The Central Goods and Services Tax Act, 2017 – An analysis

Goods and Services Tax

Tax is the financial charge imposed by the Government on income, commodity, or activity. As we know, there are two types of tax – Direct tax, and Indirect tax. A direct tax is one where the burden of the tax is directly on the payer e.g., income tax, wealth tax etc. Indirect tax is paid by the person other than the person who utilises the product or service e.g. Excise duty, Custom duty, Service tax, Sales tax, Value added tax and recently GST – Goods and Service Tax in India.

GST is mainly followed on the TCS guideline – tax collection at source.

Goods and Service Tax in India

Earlier, more than 150 countries already had GST except in India. A reform swayed in the Indian economy and in its tax laws since 30th June to 1st July 2017 when the Indian Government decided to introduce GST to the citizens of the country.

Goods and Service tax is an indirect tax levied on the goods and services bought by the consumers. It is a single detailed and multi-oriented tax that will undermine all the other small indirect taxes like the excise duty, custom duty, service tax and etc.

The thought of proposing GST Act in India was not something new. This thought was initially proposed in the year 2000 under the leadership of the then Prime Minister Atal Bihari Vajpayee but it never came to fruition. Nevertheless, it was again introduced in 2016 as a Bill by the Lower House of the Parliament i.e., the Lok Sabha and passed on to the Upper House i.e., Rajya Sabha for its assent. After the bill was passed by both the Houses, President Pranab Mukherjee signed the bill and gave assent to it. This time the new reform was brought under the leadership of current Prime Minister Narendra Modi, the leader of the BJP party who holds maximum seats in the Lok Sabha. The GST council, and the current finance minister, and the leader of the Rajya Sabha Arun Jaitley presides over the GST matters. Finally, after the Bill was passed by the Parliament it has now become a GST Act, 2017.

Coming to the Goods and Service Tax, it has been divided into three kinds –

  • CGST – Revenue collected by the Central Government.
  • SGST – Revenue collected by the State Government for intra-state sales.
  • IGST – Revenue collected by the Central Government for inter-state sales.

The new GST rates in India are 0%, 5%, 12%, 18% and the highest rate being 28%. As a matter of fact, there will be no GST on the sale and purchase of securities. It will continue to be governed by  Securities Transaction Tax (STT).

The Government of India finally enacted the new Act in the Sixty-eighth year of the Republic of India. The Central Goods and Services Act, 2017 thus came into force. It is an Act to make a provision for levy and collection of tax on intra-state supply of goods or services or both by the Central Government and for matters connected therewith or incidental thereto.

GST Bill

The Constitution amends both the Centre and the State to levy GST. This would subsume various indirect taxes of both Centre and States into one. After this new tax reformation, there would be a Centre level GST and State level GST.

Changes in GST Law

GST law is applicable to the whole country except Jammu and Kashmir. According to GST law, if the buyer fails to pay the service provider, then the input tax credit availed by the buyer would be disallowed. Then he has to pay the ITC with interest. The time period for this is 180 days. Even, if the payment is made after 180 days the ITC will be allowed to pay. This provision includes both to services and goods. The GST law included “Actionable claims” in the definition of “goods”. It explains in the Act that the actionable claims other than the betting, gambling and lottery would not be treated as a supply of goods nor of services. Thus, GST would be applicable on gambling, lottery and betting but not on other “actionable claims.”

Benefits of GST

GST has been introduced to simplify the other small indirect taxes and comply into one. In short, it is the funnelling down of multiple small tax structures into one. It would reduce the burden of heavy lengthy taxation process. This basically divides the taxation into the manufacturing process and the services. GST would be charged at the final destination of consumption and not before that. This would be a great step forward to the country’s development as it will reduce the economic complexities and somewhat prevent corruption.

GST would benefit the individuals and companies as the price of certain products would decrease resulting more consumption of them and hence more production by the companies. Although, petroleum products, alcohol, and electricity do not fall under GST till now. The biggest advantage is the reduction of the tax burden imposed on the administrative system of our country. It would benefit the GDP of the country and positively affect the Indian economy.

