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  1. 1. 1 “IMPLEMENTATION OF GST IN INDIA” Bachelor of Commerce FINANCIAL MARKETS Semester VI (2015-2016) Submitted by SOWJANYA SAMPATHKUMAR Roll No. 51 H.R. COLLEGE OF COMMERCE & ECONOMICS 123, D.W. Road, Churchgate, Mumbai – 400 020
  2. 2. 2 INDEX Sr. No. Particulars Page No. 1 Introduction of GST in India 1 2 Current status of the GST Bill 4 3 Analysis of GST in India 7 4 Analysis of GST in other countries 16 5 Major beneficiaries(Sectors) due to GST 31 6 Impact of GST on ultimate consumers 47 7 Overall benefits in the economy 52 8 Conclusion 53 9 Bibliography 57
  3. 3. 3  Introduction of GST in India The Goods and Services Tax Bill or GST Bill, officiallyknown as The Constitution (One Hundred and Twenty-Second Amendment)Bill, 2014, proposes a national Value added Tax to be implemented in India. "Goodsand Services Tax" would be a comprehensive indirect tax on manufacture, sale and consumptionof goods and services throughout India, to replace taxes levied by the Central and State governments.Goods and services tax would be levied and collected at each stage of sale or purchase of goods or services based on the input tax credit method.This method allows GST- registered businesses to claim tax credit to the value of GST they paid on purchase of goods or services as part of their normal commercial activity. Taxable goods and services are not distinguished from one another and are taxed at a single rate in a supply chain till the goods or services reach the consumer.Administrative responsibilitywould generally rest with a single authority to levy tax on goods and services.Exports would be zero-rated and imports would be levied the same taxes as domestic goods and services adhering to the destination principle. The introduction of Goods and Services Tax (GST) would be a significant step in the reform of indirect taxation in India. Amalgamating several Central and State taxes into a single tax would mitigate cascading or double taxation, facilitating a commonnational market. The simplicity of the tax should lead to easier administration and enforcement.From the consumerpoint of view, the biggestadvantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%
  4. 4. 4 As India is a federalrepublic GST would be implemented concurrently by the central government and by state governments. A single taxation point system can bring about more transparency and accountability in the country’s tax regime. It is considered to be a game changing reform which will not only increase the economic growth by upto 2% (Finance Ministry) but also have many other spin offs forthe economy.It will usher in a single market in the country and considerablyenhance the 'Ease of Doing Business in India' Backdropof GST-  The constitution provides for the separation of tax related powers in the constitution on the basis of the 7th schedule viz, Union, State and Concurrent list with residuary power of taxation being vested with the Centre. (Service tax imposed on the basis of residuary power)  Broadly there are two types of taxes in India; Direct Tax and IndirectTax. Direct Tax refers to that tax whose burden can't be passed on to someone else (Income Tax, Wealth Tax, Corporation Tax, MAT etc.). Whereas IndirectTax's burden can be passed on to the next personin the chain of transaction (eg excise duty, sales tax, service tax, octroi, customs duty etc.) and ultimately on the final consumer.  GST is concerned only with Indirecttaxes. Some of these are levied by Centre and some by State. Those imposed by states are done at varying rates across the country. Further there are state specific variations in remissions also.
  5. 5. 5  The Excise duty was levied on both inputs used and outputs produced.Thus the amount paid on input was taxed at each stage. This resulted in cascading effectof taxes.  The issue of cascading taxation was partly addressedthrough the VAT regime.However, certain problems remained. For example, several central and state taxes were excluded from VAT. Sectors such as real estate, oil and gas productionetc. were exemptfrom VAT.Further, goods and services were taxed differently,thereby making the taxation of products complex. Timeline of GST-  GST was first mooted by Dr Manmohan Singh in the mid 90s  The BJP Government under Atal Bihari Vajpayee started consultation on GST and established a committee under Asim Dasgupta for implementation of GST  The GST was recommended by the Kelkar Task Force on FRBM act in 2005  In 2011,the Constitution (115th Amendment)Bill, 2011 was introduced in Parliament to enable the levy of GST. However, the Bill lapsed with the dissolutionof the 15th Lok Sabha.  Subsequently, in December2014,the Constitution (122nd Amendment)Bill, 2014 was introduced in Lok Sabha. The Bill was passed by Lok Sabha in May 2015 and referred to a Select Committee of Rajya Sabha for examination.
  6. 6. 6  Current status of the GST Bill We can always recollectthe Budget2015-16 from last year where the Goods and Services Tax (GST) formed one of the major pillars for ‘Ease of Doing Business’in India. And in stark contrast with last year’s Finance Ministers speech,this year we only heard a meagre reference of GST in FM budget speech,which read: “The Governmentshallalso endeavourto continue with the ongoing reform programme and ensurethe passageof the Constitutional amendments to enablethe implementationof the Goods and Service Tax” As GST remained a political hotbed over the past year, a direct reference of GST policies through the BudgetSpeechwould not have been a prudent political decisionin any case. Rather the Finance Minister chose to be smart, by disguisedlyintroducing various ‘transparency’ and ‘Ease of Doing Business’ driven changes, in line with the proposedGST regime.Many changes, although administrative, showcase the continuous commitmentof the government towards GST. Some of the major proposed changes have been: • Reorganizations of field formations of Central Excise and Service Tax in the event of implementationof GST; and • Proposalto revamp the Maharashtra VAT Return procedures more in line with suggested GST Business Processes; • The Allocation of GSTN Contract to Information Technologygiant Infosys.
  7. 7. 7 These small changes show enough promise that the GST is not yet down and out. Also the Economic Survey 2015-16(released on 26th February 2016)which preceded the Union Budget2016-17,has clearly indicated that GST would remain a central focus for India’s Make in India project. The Economic survey 2015-16enumerates that: • A move to GST would eliminate tax leakages due to rationalisation of indirect tax exemptions which account to an estimated cost of Rs. 3.3 lakh crore. • GST would affectpotentially 2-2.5 million excise and service taxpayers; and • GST is an unprecedentedreform in modern global tax history. The 122 Constitution Amendment Bill has been passed in the Lok Sabha and is pending in the Rajya Sabha. The government had set a deadline of 1st April 2016 for the implementation of GST.The Rajya Sabha stalled on various issues and the differences faced by opposition party view have made the realization of the target unlikely. Some of the issues are:  GST rate of 18% to be made a part of the Constitution AmendmentBill.  The 1% levy must be abolished.  Dispute redressalAuthority to be established. Since the bill seeks to alter major provision of taxations in the constitution that affectthe states, it must be passed in both the houses of the Parliament and also endorsed by half the states.
  8. 8. 8 The Budget 2016 under the subtle tone of indirect tax changes i.e. improving litigation procedures,Digitization of government procedures, unifying interest rates, subsuming of 13 indirect taxes etc. is slowly but certainly moving towards an organized indirect tax system (GST). The Economic Survey 2015-16 acknowledgesGST bill to be a step in the right direction. However, it also recognizes that a lot more needs to be done by the States, including, creating better physical IT infrastructure, procedural amendments,etc. in order to ascertain GST preparednessforthe future. Thus, in the backdrop of Make in India, Manufacturing goals of India and proposedBudgetchanges, GST even though not mentioned in budget,still appears to be in the priority and is mostly discussedto be implemented from April 2016 onwards.
