THE GST (GOODS AND SERVICES TAX) BILL OF 2016 IN A NUTSHELL
By Lawfarm Team September 14, 2016
After a decade’s wait, the Rajya Sabha has finally passed the Goods and Services Tax (GST) Bill also called as the (One Hundred and Twenty-Second Amendment) Bill, 2014, and it’s soon going to be a reality in 2017. The passing of this bill has been lauded as one of the biggest pieces of reform that India has seen since it opened its economy in 1991.
Aims of the bill?
Well, the bill aims at bringing a raft of state and central taxes under a simplified tax code and to move from a scattered state-focused market to a unitary national market system.
How would the GST bill be administered in India?
GST has two components – Central GST (CGST) and State GST (SGST). Both Centre and States will simultaneously levy GST across the value chain. The tax will be levied on every supply of goods and services. Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State.
Merits of the GST bill?
GST aims to bring indirect taxes under one umbrella. Since all the taxes are integrated under the GST bill, transparency will be brought in the procedure of levying of taxes and the heavy burden of taxation will be shared equally between manufacturing and services. According to experts, India will gain a whopping $15 billion a year if it is successful in implementing the GST. But how? Basically, the implementation of the GST will render more employment opportunities, promote more exports and of course, will boost the economic growth of the country. The new bill broadens the tax net and puts into place checks that should reduce tax evasion. Also, since the Indian market will adapt a uniform form, the cost of business will be low as the GST bill will facilitate seamless movements of goods across the states and reduce transaction costs of businesses.
Demerits of the GST bill?
The GST Bill is far from perfect. The bill will not apply to highly lucrative, tax generating sectors of Alcohol, Oil, etc.
To be brutally honest, the GST bill by nature is against the spirit of federalism as it snatches away the State’s taxation powers that are enshrined in the Constitution of India.
The GST has been mandated to be kept between 18-20%. Now, since the bill demands a unified taxation system, the products, and services that a person could obtain at lower tax rates, now will have 18-20% tax with it. For example, currently the mobile phone bills charge a tax of 15%, but after GST’s implementation, it would charge a tax of 18% or so.
How will GST affect the common man’s pocket?
Positive Impact of GST on the Common man:
- A unified tax system removing a bundle of indirect taxes.
- Less tax compliance.
- Removes cascading effect of taxes.
- Manufacturing costs will be reduced, hence prices of consumer goods likely to come down.
- Due to reduced costs some products like cars, FMCG etc. will become cheaper.
- Lower prices will increase demand/consumption. Increased demand will lead to increase supply. Hence, rise in production of goods. The increased production will lead to more job opportunities in the long run. But, this can happen only if consumers actually get cheaper goods.
- A unified tax regime will lead to less corruption which will indirectly affect the common man.
Negative Impact of GST on the Common man:
- Services will become expensive. E.g. Telecom, banking, airline etc.
- Being a new tax, it will take some time for the people to understand its implications.
- If the actual benefit is not passed to consumer and seller increases his profit margin, the prices of goods can also see a rising trend.
- While primary, secondary and college education are out of GST's purview, higher education comes from its branches. The fees at all these institutions will seek a rise of 5-7%.
- Today, healthcare pays 4% VAT. Under the GST regime, this will be increased to 12% (which is the lowest slab under GST).
Despite all the caveats that the GST embodies within itself, it is quite amusing to witness economic reform in India that would make it easier for companies to conduct their business in a hassle-free manner and let investment flow efficiently between states.
Authored By: Riya Bramhe
Hello Lawfarm Team,
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