Flaws of GST

The introduction of GST in the Indian economy has not been spared from criticism by the citizens. As human beings we know we are resistant to change and any change initially is not well likely taken by anyone. So, the same scenario is with the goods and service tax. GST is a whole new reform in the tax structure of the country. People would take time to understand and accept this system.

Real estate prices would likely go higher by 8%. Services like telecom, restaurants would likely charge higher tax rate. The division of tax between the Centre and States could create conflicts. It would also lead to additional compliance cost for small and medium enterprises for registration and tax filing purposes. The consumers might have to pay extra for the increasing operational costs by a certain amount.

Certain factors:

  • The GST would be governed by five GST laws namely CGST law, UTGST law, IGST law, SGST law and GST Compensation law. The levy of GST can commence only after the GST law has been enacted.
  • GST would be charged at the destination point i.e. at the consumption level.
  • Import of goods would be charged under IGST i.e., inter-state supplies along with the custom duties.
  • Exports would be zero-rated.
  • Taxpayers with an annual turnover of Rs 20 lakhs (for special category states it is Rs 10 lakhs as mentioned in 279A of the Constitution) would be exempt from GST.
  • GST has a system of input tax credit which would allow the sellers to claim the tax already paid, so the final liability on the end consumer gets decreased.

The motive of GST is “One nation, one tax.”


ABOUT THE AUTHOR

07

SOMANKA GHOSH

Somanka is a fifth-year law student pursuing BA LLB in Calcutta University. She’s also pursuing a diploma course in Entrepreneurship and Business Laws. After interning in various law firms in Calcutta High Court and gaining experiences about the practicalities of legal practice, she’s now keen to test her theories. An enthusiast and diligent worker, she’s also a good researcher and writer.

 

Taxation in India: A brief introduction

This article has been written by Anand Sahu. Anand is currently a CA IPCC student.

A Tax is a compulsory contribution from a person to the expense incurred by the state in common interest of all without reference to any specific benefit conferred on any individual. It is the most important revenue of the Government. It almost amounts to form about 17% of the total national income of our country. By this 17% is almost 17, 18,000 crore which is being paid by General Public, Companies, Business Firms.

Direct Taxes: These are the taxes which are not shifted i.e., the incidence of which falls upon the person who pays them to the government. E.g. Income Tax . But these taxes have a Negative Impact on a national and Personal Scale.

  • The Ability to pay is difficult to determine; only a rough idea can be formed.
  • These Taxes are called Honest Taxes because of undeclared sources of income or evasion; the actual payment may not be strictly according to the ability to pay.
  • Well, this one is related to every tax payer in the country and interesting. Tell me how many Of the Citizens of the country maintain a proper account which makes it difficult for the tax payers to pay and make the work of our CA Articles Immensely difficult and gruesome in the month of February and March.
  • The assessment procedure is also cumbersome requiring expert assistance of tax advisers and Consulting Firms.

Indirect Taxes: Taxes where the burden Shifted through a change in price, the taxes are Indirect. E.g. Sales Tax, Service Tax .These Taxes have a really big Negative impact on the Tax payers.

  • Taxes on Necessaries of life will certainly mean taxing the poor and that will mean taxing rich and poor alike.
  • These Taxes do not create social consciousness because they are often not felt by tax payers.
  • Government is not certain about the proceeds of these taxes.
  • The burden of indirect taxes can be shifted toward forward or backward. In Most cases, the consumers have to bear the ultimate burden of indirect taxes.
  • Evading this type of tax is mostly easy because of methods like smuggling, Falsification of accounts.