  9. 9. 9  Analysis of GST in India GST is a consumptionbased tax levied on sale, manufacture and consumptionon goods & services at a national level. This tax will be substitute for all indirect tax levied by state and central government. Exports and direct tax like income tax, corporate tax and capital gain tax will not be affected by GST. With the increase of international trade in services,GST has becomea global standard. The proposedtax system will take the form of “dual GST” which is concurrently levied by central and state government. This will comprise of:  Central GST (CGST)which will be levied by Centre  State GST (SGST) Which will be levied by State  Integrated GST (IGST)– which will be levied by Central Government on inter-State supply of goods and services.
  10. 10. 10 Scope of GST  GST is applicable on the supply of goods orservices.  Alcoholic liquor for human consumptionis exemptfrom GST.  Initially, GST will not apply to: (a) petroleum crude, (b) high speed diesel,(c) motor spirit (petrol), (d) natural gas, and (e) aviation turbine fuel. The GST Council will decide when GST will be levied on them.  Tobacco and tobacco products will be subjectto GST. Levy of GST  Both, Parliament and state legislatures will have the power to make laws on the taxation of goods and services.A law made by Parliament in relation to GST will not override a state law on GST.  The central governmentwill have the exclusive power to levy and collectGST in the course of interstate trade or commerce,or imports. This will be known as Integrated GST (IGST).  A central law will prescribe the manner in which the IGST will be shared between the centre and states, based on the recommendations ofthe GST Council.  An additional tax of up to 1% on the supply of goods will be levied by centre in the course of inter-state trade or commerce.The tax will be collected by the centre and directly assigned to the states from where the supply originates.  This tax will be levied for two years, or for a longer period as recommended bythe GST Council. The central government may exemptcertain goods from such additional tax.  The principles for determining the place of origin from where the supply of such goods takes place will be formulated by a law of Parliament.
  11. 11. 11 Justification at the Central level  At presentexcise duty paid on raw material consumed is being allowed as input credit only. For other taxes and duty paid for postmanufacturing expenses,there is no mechanism for input tax credit under the Central Excise Duty Act.  Credit for service tax paid is being allowed by the manufacturer or service provider to a limited extent. In orderto give the credit of service tax paid in respectof services consumed,it is of utmost necessityof an existence of comprehensive tax system under both the goods and services are covered.  At presentservice tax is levied on a few items only. With government realizing “Negative List” from time to time in which the listed services will be out of the purview of service tax. Justification at the State level  A major defectunder the State VAT is that the State is charging VAT on the excise duty paid to the Central Government, which goes against the principle of not levying tax on taxes.  The present State VAT scheme, CENVAT allowed on goods remain included in the value of goods to be taxed which is cascading effecton account of CENVAT element.  Many states are still continuing with various types of indirect taxes.  As tax is being levied on inter-state transfer of goods,there is no provision for taking input crediton CST leading to additional burden on dealers.
  12. 12. 12 Alternatives to the IGST  The Bill permits the centre to levy and collectGST in the course of inter-state trade and commerce,called the Integrated Goods and Services Tax (IGST). Such tax will be apportioned between the centre and the states in a manner to be decided bya law made by Parliament.  The Task Force set up by the 13th Finance Commissionhad suggestedan alternative to the IGST.5 The Commissionhad recommended amodified bank modelwith regard to inter-state transactions. Under this model, the seller levies GST on the buyer state, and deposits the tax collected to a nodal bank. The nodal bank then credits payment to the consuming state. This modelwas recommended,given that inter-state transfers under GST should be designed (i) to avoid any distortions or cascading effects,and so that (ii) tax accrues to the state where the final consumeris located.5 The Standing Committee examining the Constitution (115th Amendment) Bill, 2011 had recommended the modified bank modelas an alternative to the IGST as it would simplify tax compliance and ease administrative burden in inter-state transactions. The New Indian Express in their article ‘GST SO NEAR YET TOO FAR’ have pointed out the fact that India will gain an estimated $15 billion by the implementation of GST. With a simplerand sophisticated indirect tax model,there will be an ease in understanding between the revenue officials and the tax payers.
  13. 13. 13 Positive Aspects  The main reason to implementGST is to abolish the cascading effecton tax. A producton which excise duty is paid can also be liable for VAT.Suppose a productA is manufactured in a factory. As soon as it releases from factory, excise duty has to be paid to central government. When that product A is sold in same state then VAT has to be paid to state government. Also no credit on excise duty paid can be taken against output VAT. This is termed as cascading effectsince double tax is levied on same product.  The GST is being introduced to create a commonmarket across states, not only to avoid enfeebled effectof indirect tax but also to improve tax compliance.  GST will lead a more transparent and neutral manner to raise revenue.  Price reduction as credit of input tax is available against output tax.  Simplified and cost saving system as procedural costreduces due to uniform accounting for all types of taxes. Only three accounts; CGST,SGST,IGST have to be maintained.  GST is structured to simplify the current indirect system.It is a long term strategy leading to a higher output, more employment opportunities,and economic boom.  GST is beneficialfor both economyand corporations.The reduced tax burden on companies will reduce production costmaking exporters more competitive.
  14. 14. 14 Negative Aspects  GST is being referred as a single taxation system but in reality it is a dual tax in which state and centre both collects separate tax on a single transaction of sale and service.  At presentthe main Indirect tax system of central Government is central excise. All the goods and commoditiesare not covered by the central excise and further there is an exemption limit of Rs. 1.50 Crores in the central excise and further traders are not liable to pay central excise.  Majority of dealers are not covered with the central excise but are only paying VAT in the state. Now all the Vat dealers will be required to pay “Central Goods and service tax”.  The calculation of RNR (Revenue Neutral Rate) is very difficultand further Govt. wants to enhance its revenue hence rate of Tax will be a problem.As per the News reports the proposedrate for State GST is 12% and Central GST is 14% Plus Govt. wants to impose 1% CST at the initial stage of GST on the interstate sale of Goods and services.So the normal rate of overall tax will be 26%. This rate is very high comparing to the fact that small and medium Industries are at presentnot covered by the central excise and mostof the Goods such as agricultural products are out of the preview of the Central Excise.  Improvementin the Manufacturing and distribution of Goods and service, increase in exports, various reforms,check on corruption, less Government control are some of the factors which are responsible forthe economic growth of the country.
