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GST: Is It Great Taxation Reorm In India After Independence?

GST is a globally accepted tax system and therefore, through GST, India can boost foreign investment in India but what it needs is an efficient administration and excellent implementation of the tax

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The uniform tax on products and services all over the county is a well integrated and well accepted proposal that will most likely to bring a  lot of benefits to producers and consumers every way in the ensuing periods. In fact, GST  will remove the tax on the tax levied by different state governments but, however, there are a lot of hurdles in the implementation of GST. India initiated all efforts towards the implementation of GST for the last seventeen years and now introduced  GST from July 1, 2017. GST   will certainly lead  to a single unified and seamless   market by bundling multiples states and central taxes into one entity throughout India and it is  a great taxation reform in India after independence in view of the fact that it subsumes many taxes such as excise, service,  vat, octroi, luxury tax, countervailing duty etc and  assures a simple taxation system and deals effectively with tax evasion in all possible ways.GST is a business enabler and the ease of doing business will grow in India. Under GST, a 15 digit code assigned to every registered business or trader which replaces 11 digit TIN and more than 80 lakhs indirect tax payers have registered on the GSTN. The parliament has the power to decide the compensation for states for a further period of five years if any state incurs loss on account of implementing GST  during that period. It is also believed that GST is more likely to trigger GDP  growth rate to the extent of at least 1 percent and it is neutral to geographical location and promotes economic efficiency. The  Higher growth of GDP as a result of GST has also been predicted by Moody,s Investors Service.

Producer versus consumer benefit 

Some may argue that there should be the distinct distinction between the tax on producers and tax on consumers and the tax benefits accrued to producers and consumers in terms of profit and price should be  distinct and justifiable. In certain goods and services, the GST rate is comparatively low and it may pass on the benefit to consumers. In certain products, GST levies are low so that, the producers can over  come their present struggle in sales or reaping profit. But, however, high GST tax slabs 18 percent and 28 percent may invariably affect consumers and Producers. In the present situation, the ascertaining the impact  of GST on the output of business enterprise is somewhat difficult now for varied reasons and another equally important factor is that the input cost offsetting of products not well understood in the initial periods of GST implementation. It needs some more time for GST Council to  solve all the issues and to bring the more justifiable GST rates on products and services.

GST has brought down the prices of certain products and services and in the same way, it increased the prices of certain goods and services. The ultimate impact of GST on the prices of certain products are still  uncertain because of the fact that the prices of such products are not only affected by GST rate alone but many others factors are influencing the prices of such products. In certain products, the companies which   are now paying more tax than the present GST  may be in a position to  reduce the price. For instance, Luxury Cars in automobiles industry are able to reduce the price under GST but GST has derailed certain cap leasing companies and ATM service becomes costly under GST. Whatever GST  problems that crop up all over India on account of GST, India can be proud of implementing GST and undoubtedly , the credit will go to the present government for paving the way for cooperative federalism in taxation.

As far as consumer welfare is concerned, one of the factors well accepted is that more than any kind of taxation, competition is the best guarantor of consumer welfare and in the competitive situation, a  single firm cannot overprice its product. In the situation of imperfect competition, the government tries to take all efforts to pass on the GST tax gain to consumer and constituted a five-member National Anti -Profiteering Authority for GST for two years transition  period  to trace  violations in GST implementation and to take follow-up  actions and if there is any violation, it imposes penalties and even cancel licenses.  Even when, the consumer is not identified in the process, the amount can be credited to the Consumer Welfare Fund. The NAPA  should be assessed on the basis of Malaysia, the anti-profiteering law and   Australia a three-stage mechanism to tackle such GST complaints.

One of the interesting features of GST is that the GST rates are more likely to be stable and neither the state governments nor central Government can   not change tax   rate so easily since the  GST council is entrusted with such powers.  Another interesting point is that, under GST regime, it is quite possible to levy very low taxes for most essential goods, Aam Aadmi  goods and essential services but, in the overall, one of the unsatisfying facts is that it levied very  high level of service taxes on many products and services  than the   existing service tax.

One of the arguments for GST  is that the cascading effect of taxes over customers can be substantially eliminated by the introduction of GST. Many major retailers are debating issues of GST  in terms of price and margins.  More no of retailors  representing Retailors Association of India (RAI) are in discussion with government to avoid problems related to GST implementation and now, GST has become a separate component in the Customers Bill. The problems faced by retailers is that the packed goods are levied tax while loose goods are sold with tax exemptions and retailers are much concerned about this issue. One section of the retailers feels that their profit margin can be protected after the implementation of GST while the other section believes that they have to reduce the prices remarkably for escalating demand for their products.
Impact on Revenue for Central and State Government.
Whatever may the mode and segmentation of tax levies, revenue generation is very important for both Central and  State Governments and GST is more likely to generate more revenue to central and state governments because of the differential tax slabs  5 percent, 12 percent, 18 percent and 28 percent.It should be understood that  GST rates have been fixed after a long deliberation taking into account the interest of all stakeholders but one uninteresting point is that maximum GST was expected was around 18 percent but now it stands at 28 percent. Nevertheless, the GST rates have been levied to achieve revenue neutrality, that is, the post-GST revenue collection is made equivalent to pre GST revenue collection by states and in the event of revenue deficit in states, the centre will meet the situation. It should be noted in this context that apart from liquor, real estate and electricity, the GST Council temporarily excludes five key oil products namely crude oil,  natural gas, diesel, petrol and jet fuel even though these products enjoy mass consumption.