Tax Structure in India:  

  • The Population of the economy is more than 120crore. But very small fraction of the population pays income tax in India(less than 3%). Thus Indian Tax Structure relies on a very narrow population Base.
  • The Changing Structure of Tax System in India is evident from the following Chart.

picture1

1970-71

In 1970-71(Pre Reform Period) exercise Duty were Contributing More than half of the central Tax revenue. Income tax, Corporation Tax and Custom duties were 5%, 15%, 21% respectively.

picture2

Tax Structure & Distribution At Present.

At Present the Taxes are more evenly Spread Out than the pre reform period.

Evaluation Of The Indian Tax System:

Tax System and Agricultural and Service Sector:

If You Look Carefully Into the growth of taxation sector in the few years you are sure to find that with the increase in national income, the tax yields in general and from direct taxes in particular have not increased at a rate high enough to show a high degree of income elasticity. Direct taxes were 2.1% of the GDP in 1950-51, it has increased to 7% at Present (Data is Centre and State Combined).

Indian Tax System largely depends upon urban incomes and leaves out almost completely agricultural incomes from the purview of direct taxes. India’s tax system has a much reduced scope of manoeuvrability in the field of personal taxation. Thus, while national Income rises, with about 14% of its originating from agricultural sector, the tax system is not able to tap fully the rising income. The indirect tax system is also characterised by Inelasticity. Both the coverage and the rate schedule have been modified from time to time so that the tax system plays a truly functional role for economic growth, stability and social justice.

It is quite shocking that the service sector accounts for about 60% of GDP, Service tax contribute just 12.8% toward tax revenues and about 1.3 % toward GDP. In Respect of canon of convenience, several measures have been taken such as self assessment, advance payment, deduction of tax at source, assessment on the basis of returns submitted etc. However change in tax law in quick succession disturbs long term business decision making. Indirect taxes although considered to be regressive are quite convenient to collect.

Simplification of Tax System:

Simplification of tax system has also been attempted. Income tax returns have been simplified and made handy. During the Reform Period both Lingam Committee and Chelliah Committee recommended simplification and rationalisation of tax system in India. The Proposed Direct Taxes Code and Goods and Services Tax also aim at simplification of tax laws.

Cost of tax collection (all taxes) has increased over the year from 543 crore in 1990-91 to 8500 crore at present. However it is to be noted that cost of tax collection for the income tax department is one of the lowest in the world at the rate of less than 60 paisa for every 100 Rupees collected.

What Stopping growth of Tax System In India:

Evasion and tax avoidance are reported to be very high. It has been estimated that black money is generated at the rate of 50% of the country’s GDP. Because of this, the black money accumulation is of considerable magnitude. It is growing every year at an exponential rate. The Unaccounted funds are invested into business through diverse means and add further to the existing funds of the black money. A part of it squandered and wasted lavishly on social functions and on anti- social activities. Besides Indian Tax System is also accused of

  • Discouraging Employment
  • Distorting Price
  • Adversely affecting savings

        I agree that Indian Tax System is Complicated and most of the time the consumer suffer but do we just forget the Merits of it on our economy(When we have 120m mouth to feed) and Common People, the question is up to you. Feel Free to let me know of your suggestion and query I will be happy to help.

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The November book bucket

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GST: All you need to know!

This article has been written by Ishaan Garg. Ishaan is a first-year law student at Vivekananda Institute of Professional Studies, GGSIP University, Delhi.

An empowered committee was set up by Atal Bihari Vajpayee government in 2000 to streamline the GST model. It was to develop and reform the backend infrastructure which was essential for the implementation of GST. In his budget speech on 28 February 2006, P. Chidambaram, the then Finance Minister, announced the target date for implementation of GST to be 1 April 2010 and formed another empowered committee of State Finance Ministers to design the roadmap. The committee submitted its report to the government in April 2008 and released its First Discussion Paper on GST in India in 2009. The Constitution (122nd Amendment) Bill, 2014 was introduced in the Lok Sabha by Finance Minister Arun Jaitley on 19 December 2014, and passed by the House on 6 May 2015. In the Rajya Sabha, the bill was referred to a Select Committee on 14 May 2015. The Select Committee of the Rajya Sabha submitted its report on the bill on 22 July 2015. The bill was passed by the Rajya Sabha on 3 August 2016, and the amended bill was passed by the Lok Sabha on 8 August 2016. The bill, after ratification by the States, received assent from President Pranab Mukherjee on 8 September 2016, and was notified in The Gazette of India on the same date.