  15. 15. 15 Impact of passage of the GST bill  Creation of a 'harmonized system of taxation' in the country by subsuming all the indirect taxes into one GST  It will eliminate cascading taxes (tax on tax) hence reduce the costof goods  It will ensure higher compliance on account of input tax rebate system  Single tax for Goods and Services hence no need for differentiation between the two which is not only difficult in the age of IT but also results in double taxation  It will widen the tax base and lower the tax burden  It will help ensure the same price for a single good or service across the country  By extension, it will help increase the saving rate and thus help the economygrow. The government feels it can help enhance the growth by upto 2 %. Even the Task Force under leading economistKelkar had pointed out that it will increase growth.  It will increase the export competitiveness of the economy  It will enhance the 'Ease of Doing Business' in India and help attract investment (Make in India)  The ease of a single indirect tax will increase the compliance levels thus increasing the tax buoyancy  The states will be compensated forfirst five years for losses incurred on account of GST implementation for upto 5 years in staggered manner
  16. 16. 16 Challenges ahead of GST  Passage of the bill in the Rajya Sabha  Support by at least half of the states  A functionally robust GSTN to facilitate the implementation  Formulating the Revenue Neutral rate for GST  Drafting a modellegislation to be adopted by the states  Deciding the minimum threshold value beyond which the GST will be applicable  Compiling the 'place of supply' rules to determine where the goods and services will be taxed. India favors the ''destination based consumption'' principle Key issues in the GST  Loss of revenue for states- States are going to be compensated forit, further Alcohol has been left out of the purview of GST. Petroleum products will be dealt with at a later stage in the GST Council with states on board.  Loss of fiscal autonomy of the states - although the GST Council will be a very important player in tax related matters there will be democratic functioning of the Council. The voting powers will be shared between Centre and States in the ratio 33.33:66.66.  The additional 1% tax levied on goods that are transported across states dilutes the objective of creating a harmonized national market for goods and services.Inter-state trade of a good would be more expensive than intra-state trade, with the burden being borne by retail consumers.Further, cascading of taxes will continue.
  17. 17. 17 Highlights of the GST bill  The GST Bill amends the Constitution to introduce the goods and services tax (GST).  Parliament and state legislatures will have concurrent powers to make laws on GST. Only the centre may levy an integrated GST (IGST)on the interstate supply of goods and services,and imports.  Alcoholfor human consumptionhas been exempted from the purview of GST. GST will apply to five petroleum products at a later date.  The GST Council will recommend rates of tax, period of levy of additional tax, principles of supply, specialprovisions to certain states etc. The GST Council will consistof the Union Finance Minister, Union Minister of State for Revenue, and state Finance Ministers.  The Bill empowers the centre to impose an additional tax of up to 1%, on the inter-state supply of goods fortwo years or more. This tax will accrue to states from where the supply originates.  Parliament may, by law, provide compensationto states for any loss of revenue from the introduction of GST,up to a five year period.
  18. 18. 18  Analysis of GST in other countries  New Zealand Goods and Services Tax (GST) is a value added tax in New Zealand. GST in New Zealand is designed to be a broad based system with few exemptions.Exceptions that do exist include rents collected on residential rental properties,donations, precious metals and financial services. End-users pay this tax on all liable goods and services directly, in that the purchase price of goods and services includes GST. The existing rate for GST effective from 1 October2010 is 15%. GST was introduced by the Fourth Labour Government of New Zealand on 1 October1986 at a rate of 10% on mostgoods and services.It replaced existing sales taxes for some goods and services. GST was a part of the economic reformsinitiated by Labour Finance Minister RogerDouglas dubbed Rogernomics.GST was introduced in conjunction with compensating changes to personal income tax rates. Since its introduction it has had two increases,on 1 July 1989 the rate increased to 12.5% and on 1 October2010 it increased again to 15%. GST-registered organisations and individuals pay GST only on the differencebetweenGST-liable sales and GST-liable supplies (i.e., they pay GST on the differencebetweenwhat they sell and what they buy: income less expenditure).
  19. 19. 19 This is accomplished byreconciling GST received (through sales) and GST paid (through purchases)at regular periods (typically every two months, with some qualifying companies opting for one-month or six- month periods),then either paying the difference to the Inland Revenue (IRD) if the GST collected on sales is higher or receiving a refund from IRD if the GST paid on purchases is higher. Businesses exporting goods and services from New Zealand are entitled to "zero-rate" their products:effectively,they charge GST at 0%. This permits the business to claim back the input GST, but the eventual, non- New Zealand based consumerdoes not pay the tax (businesses that produce GST-exemptsupplies are not able to claim back input GST). Because businessesclaim back their input GST, the GST inclusive price is usually irrelevant for business purchasing decisions,other than in relation to cash flow issues. Consequently, wholesalers often state prices exclusive of GST, but must collectthe full, GST-inclusive price when they make the sale and account to the IRD for the GST so collected.
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  21. 21. 21  Australia The goods and services tax (GST) in Australia is a value added tax of 10% on mostgoods and services sales.GST is levied on most transactions in the productionprocess,but is refunded to all parties in the chain of productionother than the final consumer. The tax was introduced by the Howard Government and commencedon 1 July 2000,replacing the previous federalwholesale sales tax system and designed to phase out a number of various State and Territory Government taxes, duties and levies such as banking taxes and stamp duty. An increase of the GST to 15% has been put forward, but is generally lacking in bi-partisan support. The idea for a broad-based consumptiontax was first proposedby then federaltreasurer Paul Keating at the 1985 Tax Summit but was dropped at the behestof then Labour Prime Minister Bob Hawke after pressure from the ACTU, welfare groups and business,which did not like its association with proposals for capital gains and fringe benefits taxes. A prominent selling point of the legislation was that all the revenue raised by the GST would be distributed to the states. In 1999 an agreementwas reached with the state and territory governments that their various duties, levies and taxes on consumptionwould be removed over time, with the consequentbudgetshortfall being replaced by GST income distributed by the Commonwealth Grants Commission. Furthermore, federally-levied personal income tax and company tax was reduced to offsetthe GST.
  22. 22. 22 All Australian businesses whose turnover is above the minimum threshold (currently $75,000 perannum) are required to register for GST. Businesseswhose turnover is below the threshold may registerif they wish to. A GST-registeredbusiness must charge its customers GST on taxable goods and services it provides,but is entitled to a credit for any GST it has paid for its expenditures on these goods and services as well as capital purchases (called input tax credits).A registered business must periodically lodge Business Activity Statements (monthly, quarterly or annually), and at the same time pay the net amount of GST owed to the tax office (if more GST is paid than collected,a refund is paid by the tax office instead). Some goods and services (notably salaries, wages, fresh food,and real estate) are exempt from GST. Other goods and services (rental income and financial services)are "input-taxed", which means that GST is not charged on the sale, but GST paid by that part of the business is not eligible to be claimed as an input tax credit. John Howard had said that the "GST would never becomepart of Liberal Party policy ", but his change of heart would become apparentin the lead-up to the 1998 campaign. It was passed by the Senate in June 1999 in a heavily amended form. The Leader of the Democrats, Meg Lees,viewed the dilution of the GST legislation as a success,but the issue split the Democrats,with Senators Natasha Stott Despojaand Andrew Bartlett voting against the GST.
  23. 23. 23 Critics have argued that the GST is a regressive tax, which has a more pronounced effecton lower income earners, meaning that the tax consumes a higher proportionof their income,compared to those earning large incomes.However, due to the corresponding reductions in personal income taxes, state banking taxes, federalwholesale taxes and some fuel taxes that were implemented when the GST was introduced, formerTreasurer Peter Costello claimed that people were effectively paying no extra tax.
