Goods and Service Tax, known as GST is a single tax on the supply of goods and services and the biggest tax reform in India. The tax was introduced in replacement of all previous indirect taxes and with tagline of “One Nation – One Tax.” Today, it is entering in its 2nd year of implication and here we are looking for how it was brought and what impacts it made during the past whole year.
A year ago with midnight stroke on June 30, Goods and Service Tax was first rolled out by Indian Government. It was proposed in 2006-06 budget speech recommending it to be introduced from April, 2010. GST council was first set up that looked after the aspects of tax such as threshold, exemptions, compounding and control. The Council decided on to have a multi-layered structure as 0 per cent, 5 per cent, 12 per cent, 18 per cent and 28 per cent, changing the popular practice of having one rate of tax for all goods and services.
All prevalent taxes like Service Tax, VAT, Entry Tax, Octroi, Central Excise Law, etc. were subsumed under single taxation system expecting to bring together state economies and improve overall economic growth of the nation.
Structure of GST:
The destination based tax has adopted the dual model in which both States and Central levies tax on Goods or Services or both. The collection of the tax is consumed either by State (or UT) and Central Government or solely by Central Government.
- SGST – State GST, collected by the State Govt.
- CGST – Central GST, collected by the Central Govt.
- IGST – Integrated GST, collected by the Central Govt.
- UTGST – Union territory GST, collected by union territory government
Why was GST needed in India?
Aiming to a transparent taxation system, introduction of GST is considered to be a significant step in India. By combining various Central and State taxes into a single tax, aim was to help alleviating the double taxation, a multiplicity of taxes, cascading effect, taxable event, classification issues, etc., and leading to a common national market.
In earlier system, VAT rates and regulations were different for each State, where the law was guided by white paper. Now, GST has brought nationwide uniform tax system dividing the revenue from tax collection between Central and State Government. With its implementation over 63.75 Lakh taxpayers were migrated from previous regime towards one Tax.
For country like India with huge size and market, implementation of such reform was seemed to be challenging for the Government and economy, although it was implemented after many analysis and research. During its initial stage, the tax reform was subject of political criticism as the reform faced glitches and problem in implementation with wide opposition in public. Certainly, the GST Network and Council have worked towards simplification of the system and are still working. But, on its anniversary, the impacts and effects on the economy and various sectors are analysed here.
A uniform taxation has led to common market for India. Also, a boost to export is recognised through several initiatives and simplified export policies. Here, relaxation in eligibility to file LUT was the one with great relief for the exporters. The special refund drive called Special Refund Fortnight received huge response in both phase of March and June.
One of the main targets to achieve was to achieve transparency by reducing the inspector raj widely prevalent in previous regime. Under GST regime, it has been dealt with transforming complete system driven by Information technology with no scope for manual discretion of the officers. From GST registration to return filing and refund processes, there is zero dependency and connection between the officers and taxpayer. This helped to increase transparency to transaction reducing the delay in processing.
With this goal in addition to simplified tax system, web portals for online GST registration, return filing and e-way bill has been deployed. The online portal including that for e-Way Bill has been troublesome in the initial stage due to unexpected glitches. However, the same has been reduced with improvement in the system.
For the compliance and related matters, nation has expected a simplified return filling system in place; however the multiple return filing requirements was the prime difficulty for all the stakeholders including the taxpayers and professionals. To improve this scenario, the GST council has accepted the proposal of modified structure of return filing system suggested by the team of Ministers in the last Council meeting. It is expected that in the next meeting of the council, to be expected in July, would deal with this requirement of simplifying GST return filing system with requirement of only one GST return on monthly or quarterly basis.
When we see the tax rates and structure under GST regime, the multiple tax rates are levied where more than 95% of the items fall below the highest tax rate i.e. 28%. Taxability of petrol and diesel is yet to be dealt and brought under GST laws. However, food at restaurants are now cheaper than initial tax rates. Where while initial implementation many products and services were under the highest rate of 28%, which were later rationalised. Further, vital steps were bringing liquor and real estate under GST regime.
In line with uniform taxation system, a simplified system of e-way bill is also implemented this year successfully after facing certain glitches. The centralised system has brought uniformity in transportation across nation.
During this one year of its existence, the taxpayer base is increased notably supported with higher compliance ratio.In its first year of journey, nearly 48 lakh new registrations are approved with migration of more than 63 lakh taxpayer from previous tax regime.The Government also notes that more than 12 Crore returns are filed till date after the implementation of GST. Also, e-Way Bill generation crossed 10 crore mark in end of June, 2018, noting Maharashtra as highest e-Way bill generating State followed by Gujarat as 2nd highest.
Every system has to pass through many tests, the GST law has been successful in some aspects of eliminating cascading effects and ease of doing business through online transactions. It has also faced many downfalls, but the Government has come up with improvements to overcome those falls. Although, it has been expected to bring a well planned system in place, in few aspects, the system has not been successful, but is improving consistently to achieve the goal of simplified tax regime for the whole nation.
The GST regime has faced up and downs since its implementation and still the laws and system is being improved. Goods and service tax laws seem to be beneficial for the whole economy in long term and we hope it becomes simpler supporting the economic growth of the country. Although, GST implementation seems to be non-beneficial to the common men, it is said to be favorable for the growth of the country in long term.
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