Indirect taxes in India are complex and high. Their compliance is poor. India is in need of indirect tax reforms to improve the economy, increase transparency and facilitate integration with the global economy. The proposed GST Bill is a progressive, essential step in this direction. Hopefully it will come into force in 2016. In this blog, “GST India” the salient features, benefits and the problems in implementation have been discussed. The principle of VAT being adopted has been successfully adopted by Germany and Singapore and is being adopted by other countries as well. The principle forms the basis of the GST Bill.
Salient Features of Proposed GST Bill
- Uniform simple indirect tax to replace all other indirect taxes on goods and services.
- It will have a share for the centre (CGST) as well as the states-(SGST).
- Increase transparency in indirect tax regime.
- It is expected to reduce the tax burden on the corporate.
- It is expected to reduce the tax burden on the consumer.
- It will facilitate creation of a common national market.
- There will be no cascading effect of indirect taxes.
- The tax burden will fall on the final consumer only.
- It is expected to increase compliance and thereby increase public revenue.
- Increase in public revenue will reduce fiscal deficit and provide the government scope to increase public spending to create and improve infrastructure and create jobs.
- Increased public spending will promote growth.
- Prices of goods and services are likely to fall because of the reduced tax burden.
- Reduction in costs of production will make Indian manufactured goods globally more competitive and hence promote exports. This will support the call for ‘Make in India’.
- Consumers will be expected to pay lesser for the goods and services. This will imply more money in the hands of consumers. More money with consumers will lead to greater consumption, implying increase in domestic demand. Thus promoting growth.
- It is expected to add up to 2% to GDP.
The proposal appears good in theory. Practical implementation may face several problems. Salient issues are discussed below:
Items Not under GST
Petroleum products, alcohol and tobacco are some of the products which are expected to be out of the GST regime. Keeping some goods and services out of the regime is contrary to the spirit of a uniform tax regime.
Centre and State’s Share
A uniform tax regime is against the federal nature of India and will reduce the latitude of the states. Reaching a consensus on the share of the centre and the states would be a difficult task knowing that the states are apprehensive about centre’s intentions.
Stabilisation of Tax Regime
Execution of the GST regime will require coordination and cooperation among centre and state bureaucracy. This will not be easy considering the great inertia of the people involved. There are numerous tax cases pending. These may only increase with such drastic changes in the law. It may take decades before the new tax regime stabilises.
Small Scale Industries/ Traders Exempted from GST
Small scale industries/traders will have to be kept out of the GST regime. In case they are brought under it then they will not be able to survive, affecting large number of such units and the engaged labour. Exemption will provide incentive for other units to fudge their books. Monitoring will revive the ‘permit raj’ of the past! It is a difficult problem to solve!
Conclusion: GST India
GST must be adopted by India fast. It will have great benefits. It will promote, ‘Make in India’ and global exports. It will increase GDP and create jobs. Simplifying the tax regime is vital for India’s better integration with the world’s economy. The adoption of GST regime will not be very simple. There will be problems which will take time to resolve. Once adopted the GST regime may take 10-15 years to stabilize. The effort appears worthwhile!
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