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  25. 25. 25  Canada The goods and services tax is a multi-level value added tax introduced in Canada on January 1, 1991,by then-Prime Minister Brian Mulroney and his finance minister Michael Wilson.The GST replaced a hidden 13.5% manufacturers' sales tax (MST); Mulroney claimed the GST was implemented because the MST was hindering the manufacturing sector's ability to export competitively.The introduction of the GST was very controversial. The GST rate is 5%, effective January 1, 2008. The goods and services tax is defined in law at Part IX of the Excise Tax Act. GST is levied on supplies of goods or services purchased in Canada and includes mostproducts,except certain politically sensitive essentials such as groceries,residentialrent, and medical services,and services such as financial services.Businesses that purchase goods and services that are consumed,used or supplied in the course of their "commercialactivities" can claim "input tax credits" subjectto prescribed documentation requirements (i.e., when they remit to the Canada Revenue Agencythe GST they have collected in any given period of time, they are allowed to deductthe amount of GST they paid during that period). This avoids "cascading" (i.e., the application of the GST on the same good or service several times as it passes from business to business on its way to the final consumer). In this way, the tax is essentially borne by the final consumer.This system is not completely effective,as shown by criminals who defrauded the system by claiming GST input credits for non-existent sales by a fictional company. Exported goods are exempt ("zero-rated"), while individuals with low incomes can receive a GST rebate calculated in conjunction with their income tax.
  26. 26. 26 The tax is a 5% tax imposed on the supply of goods and services that are purchased in Canada, exceptcertain items that are either "exempt" or "zero-rated":  For tax-free — i.e., "zero-rated" — sales, GST is charged by suppliers at a rate of 0% so effectivelythere is no GST collected. However, when a supplier makes a zero-rated supply, it is eligible to recoverany GST paid on purchases used in producing the particular supply or service. This effectivelyremoves the cascading tax from these particular goods and services.  Commonzero-rated items include basic groceries,prescriptiondrugs, inward/outbound transportation and medical devices (GST/HST Memoranda Series ME-04-02-9801-E 4.2 Medicaland Assistive Devices).Certain exports of goods and services are also zero-rated.  For tax-exempt supplies,the supply is not subjectto GST and suppliers do not charge tax on their exemptsupplies.Furthermore, suppliers that make exempt supplies are not entitled to recoverGST paid on inputs acquired for the purposes of making the exemptgood or service.Tax-exempt items include long term residential rents, health and dental care, educational services,day-care services,legal aid services,and financial services. On July 1, 2006,the Government of Canada reduced the tax by 1 percentage point (to 6%), as promised by the Conservative Party in the 2006 electioncampaign. They again lowered it to 5%, effective January 1, 2008. This reduction was included in the Final 2007 Budget ImplementationBill (Bill C-28), which received Royal Assenton December14,2007.
  27. 27. 27 This change has been estimated to have decreased government revenues by approximately $6 billion. Opponents of these tax decreases cited that sales taxes target those who spend more and therefore such reductions disproportionatelybenefitCanadians giving those who have the most and spend the most the largest tax decrease. Much of the reason for the notoriety of the GST in Canada is for reasons of an obscure Constitutional provision. Other countries with a Value Added Tax legislate that posted prices include the tax; thus, consumers are vaguely aware of it but "what they see is what they pay". Canada cannot do this because jurisdiction over most advertising and price- posting is in the domain of the provinces under the Constitution Act, 1867.The provinces have chosen not to require prices to include the GST, similar to their provincial sales taxes. As a result, virtually all prices (exceptfor fuel pump prices,taxi meters and a few other things) are shown "pre-GST",with the tax (or taxes) listed separately.
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  29. 29. 29  Singapore Goods and Services Tax (Abbreviation: GST) in Singapore is a broad- based value added tax levied on import of goods,as well as nearly all supplies of goods and services.The only exemptions are for the sales and leases of residential properties and most financial services.Export of goods and international services are zero-rated. Before 1986,Singapore'scorporate income tax rate and top marginal personal income tax rate both stood at 40%. Such high rates were deemed to be uncompetitive. On the recommendationof the 1986 Economic Committee,Singapore's governmentdecided that it needed to shift from direct to indirect taxes, to maintain its international competitivenessin attracting investments, and to sustain its economic growth to create well-paying jobs for Singaporeans. The GST was part of a larger tax restructuring exercise to enable Singapore to shift its reliance from directtaxes to indirect taxes. The government argued that tax reform was necessaryto maintain Singapore's competitiveness,to sustain long-term growth and job creation. The government also argued that with an ageing population, Singapore's income tax base was expected to decline.With a broad- based GST, the taxation burden would be more evenly spread among the population. A value-added tax, like the GST, also has several features that make it attractive. A tax on consumption,not income, the tax system inherently encourages savings and investments instead of consumption.The tax also has a self-policing mechanism that discourages evasion, unlike a retail sales tax system or an income tax system, which would be relatively easier to evade.
  30. 30. 30 GST was implemented at a single rate of 3% on 1 April 1994,with an assurance that it would not be raised for at least five years. To cushion the impact of GST on Singaporean households,an offsetpackage was also introduced. Simultaneously, corporate tax rate was cut by 3% to 27%, and the top marginal personal income tax rate was cut by 3% to 30%. The initial GST rate of 3% was among the lowest in the world, as the focus was not to generate substantial revenue, but to allow people to get adjusted to the tax.[4] In 2002,the Economic ReviewCommittee reviewed Singapore's tax policy, and recommended that further tax reform was necessaryto bring in new investments. The committee noted that other countries were aggressivelycutting their direct tax rates to attract internationally mobile capital and labour, and recommended that the government rely more on GST for its tax revenues, while again cushioning the impact on Singaporean households through an offsetpackage. The government accepted the committee's recommendations.The GST rate was increased from 3% to 4% in 2003,and to 5% in 2004.Each increase was accompanied by an offsetpackage that was designed to make the average Singaporean household overall better off,even after accounting for the additional costs imposedby the increase in GST rates. Direct tax rates were also reduced correspondingly. On 15 February 2007 (Budget Day), Second Finance Minister Tharman Shanmugaratnam announced that the GST rate would be increased to 7% with effectfrom 1 July 2007. The rate increase was accompanied by an offsetpackage to help Singaporeans with the increase in GST. The package would cost the government $4 billion over five years.
  31. 31. 31 The government argued that the offsetpackage would help the majority of Singaporeans offsettheir increased GST costs for several years. The offsetpackage consisted of directtransfer benefits,in the form of cash payouts (GST credits, growth dividends,senior citizens' bonuses), CPF top-ups (post-secondary education account top-ups for students, Medisave top-ups for olderSingaporeans), and rebates (on utilities and public housing service & conservancy charges). Those who earned less or lived in smaller homes received more benefits. The government also argued that the Workfare Income Supplement,a wage subsidy, would provide significant supportfor lower-income workers on a continuing basis even after the GST offsets have beendistributed. The government also cut direct tax rates, continuing its practice of lowering direct tax rates since 1986. As of 2010,the top marginal rates for corporate tax stood at 17% and personal income tax at 20%, with effective rates being much lower.