Implementation  of GST
As far as possible, the GST Council has cleared the pending rules to roll out the goods and services tax.The GST Council has fitted more than 1200 goods and 500 services in the GST slab framework but however, the industries are pleading for some relaxation in the provision deemed credit.  GST Network has set up a portal to deal more than 2.6 billion transactions every month and also set Call Centres to handle queries from taxpayers and tax officials. The government will rush on ordinance route to amend the law  for special economic zone act to align with GST  roll out.In view of new GST structure, the government has eased the situation by which  GST error or omission will not attract penalties and fines for the first three months. The government has assured that the GST will be reviewed after three months for all practical problems that arise after the implementation of GST. In fact,GST is new one for India  whereas more than 150 countries have already implemented GST and it  has been in practice in Europe for more than 50 years and according to the Honorable Finance Minister, Arun Jaitley, there will be difficulties for   people in  the initial period of implementation but, in the long run, it will help in cutting down tax evasion and will be helpful in stabilizing price. In the initial stage of GST, the fear of unknown made many business units to  reduce their inventory particularly in the month  June 2017 and many business units Amazon, Flipkart tried to clear their inventory or products even at discounted rates.

At present,preGST stocks now get  stamp of approval from the government and the unsold stock of manufactured, packed  and imported goods in stock  before July 1 can be stamped new prices till September 30 if the price of the goods  is reduced due to GST and the noteworthy point is that the government has provided a timeframe of six months for clearing old stocks

Impact of GST on Business Enterprises  and service sector
The introduction of GST invariably affect different segments differently and business people may cavil against GST for one reason or another but it must be understood that no reform is painless.It is not unusual to find opposition to any major reforms undertaken by the Government Of India  It is reported that  the  traders, companies and other business units in all the circles who paid value added tax previously  registered themselves in the GST website   and business establishments below Rs 20 lakh annual turnover has been exempted from  paying GST.Small establishments in the Rs 20 Lakh to Rs 75 Lack annual turnover are eligible to avail  'composition scheme' and they have to display 'Composition Taxable Person' in their business unit and they are not allowed to charge GST to the customers. Under this scheme, manufacturers have to pay 2 per cent tax  on their annual turnover,, traders 1 per cent of their annual turnover and restaurants  5 percent of the annual turnover.It should be noted in this context that in the preGST, the small scale industries were subject to tax if the annual turnover was above 1.5 crore. GST Council on June 12 levied 5 percent tax on all job workers such as diamond processing, textiles, leather, printing,  instead of the present  18 percent GST rate for services.   In the textile industry, under GST, the manmade fibre yarn will be taxed 18  percent while the products out of manmade fibre will be taxed at 5 percent and this tax differential will be advantageous  for integrated textile units.  

The Tamil Nadu film industry is concerned, Tamil Nadu Entertainment Tax Act 1939 came to an end with the introduction of GST.Concerning the wet grinder industry, Coimbatore, in preGST regime, it was taxed 5 percent by the state government and 12 percent by the Central government but in the post-GST, it was taxed 28 percent. The Indian pharmaceutical market is estimated at $2. 8   Billion in 2015  and it is expected to reach $8.5 Billion in 2022 as per Assocham and RNCOS study and the study further reports that the India pharmaceutical industry at present  accounts for 2 percent of the global market and the global market is now estimated at $168 Billion by FROST and Sullivan. The GST Council fixed 5 percent tax on life-saving drugs and 12 percent for ayurvedic drugs. The categorization of nutraceuticals, food supplements, dietary foods and health drinks is still challenging for various reasons and hence several products  may  attract  unjustifiably higher tax rate and hence GST Council has to play a big role in this respect and  however the government has the moral obligation to see that the price of drugs should not be increased as a result of GST roll out alone.    
Tax Billing system in Telecom  which are now assigned to circle level are now aligned to the state level and hence the migration of telecoms to GST accounting system seems to be cumbersome and to streamline  the tax compliance, it will take a few more months to solve the kinks in the GST  system. The service tax which is now 15 percent, now attracts 18 percent under GST  which is also expensive on the part of the companies. It is now argued that  GST tax on Telecom can be aligned as merit rate of tax applicable to essential commodities. Due to differential tax rates in different states, Flipkart could not make much delivery in mobile phones in UP and Bihar in pre-GST but it is now capable of delivering mobile phones in these states in post-GST. Indian logistic sector is concerned, the companies can have a hub based warehousing system instead of more number of warehouses in the different state and this is expected to reduce cost about 15 to20 percent. The dismantling of check posts has reduced hassles for truck movement throughout India. One of the advantages of GST is that it will reduce the transport time of goods across the county and the GST is very advantageous for trucks carrying loads all over India.   Truck Aggregators Black-buck, Rovigo , Fr8 have opined that GST will have the positive effect on the logistic sector and it ensures the growth rate of 10 percent and promises overall reliability in transit time.

