, gas and electricity with sectors that are in GST.
   – RNR rates need to be decided. A slab based structure, though desirable may end up creating litigation initially over interpretations relating to inclusion or exclusion of items within the multiple slabs.

   GST & Federal Structure
   ———————–
   – GST takes away the ability of States, u/A. 80 of the Constitution, to impose VAT related taxes and indirect taxes that they could impose earlier. Additionally, the demand of some manufacturing states to be empowered to levy additional non-vat tax at 1% has been struck down as it went away the GST model.
   – In this regard, it may appear, at first brush, that autonomy of the States is being eroded. However, there is imposition of dual GST, viz., CGST and SGST, which will be independently levied, managed and monitored by the Centre and the State. This carves out different spheres for the federal entities. Additionally, the Centre has shared its powers to levy service tax with the states as states too can levy, manage and monitor supply of services intra-state and inter-state. Also, states still retain the power to levy and impose taxes on alcohol, petrol and diesel, which provide states with nearly 35-40% of their tax revenues.
   – However, some curtailments of freedoms of the state are visible. All goods and services will be divided into certain categories. The rates will be fixed by category, and a state, cannot shift a commodity from a lower to a higher rate, or put it in the exempt category. However, with institution of an RNR, as well as a 5 year compensatory regime, the states’ ability to continue their state level welfare and developmental programs will not be effected.
   – So it can be said that GST does not affect the federal structure, but it has merely re-shaped how federalism works. In the present era, strict definitions of federalism have no place as dynamic federalism alone can help India meet challenges of 21st century.

   Slabs/Cess & Dilution of GST
   —————————–
   – Imposition of a slab structure is a necessary evil in order to make GST, an indirect tax, regressive in nature. An Indirect tax that is regressive is equivalent in effect as a direct tax that is progressive.
   – While GST has indeed simplified by replacing multiple laws and hundreds of categories with a single law and only 4 slabs, there is still room for litigation arising out of classification disputes because of this slab structure.
   – However, a regressive indirect tax that taxes luxury items higher and necessary items lower is keeping in spirit with Directive Principles, 39(b) and 39(c).

   What will be the impact of GST on industries such as textile industry?
   ———————————————————————-
   – GST is a tax that favours consumption. States will be encouraged to favour end consumption in their own territory in order to be able to levy greater tax.
   – States usually designed several incentive schemes for promoting manufacturing and accordingly provided tax benefits. However, with GST, states not only will have no incentive to promote manufacturing, but they will also not have the freedom to design incentives and tax benefits according to their needs, due to requirements of uniformity under the GST model.
   – This will ensure that states do not promote manufacturing by incurring huge expenditures through incentives and tax benefits and end up creating a manufacturing sector that produces cheaper and lower quality commodities. A consumption driven culture under GST will ensure that manufacturers that are able to provide better quality at reasonable prices will survive.
   – Additionally imposition of tax on stock transfers will reduce working capital for manufacturers.
   – This will apply to all manufacturing industries, including the textile industry.