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  33. 33. 33  Major beneficiaries(Sectors) due to GST  E-commerce As industrialists in India wait with bated breath for the rollout of GST as part of the tax reforms undertaken by the government, one of the biggest beneficiaries of the rollout could be the booming e-commerce sectorin India. India currently has no tax laws in place to regulate the e-commerce industry. As a result, tax imposition is done based on the interpretation of local taxation authorities in differentstates. Businesses suffer because the interpretation varies from state to state. Implementing GST will actually help eliminate the taxation problem at the root faced by the e-commercecompanies and give a further boost to the e-commerce sectorthat is still at a nascent stage, yet growing exponentially, and has the potential to give a huge boostto the country’s economyin the coming years. It is currently being perceived,by the industry, as panacea to endless tax woes. Logistics being one of the biggesthurdles so far for e-commerce companies,the roll-out of GST is likely to simplify things to a great extent. The objective of GST is to simplifyand streamline the indirect tax regime in the country. Since the same tax regulation will apply across differentstates, e- commercecompanies (as well as those from other industries) will not have to struggle with the complexregulatory structure that currently prevails in the country, and with the lack of uniform policies in different states, giving them the levy to devise their strategies in keeping with the GST norms.
  34. 34. 34 Under GST, both Central and State taxes will be levied on the manufacturing costat the point of sale, which will help eliminate the challenge of tax being levied on the same product/service morethan once. Moreover, sourcing, distribution and warehousing strategies that are currently designed by companies from the perspective of how tax liability can be minimised will change. Companies can now device these strategies based on what is actually in their best interest, since they no longer need to have a warehouse in every state as a means to minimize their tax liability. Instead, a large warehouse at a strategic location can fulfill the demand of several states and help minimize costs.In fact, based on research it is believed that a company’s profit can increase by over 20 per cent by reducing costby a mere 2 per cent. Going by this estimate, e-commerce companies stand to gain tremendouslyfrom GST. Easing regulatory norms is a move that will not just benefite-commerce companies by further accelerating their growth, but will also position the country as industry-friendly and attract more investments from foreign investors. This in turn will create a ripple effectby generating endless employmentopportunities.It is, therefore,imperative that the government makes all efforts to make GST a success,since it will be a win-win for both, the industry and the economy.
  35. 35. 35  Logistics With the Government hoping to pass the Goods and Services Tax (GST) bill in the Parliament's budget session,transportation and logistics companies are preparing for changes in their operations.Industry experts feel that GST will not only make them more efficient but also reduce their actual requirement for commercialvehicles. The GST is expected to be implemented by fiscal 2016-17 and is aimed at reducing multiple taxes. Inter-state sales transaction will becometax neutral, the whole country become one single commonmarket without any state borders. Logistics companieswill therefore see a major change in transportation of goods and location of warehouses. In the past the warehouses were set up for avoiding state taxes at the cost of operational efficiencies. Vivek Ganguly, Director(Investments), Nine River Capital, an investment banking firm, said that because of trade barriers such as entry taxes, local bodytaxes, octroi and other hurdles, trucks are sitting idle 30 to 40 per cent during their delivery schedule. “Whenyou remove these barriers, you will have 30 to 40 per cent, less downtime for vehicles, which effectivelywould mean companies would need lessernumber of vehicles for carrying out the same business. Post GST implementationthere would be a dip in the replacementdemand for vehicles, at least for a period of 12 to 18 months,” Ganguly said. There would also be a move for procuring higher tonnage trucks due to the new efficienciesbrought about by the GST.Companies will consolidate small warehouses, which were set up for avoiding taxes.
  36. 36. 36 Trucks with load capacity up to 20 tonnes would be replaced by larger trucks for carrying additional cargo, Gangulay said. Logistics costs inthe country are about 14 per cent of GDP, while in developedcountries they are nine per cent. In the logistics sectoronly about 10 to 20 per cent of the companies are organised.Rest of the space is taken by small fleet and warehouse operators,which leads to tremendous inefficiencies in operations. Past presidentof All India Motor Transport Congress,Bal Malkit Singh, said that on an average a truck runs about 220 km per day. After is GST is implemented could run up to 300 km to 315 km, efficiencies of the logistics companies will also increase, leading to a reduction in demand for new trucks. Managing Director of DHL Supply Chain Vikas Anand, said that in the postGST scenario, location of the warehouse would be more driven by the market forces of demand and supply. In the coming years the smaller warehouses of 15,000 to 20,000 sq ft would be merged and larger ones of over 2 lakh sq feetwould be set up, GST will transform the way goods are transported within the country. Today because of sizes of warehouses are very small, corresponding smaller inefficienttrucks with a carrying capacity of nine to 20 tonnes are being used. In the near future, trucks with 40 tonnes plus carrying capacity will run on the highways, which will service large warehouses, he said.
  37. 37. 37  Plywood Plywood manufacturers in the organised sectorexpect the rollout of the goods and services tax (GST) to boosttheir sales in a market dominated by the unorganised sector. In the Rs 25,000-crore Indian plywood market, the unorganised sector has a market share of 60-65 per cent. Organised players in the segment include Greenply, Century Plywood, Kitply,National Plywood and Uniply Industries.Keshav Kantamneni, chief executive of Uniply Industries, said the introduction of GST would result in "goods being taxed at every level, thereby creating a level playing field for the organised manufacturers, and would also make inferior-quality plywood less competitive". The price advantage enjoyed by unorganised manufacturers would diminish gradually, making high-quality plywood competitive,he said. Existing manufacturers pay 16 per cent excise duty and four per cent sales tax on their products. According to the Federationof Indian Plywood & Panel Industry, lowering of excise duty to less than 10 per cent would force the unorganised plywood units to make excise payments regularly. The Bengaluru-based Indian Plywood Industries Research& Training Institute also expects the rollout of GST to make things tough for the unorganised sector,as inferior-quality plywood would become less competitive.This would also lead to a reduction in the import of low-cost Chinese plywood in the coming years.
  38. 38. 38 Plywood demand meanwhile is set to witness a jump owing to a rise in real estate demand and the Centre's plan to establish smart cities and other urban infrastructure projects.As against 5-6 per cent growth seen last year, it is expected to clock double-digitgrowth in the current fiscal year. Top producers,therefore,are expanding capacity and are increasingly looking to acquire manufacturing units in the northern and western regions, where the demand is anticipated to come from. Green Ply Industries is currently expanding its Rajasthan laminates factory plant, and is open to considering new investments in its plywood factories located at Kolkata and Nagaland. Also, with labour costs going up in China, producers there are losing out to competitionfrom India, Vietnam and Indonesia.This is helping Indian manufacturers to plan capacity additions and step out aggressivelyto source raw material, said Naresh Tiwari, president, North India Plywood Manufacturers Association.The protracted slowdown in Chinese domestic plywood demand had resulted in companies there reducing capacity and some even shutting down their units due to the imposition of a ban on logging of high-quality wood in Myanmar, the source of the most-preferred wood. As a result, low-costproducers in India are either sourcing veneers (facing layers) from established players or through imports, and binding them with rubber plantation wood, bamboo and other materials, which has poor durability.