Tourism and hospitality industry contributes about 7.5 per cent to GDP and it is the third largest foreign exchange earner. Under Goods and service Tax regime, luxury hotels rooms with the tariff of above Rs 7500 are taxed 28 percent but in the hotels, rooms  with tariff between Rs 2500  and Rs 7500  will be taxed 18 percent. Luxury hotels such as Hilton has 15 hotels in India and 18 hotels on the pipeline, the GST on Hotels should be levied cautiously by the government  without affecting the trend of growth of such hotel industries which have diverse growth effects on the different type of industries in India.  In certain sectors, GST is quite reasonable: for instance, in air lines, GST on first and other higher class air tickets is levied 12 percent but for the economy class, it is 5 percent.

The big utility vehicles are the biggest beneficiary under the PostGST regime and the GST eliminates the tax differentials among states in the sale of used cars. The GST in the agricultural sector requires an indebt study to levy GST in a justifiable way because of the fact it is totally in the uncomfortable situation in terms generating income for farmers and most of the agri products prices are stagnant for decades. For instance, bought leaf tea factories were put into various hurdles in the last decade because of low price but, according to GST regime, the bought leaf tea factories have to register themselves for GST and have to pay 5 percent tax on their sale whereas it was 1 percent in the pre-GST regime.

As per GFMS  Thomson Reuters, India imported 510 tonne of gold in 2016 and in the fist half of 2017, it imported 521 tonnes of gold and the imports of gold is through nominated banks and other agencies like MMTC. At present, banks pay  10 percent import duty on consignment of gold but under the implementation of GST, the banks have to pay 13 percent. The banks impose IGST at 3 percent on the tariff value of gold but it will not facilitate tax refund for banks if the gold rate is below the tariff value. The 3 percent GST on imported gold  may affect the potentiality of gem and jewelry exports even though Gold import enjoys tax exemptions if the gold import is meant for only export. India exports of gems and jewellery about RS 2,38,260 crore in 2016-17 and hence, the GST levy may end in slow space for the gold trade.If the import and export of goods are exempted fro GST, GST registration is not required and  the goods can be cleared through PAN. So, whatever may be the problems that are  encountered  in respect of GST, GST Council is expected to bring the desired results every way in the course of implementation

IT and  GST
GSTN   is a ubiquitous broadband   access and sellers may find difficulty in uploading documents  in giant digital portal  and taxpayers have to lace with these issues in e-filing and in fact,  the GSTN will  frazzle taxpayers and however, some taxpayers feel it as excitement but some feel totally uncomfortable and as a result, GST implementation has to face teething troubles every way. Lack of skill among taxpayers in using digital tax reconciliation seems to be yet another problem. However, GST has become a bonanza for global accounting firms because the Indian companies must get ready to implement GST in terms of accounting and IT system. The accounting companies like Deloitte, KPMG India,  PricewaterhouseCoopers, Ernest & Young, Arthur Andersen etc can do much business in taxation. Some revised rules enunciated by Goods and Service Tax  Council has resulted in knots in technology implementation by GST Suvidha Providers and they need much more time to release Application Programming Interface (API). For digital portal, a pool of international experts is also necessary for Indian companies for the transition to new regime. India has about 3  lakhs sales accounting practitioners and 1.5 lakh Charted Accountants and  a sizable chunk of charted accountants are yet to be trained for implementation of GST. Under GST, some more rules and specific rates are yet to be finalised and hence, the cost of accounting services may increase. Therefore, companies are racing against time to meet the challenges of  GST roll out.

GST is a globally accepted tax system and therefore , through GST, India can boost foreign investment in India but what it needs is an efficient administration and excellent implementation of GST. The GST is more   likely to give the desired results in terms of revenue and unified tax  in all respects even though there arise some temporary problems to producers as well as to  consumers and  GST will ultimately  reduce the overall tax burden and compliance cost and the July, August and September 2017 will be  a real roller coaster for GST implementation. Certain products which are taxed more than 18 percent preGST regime have been taxed only  18 percent in the present GST regime. Again some products such as shampoo , skin care products, detergents attract high tax level 28 per cent.    

Several products are still uncertain how the new levy will affect the cost of their operations, price and profit.The GST Council has the moral obligation to revisit taxation on products and services under 18 percent and 28 percent slabs. But , however, one another advantage under GST is that business people need not maintain the cosy relationship with tax officials and taxpayers have to fill in the only online information required in GST portal and pay tax. GST council is ready to solve many of the  days to day problems after well-integrated analysis of issues that crop up from time to time after the implementation of GST.GST  will lead to improved market expansion and usher in lower tax rates regime in future. Undoubtedly, GST  will balance out the equation between offline and online market taxation and it will eliminate the tax differential among states paving the way for one nation and one tax - TRI System.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Dr. Hala Raman

The author is a Professor at PSG Institute of Management

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