Taxation – The Law Blog

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

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.

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.

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.

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

Tag: Taxation

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

Taxation in India: A brief introduction

The November book bucket