  39. 39. 39  Pharmaceutical sector With the implementation of GST, cost of any service,including logistics, will be considered as value add, and the manufacturer will get tax credit for the service tax paid. The biggestadvantage to the industry would be that of reduction in transaction cost,with an immediate impact coming from the discontinuance of CST.The multistage taxation along with the inability to take full benefitof the CENVAT credit /refund has been an issue for the industry. With central GST expected to be a single rate for goods and services,going forward credit accumulation may not be an area of concern. Furthermore, if the legislation provides for carrying forward of the unutilised credit this would be an additional boostto the industry. This will result in lower costwhich can add to margins or can be passed on to customers. Opportunity to explore alternate distribution models:Organisations will be able to explore differentdistribution models such as setting up mother warehouses and regional distribution hubs and considerstepping away from traditional C&F and distributor based models currently adopted. This will lead to logistics and distribution to evolve as a competitive advantage through improved service levels, faster turnaround times and better fill rates at lower costs. Furthermore, the pharmaceutical sectorcurrently enjoys various location based tax holidays on its manufacturing activities. Under the proposed structure of GST,such area based exemptionwill be done away with.
  40. 40. 40 However, taking into account past precedents suitable work around/refund process would be constituted to ensure that any existing hubs do not get impacted and continue to get the agreed benefits. However, the challenges faced in distributing from these remote locations could be addressedby designing logistics efficientnetworks of mother and daughter warehouses to ensure optimisationof cost and superior availability of products. While the qualitative benefits arising out of GST are well established, there is a definite impact to economics of companies as well. Logistics costaccounts for nearly 13-14 per cent of our GDP. Of the total logistics costtransportation contributes ~35 per cent, warehousing & storage ~10 per cent, inventory holding cost ~25 per cent and other inefficiencies’ make up the balance 30 per cent. Implementationof GST and alignment of a firm’s supply chain to it will directly help in reducing coston transportation, warehousing and inventory holding by 5-8 per cent, 10-12 per cent and upto 28 per cent respectivelyfor each of the costheads, leading to an overall savings in the range of 10-12 per cent of the total logistics cost. As Indian pharmaceuticals companies look forward to revenue growth on one side and the need to reduce costs,GST offersa great opportunity to revisit their Supply Chain & distribution strategy to develop an agile, customisedand cost-efficientsupply chain. Companies need to act now to assess the impact of GST on their businessesand functions and develop an action plan and road map for the future. Those who move early are likely to gain an advantage on costand service levels over their competitors and deliver a better value propositionto the customer.
  41. 41. 41  Manufacturing industry The proposedGoods and Services Tax (GST ) rate of 17-18 per cent as suggestedby a panel headed by Chief Economic AdviserArvind Subramanian would benefit mostcompanies engaged in manufacturing of goods,according to tax experts, economistsand brokerage houses. "Most goods manufactured in the country have an average 27-30 per cent indirect taxes component.If the proposedstandard rate of 17-18 per cent is implemented,the final prices of these goods can come down by 10-12 per cent," says Sachin Menon, partner and head, indirect tax and COO, tax and regulatory services,KPMG in India. At present, manufactured goods attract 12 per cent excise duty, 5-15 per cent value-added tax (VAT) and in case of inter-state sales, a central sales tax of 2-15 per cent. Besides,some states also impose entry tax and Octroi of up to 15 per cent. With GST, all these taxes would be subsumed and a standard rate would be applicable across the country. Though initially the government was planning a single uniform rate across the country, due to protests from states, which fear losing out on tax revenue, the government has proposeda three-tiered tax structure to begin with - a low rate of 12 per cent for essential items, a high rate of 40 per cent for luxury cars, tobacco products and aerated beverages, and a standard rate of 17-18 per cent for mostgoods and all services. According to a report released by Nomura, the announcement is positive for most FMCG companies."Currently, most consumercompanies in India incur tax rates of around 22-25 per cent, due to which a standard rate of 17-18 per cent should benefitthem.
  42. 42. 42 We see companies such as Hindustan Unilever, Colgate-Palmolive and Asian Paints benefiting from this recommendationthe most, especially as their exemptions have recently expired. One should see a positive effecteither in their volumes or through margin expansion," says the report. However, companies which are into food processing business - edible oils, biscuits, chocolate,cocoaand baked items - may get negatively impacted as they would reap the benefits exemptions extended to processedfood items. There are other sectors such as pharma and locally manufactured mobile handsets that enjoy lower incidence of indirect taxes. According to a Religare report on the impact of GST, sectors such as automobile, capital goods,cementand building materials would gain due to lower incidence of tax post-GST implementation. The report points out that these sectors pay around 24-40 per cent indirect taxes. The GST is also likely to widen the tax net as Sachin Menon of KPMG says it is very difficult in the GST regime to escape paying taxes. This would benefitthe companies that operate in sectors with large number of unorganised players. "The price competitiveness of the unorganised entities is likely to deteriorate, resulting in narrowing of the price differentials.This is likely to lead to accelerated top-line growth and also increase in market share of the organised players," says the report from Religare. According to Religare, companies like BATA India (Footwear), Kajaria Ceramics,Somany Ceramics (Tiles), Mayur Uniquoters (Artificial leather), Finolex Industries (Pipes), Pidilite (adhesive), etc may benefit from unorganised players losing the price differentialbenefits postGST.
  43. 43. 43  Automobile The government’s plan to introduce the goods and services tax (GST) will allow the automobiles,logistics and entertainment sectors to reap a rich dividend from the rollout targeted fornext year. But for petroleum, the wait will be longer as it is not been included in the GST framework. Analysts and corporate tax experts said under the GST, the cumulative duty rates on large cars and sports utility vehicles would fall from 41-41 per cent to 20-24 per cent, making these the biggestbeneficiaries of the rollout. For some segments of the automobile industry like tractors, which are exempted from excise duty but pay four per cent value added tax, the GST rate will increase to 12 per cent. Overall, Mahindra & Mahindra would be a beneficiarybecause the company earned 25 per cent of its revenue from sports utility vehicles, analysts said. Automobiles,pharmaceuticals and consumerproducts companies enjoy tax benefits by setting up manufacturing units in states that offer incentives like excise, VAT and income tax concessions.Many fast- moving consumer goods companies,especially in food products,enjoy rates of zero to six per cent versus the current excise rate of 12 per cent. If the GST rates go up, they will increase costs and the companies will pass them on to consumers. Adi Godrej, chairman, GodrejGroup, said the GST would add two per cent to gross domestic productgrowth and it was good that the Centre and states had come to terms on the issue. “Though there have been a few compromises.For instance, petroleum products have been exempted fornow. So is alcohol.
  44. 44. 44 Once all the items are included, the full impact of the GST will be felt. But there is no denying how critical this developmentis. We are better off getting started with this (GST) rather than delaying it,” he said. Corporate lawyer Sumit Lunker of BDO India said the entertainment and telecom sectors would be big beneficiaries as the GST would eliminate a multiplicity of taxes–entertainment tax, luxury tax, VAT and service tax– and end classificationdisputes on software, SIM cards, franchise fees, and annual maintenance contracts for telecom companies.
