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Importance and Impact of GST

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Importance and Impact of GST

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MBA Aspirants are expected to know and understand the current scenario of reforms in taxes with perspective of economic conditions of Indian market. This general awareness will also help you in GD/WAT and PI.
 
Read: Importance and Impact of GST
 
Goods and Services Tax (GST) is India’s most ambitious indirect tax reform plan, which aims to stitch together a common market by dismantling fiscal barriers between states. It will be a single national uniform tax levied across India on all goods and services.
 
It will replace all the indirect taxes levied on goods and services by the Indian Central and State governments. It is aimed at being comprehensive for most goods and services.
 
India is a federal republic, and the GST will thus be implemented concurrently by the central and state governments as the Central GST and the State GST respectively. It is considered to be a major improvement over the pre-existing central excise duty at the national level and the sales tax system at the state level.
 
In 2000, Vajpayee Government started discussion on GST by setting up an empowered committee. The committee was headed by Asim Dasgupta, (Finance Minister, Government of West Bengal). It was given the task of designing the GST model and overseeing the IT back-end preparedness for its rollout.
 
The empowered committee felt that the indirect tax system is currently mired in multi-layered taxes levied by the Centre and state governments at different stages of the supply chain such as excise duty, octroi, central sales tax (CST) and value-added tax (VAT), among others. The committee therefore decided that In GST, all these taxes should be subsumed under a single regime.
 
More than 150 countries have introduced GST in some form. It has been a part of the tax landscape in Europe for the past 50 years and is fast becoming the preferred form of indirect tax in the Asia Pacific region.
 
World over, GST rates are typically between 16 per cent and 20 per cent. In India, it is likely to be the same. The tax-rate under the proposed GST would come down, but the number of assesses would increase by 5-6 times. 
 
Although rates would come down, tax collection would go up due to increased buoyancy. The government is working on a special IT platform for smooth implementation of the proposed Goods and Services Tax (GST). The IT special purpose vehicle (SPV) christened as GST N (Network) will be owned by three stakeholders—the centre, the states and the technology partner NSDL.
 
GST, if adopted, can dramatically alter tax administration. Then, the Centre and states will tax goods and services in identical rates. For instance, if 20% is the agreed rate on a certain good, the Centre and states will collect 10% each on the good. The proceeds would be shared on the basis of the devolution formula recommended by the Finance Commission.
 
It can be rolled out only when Parliament passes the Constitution Amendment Bill, which has been pending in Parliament since March 2011. That requires votes of at least two-thirds of the members in its favor. In addition, at least half of the state Assemblies will have to pass the Bill. Parliament’s Standing Committee on Finance has not yet submitted its report on the Bill. It is unlikely that it will be passed in an election year.
 
The most important issue on which consensus eludes states and the Centre is regarding the states. GST faces political hurdles as it could rob state governments of discretionary fiscal power. States also fear that they will suffer heavy revenue losses.
 
If there is a loss in revenue, states needs to be compensated. Discussions are on to work out an independent mechanism to compensate states.
 
The Centre has compensated the states so far in an alternative way which is that the government has brought down the level of CST over the last few years from 4% to 2% as a precursor to rolling out GST. The committee of state finance ministers had made claim of 19,000 crores so far.
 
According to the International Monetary Fund (IMF), India's revenue-to-GDP ratio has fallen below its peers. The GST would be the most important reform, and would boost growth through the creation of a single Indian market.
 
GST is touted to be one of the triggers that could help boost the country's economic fortune. Goods and Services Tax (GST) will be the best signal to tell investors globally that India is open for business.
 
  
 
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