 The Act was passed in accordance with the provisions of Article 368 of the Constitution, and has been ratified by more than half of the State Legislatures, as required under Clause (2) of the said article. On 12 August 2016, Assam became the first state to ratify the bill, when the Assam Legislative Assembly unanimously approved it.

Presently the constitution empowers the Central Government and State Government to levy various taxes on the citizens of India. The central government levy taxes such as excise duty on manufacturing and service tax on supply of services, on the other hand, state government levy sales tax or Value Added Tax (VAT) on sale of goods. With GST all these taxes have come under one umbrella. Most of the best-known systems of GST in the world use a single GST model, while India has opted for a dual-GST model. Critics claim that CGST, SGST and IGST are nothing but new names for Central Excise/Service Tax, VAT and CST, and hence GST brings nothing new to the table. The concept of value-added has never been utilized in the levy of service, as the Delhi High Court is attempting to prove in the case of Home Solution Retail, while under Central Excise the focus is on defining and refining the definition of manufacture, instead of focusing on value additions. The Revenue can be very stubborn when it comes to refunds, as the Maharashtra Government proves, and software entities that applied for refunds on excess service tax paid on inputs discovered.

 The working of GST can be explained by giving a stage wise implementation of this system.

Stage 1

Imagine a manufacturer of, say, shirts. He buys raw material or inputs — cloth, thread, buttons, tailoring equipment — worth Rs 100, a sum that includes a tax of Rs 10. With these raw materials, he manufactures a shirt. In the process of creating the shirt, the manufacturer adds value to the materials he started out with. Let us take this value added by him to be Rs 30. The gross value of his good would, then, be Rs 100 + 30, or Rs 130. At a tax rate of 10%, the tax on output (this shirt) will then be Rs 13. But under GST, he can set off this tax (Rs 13) against the tax he has already paid on raw material/inputs (Rs 10). Therefore, the effective GST incidence on the manufacturer is only Rs 3 (13 – 10).

Stage 2

The next stage is that of the good passing from the manufacturer to the wholesaler. The wholesaler purchases it for Rs 130, and adds on value (which is basically his ‘margin’) of, say, Rs 20. The gross value of the good he sells would then be Rs 130 + 20 — or a total of Rs 150.

A 10% tax on this amount will be Rs 15. But again, under GST, he can set off the tax on his output (Rs 15) against the tax on his purchased good from the manufacturer (Rs 13). Thus, the effective GST incidence on the wholesaler is only Rs 2 (15 – 13).

Stage 3

In the final stage, a retailer buys the shirt from the wholesaler. To his purchase price of Rs 150, he adds value, or margin, of, say, Rs 10. The gross value of what he sells, therefore, goes up to Rs 150 + 10, or Rs 160. The tax on this, at 10%, will be Rs 16. But by setting off this tax (Rs 16) against the tax on his purchase from the wholesaler (Rs 15), the retailer brings down the effective GST incidence on himself to Re 1 (16 –15). Thus, the total GST on the entire value chain from the raw material/input suppliers (who can claim no tax credit since they haven’t purchased anything themselves) through the manufacturer, wholesaler and retailer is, Rs 10 + 3 +2 + 1, or Rs 16.

This system of is said to be implemented by 1st April 2016, the beginning of financial year in India; however it looks a farfetched dream. At its present state, it looks next to impossible to introduce a whole new tax rate mechanism in a country like India in one go. Rather it would be better if it could be partially implemented and gradually whole GST will come into being. Whatever be the date of its implementation, it would be interesting to see how the Indian tax payer would react to it, as ultimately they are the gainers or losers from this system of taxation.

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The November book bucket

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