  45. 45. 45  Footwear sector With no major announcements for shoe manufacturers, members of Agra's footwearindustry are now looking towards the passing of the Goods and Services Tax (GST) Bill with the hope that it might provide some relief to their woes. They were disappointed that despite being among the priority sectors under Prime Minister pet 'Make in India' initiative the industry did not get any specialmention in this year's Budget. Industry insiders commented on two announcements made by Union finance minister . First, reduction of excise duty on rubber sheets and resin rubber sheets for soles and heels from 12.5% to 6%. Second,the abatement rates for the retail sale price (RSP) based assessmentof excise duty for all footwear have been revised from 25% to 30%. This, shoe manufacturers said, will just marginally benefitconsumers and exporters. "As far as the overall Budgetis concerned,it is pro-development.There is no major tax burden on the public. The increase in abatement rate from 25% to 30% will have a positive effect,and it will increase production, which may lead to fall in footwear prices," said Puran Dawar, presidentof Agra Footwear Manufacturers & Exporters Chamber (AFMEC), talking to TOI. "The footwear industry has not got anything from this Budget,even as this sectorwas made a thrust area during the Make in India campaign. Now, our hopes are focused on the GST, where we see reforms.It will bring uniform taxation and resolve many issues. The announcements will make no differenceto domestic as well as export products," said Valentino shoes director Chander Daultani.
  46. 46. 46 Formerpresidentof AFMEC Nazir Ahmed said the Budget was a "letdown" for footwear exporters."We have sought certain incentives to compete with the international market like duty-free import. High duties on import of components are making it difficultfor us. Focus product licence was reduced from 4% to 2%. We wanted that restored to the original percentage.The budgetlooks to have political aims more than commercial," Ahmed added.
  47. 47. 47  Start-up sector Over from a decade,the culture of running startups and small businesses has been evolved and still growing rapidly. Now-a-days the trend of online business is emerging very fast, stepping back the outdated traditional set-up. The government has also realized the same. For promoting this innovative idea, it has recently announced the “Startup India” campaign. For generating interest among the youth, the campaign has proposeda series of regulatory and tax-related benefits.Out of a diversified range of proposals that are necessaryto encourage the startups, Goods and Services Tax(GST) is the one, which is quite important too in terms of indirect tax perspective. Under the GST scheme,which is based on the business process documenton registration discloseby the Government’s Joint Committee, anticipations are there that for gaining the benefitof the indirect tax registrations, there would be standardized and centralized registration cell. By this, much of the time and efforts can be saved for startups and resultantly they can focus more over their business concerns rather than the tax compliance and administration.GST regime should also be having similar provisions so that the initial burden regarding registrations can be further reduced. Apart from the positive changes in legislative provisions,there are many ground-level realities that must be dealt very carefully. As per the GST rules, it is expected that upto a large extent, the presentstate tax borders would be diminished.
  48. 48. 48 Some of the advantages we can see under this aspectare:  Goods can be transported efficiently.  Storage and transportation costs will be reduced.  The exclusive function of business requirements is only the supply chain. Having a glance over the current Indirect Taxes framework in India, it has been found that there’s an obstructionof input credits. This causes high costs to be incurred for the startups. There are several non- creditable taxes like Central Sales Tax(CST), entry taxes, luxury and entertainment taxes. Moreover, output service tax can’t be used as VAT and vice-versa. GST can resolve this upto some extent. Tax costs would be cut down for the startups if there is an increase in credits.By this, they can price their products in a more efficientmanner. GST regime provides more like a distribution modelthat is probably based on commercialconcerns. A business-friendlytax policy must be there for the precise and clear administration. For the developmentand growth of startups in the country, it is anticipated that the GST would do something about this aspect.What a new entrepreneur need is to not have the burden of tax, disputes and difficulties while setting up the business.That’s all, which is expected from GST.The fact, that these procedures and policies are so necessary,it is important too that the same should be followed at the ground level. Making this initiative as an effective one,it is very important to consider this innovative idea to be executed properly. Real boostto the startups can only be done through a well-planned GST regime rather than an inefficienttaxation model.
  49. 49. 49  Impact of GST on ultimate consumers Any regulation change in taxation usually either means more taxes or difficultprocedure.Either ways such kind of change in regulation is usually opposedby people.However the proposed Goods and Service Tax regulation is aimed at simplifying the current taxation structure and reduce the cost of total tax borne by end user. Convenience to the honest tax payer and disincentivising the tax evaders are two major benefits of this method of taxation. To explain in a nutshell, when you purchase goods from one state you pay sales tax (CST) and when you sell that goods in another state you have to pay VAT again. So there is a “double taxation” of the same goods and of the same transaction as you do not get credit of tax already paid. What GST aims at is in the above situation you have to pay tax only on the increase in sales value and you get the creditof the tax you have paid while purchasing. Biggestbenefit will be that multiple taxes like central sales tax, excise duty, service tax state sales tax, entry tax, entertainment tax, luxury tax, turnover tax etc., will no longer be presentand all that will be brought under the GST. Apart from the avoidance of double taxation the biggestbenefitis to reduction of compliance costs.The paper work is going to be reduced as there will be single authority to file returns, assessments and appeals. So unproductive work like maintaining separate records,meeting differentconsultants and complying with differentdepartments will be reduced.
  50. 50. 50 This is a tremendous benefitto any size of business and in particular National players. These tax savings eventually get passed on to consumers.Moreover small businessmenwill get input credit of taxes they pay on varied services.As of now Service Tax paid was not used as a credit for payment towards Central Sales Tax. However in GST you can take benefitof service tax paid on telephone bills, AC service charge, computer AMC, Internet expense etc. Doing Business now will be easier and more comfortable as various hidden taxations will not be present. Starting a new business will be easier and hence the consumers will have the luxury of multiple choices for whichever goods or services he wants. This automatically keeps prices in check and ensure that the benefits of decreased taxes be passed on to the end users. The rate of tax may seem high and for the first year end consumermay have to pay higher tax, however after the first year the tax burden will reduce.Combined with increased competition,no double taxation and reduced paperwork – end user is definitely going to reap the dividends. It will improve corporate earnings, attract investment, generate employmentand boostthe economy.The GST will replace most other indirect taxes and harmonise the differentialtax rates on manufactured goods and services.Right now, the effective tax rate on manufactured goods works out to 20%, while services are taxed at 10.3%.The GST rate has not been decidedyet, but it is likely to be around 15%.So, the tax on manufactured goods could go down while that on services could go up. This doesn’t mean that the GST is a zero-sum game for consumers.The real benefits for them could come from the way it reduces the tax burden on corporate.
  51. 51. 51 Right now, businesses pay taxes levied by the Centre and states at every stage of the supply chain. This cascading effectof taxes pushes up the costs of products and services,which the consumerhas to bear. Under the GST, businesses will be allowed to set off the taxes they pay when they purchase any raw material, good or service (see graphic). In the example, all players in the supply chain pay 15% GST on the value addition done by them. The consumeralso pays only 15% tax on the price of the product.“The strength of the GST lies in avoiding the continuous levying of taxes from producerto consumer.” The setting off provisionof the GST has far-reaching implications for businesses.If they are refunded the taxes paid on inputs, service providers,producers and distributors will see a significant dip in costs. Also, the supply chain structures will become more efficient.Consumers stand to gain if these costbenefits for producers translate into lower prices.For instance, companies may no longer have to set up depots in every state to avoid tax. Instead, one large depotcan service three-four states.
  52. 52. 52 However, the gains for the aam aadmi are still wrapped in conjecture. It’s not clear if the benefits will be passed on to the consumer.When Australia introduced the GST in 2000,the government had set up a commissionto protectthe interests of consumers.The commission monitored prices to ensure that consumers gotfull benefits from the reduction in tax rates. If the tax rate went up, it ensured that consumers were not charged more than what was necessary.It could levy fines of up to $10 million on businesses if they resorted to excessive profiteering. The ACCC had also launched a nationwide consumer awareness campaign on how GST would affectprices.The Everyday Shopping Guide with the GST provided a range of expected price movements for 185 household goods and services and was widely distributed. Indian lawmakers, however, do not think it important to discuss the impact on the consumer. The issue of price control did not figure in the discussions of the empoweredcommittee of state finance ministers. “Price control was not discussed,but the GST will generate employment and boostgrowth. The commonman will also gain from this,” says the finance minister of Punjab. While state intervention in pricing might seem regressive,experts agree that consumer interests need to be protected. Speaking at a meeting of the Parliamentary Consultative Committee attached to his ministry, Finance Minister said GST will help reduce tax- on-tax and will be beneficialto consumers.GST like state-level value added tax (VAT) is imposed onvalue addition in each stages of productionand, hence, avoid cascading effect,or tax-on-tax. "GST will benefit mostof the states from Day 1, especiallyconsumer states," he said, according to a statement issued by the finance ministry. GST is a destination-based tax imposedon products and services in the states where these are consumed.
  53. 53. 53 GST would be beneficialto the Centre, states, industrialists, manufacturers, the commonman and the country at large since it will bring more transparency, better compliance, increase in gross domestic productgrowth and revenue collections. As the volume of trade expanded and growth momentum picked up, every state would benefitwith the rise in their revenue collections,he added.The Centre proposed to levy a non-vat able additional tax of one per cent on goods involved in inter-state trade which would be assigned to states. While this tax will be levied for two years, it could be extended if recommendedby the GST council. A Constitutional AmendmentBill on GST was introduced in the Lok Sabha on December19. It would be taken up by Parliament in the next session.The governmentintends to roll out GST, which will subsume most of the indirect taxes, from April 1, 2016.He also said the government was open to suggestions formaking further improvements to the GST Bill. "GST is a continuing process,which would further evolve and improve with time," the statement quoted him as saying. In this regard, members made suggestions,including that the Centre brings out a White Paper, giving details on revenue to the Centre, states and who will be the ultimate beneficiaries.Clarity was also sought on whether the manufacturers, suppliers or consumers would be the ultimate beneficiaryof the move.
  54. 54. 54  Overall benefits in the economy Government:  Consolidation of multiple Centre & State taxes  Increased tax collection on wider tax base  Improved tax GDP ratio –revenue aligned to the economy  Better and effective administration Business:  Ease of compliance  Reduction in effective tax rate on goods & services  Reduction in cascading effect of tax  Efficient deployment of resources Consumer:  Reduction in incidence of tax on goods / services  Reduce double taxation
  55. 55. 55  Conclusion With the ongoing political debate in the Upper House of the Parliament, passage of the Constitution (100th Amendment)Bill, 2015 is still a step away from reality. Nonetheless,the central government seems positive and expects significant movement on GST in the coming days. It is visibly working in a constructive manner to have the Bill passed in the latter half of the Budgetsessionof the Parliament. As far as creating the ecosystemis concerned,even there the government does not seem to be putting its footoff the pedal.
  56. 56. 56 Absent any officialextension of the April 2016 timeline as yet, the bureaucracy as well as all agencies responsible to assistthe government in GST implementation including the Goods and Service Tax Network (‘GSTN’) team is working tirelessly to meet their respective timelines. Gauging the unstoppable approach of the central government even the state governments have also initiated some ground level preparatory work. All this action, however, does not seem to excite India Inc enough, which continues to hold very meagre hopes of GST seeing the light of the day anytime soon.The fact that the Indian governmenthas failed to deliver GST on multiple committed timelines has led to an unforeseenscenario wherein the government seems fully geared to implement GST but the industry at large continues to be in slumber. While the officialannouncement is likely to come only with the announcement of Union Budget2016 next month, the governmentis likely to make serious attempt to bring in GST in October2016 or latest by April 2017.In either case, time with the industry to get ready for GST is perceptiblyvery limited. Within this time frame, businesses needto be prepared to switch over to new indirect tax regime.This calls for undertaking a host of activities such as training of people,aligning the indirect tax compliance processes,understanding the impact on business,updating accounting and information technology systems and taking other suitable measures to ensure a smooth transition. As GST is envisaged to be driven on an online platform with real time updating of data on the GSTN portal, a robust information technology (IT) infrastructure would be required to meet the voluminous reporting and compliance requirements under GST. ERP systems would need to be revamped and developed stringently to capture the additional information which is not captured presently.
  57. 57. 57 For instance, state of supply on the invoices for goods and services, HSN/ accounting codes forthe goods or services,segregationof B2B and B2C supplies etc may be required under the GST regime. Compliances and record keeping at the warehouses may also become equally important for manufacturers. As evident, IT teams would require significant time to update all ERPs and to realign their process flows. Transitional accounting features and facilitation of audit trail in the accounting systems are crucial to avoid any last minute glitches. Depending on the size, scale and complexities of the business,the process ofimplementationof GST by corporate tax payers may need constitution of a dedicated steering committee involving various process owners for effective implementationof transition to the new indirect tax landscape. Meticulous training of all stakeholders as well as overhauling the tax compliance processes is other important dimensions in preparing for the impending change in indirect taxation system. Over the past couple of months, several reports have been issued by the Joint Committee discussing several aspects such as registration, return, payments and refunds.Further, the draft GST laws are also expected to be released soonin the public domain for comments.Considering the information available in the public domain, it is possible to map the broad contours of the proposed GST regime. This information would help businessesto undertake the impact analysis and other necessarysteps for a smoothshift to the GST regime. Such steps would further facilitate a SWOT analysis based on which they may harness the strengths and minimize the weaknesses while identifying the various opportunities and threats for the business under GST regime.The processof readying the business teams for transition to GST would also help in identification of areas of advocacy.
  58. 58. 58 Interaction with the government by making representation through forums and industry chambers ahead of the official GST rollout could also be a very relevant exercise at this stage. The government’s continued action on GST is a strong wake up call for India Inc to now gear up and get rolling. The additional time on account of delay in passage of the Bill is in fact a bufferfor the businesses to make preparations for shifting to GST regime which is a undeniably a mammoth task. As someone said “if you fail to plan, you are planning to fail”.
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