After a long wait, the potentially game-changing Goods and Services Tax regime is finally set to be a reality. With the recent GST Council meeting paving the way for slab rates, the stage seems set for an April 2017 rollout, provided final negotiations are completed before the winter session of the Parliament, which will have to then ratify decisions taken by the GST Council.
The cloud of uncertainty around the new tax rates now stands cleared as the GST Council, comprising central and state government ministers, reached a consensus on November 4. Four slabs were announced – 5%, 12%, 18% and 28%. Then, there are essential commodities like food grains that will fall in the 0% bracket. Cigarettes and luxury goods will be taxed at the highest rate of 28%; an additional cess, too, will be levied.
However, the GST Council will deliberate on suggestions received from states and arrive at a final consensus on November 20. The decision, in turn, will have to be ratified by the parliament before the GST framework in its current form becomes a law. A decision is likely to be taken after taking all suggestions into consideration and presented before the parliament for approval during the winter session.
The GST has been introduced to achieve the objective of firming up a ‘One-Country-One-Tax’ structure to create a unified market that will facilitate ease of doing business across the country. The uniform tax structure will be applicable across states, reducing compliance and other cumbersome paperwork. Central taxes like central excise duty and service tax as also state sales, octroi and value added taxes levied by states will get subsumed in GST. From tax-payers’ point of view, they will have to face only one assessing authority, instead of the multiple ones they have to deal with at present. The tax-filing system will also go online.
The tax structure will let all players in the supply chain – from the manufacturer to the end user – to claim credit of input taxes paid at each stage in the subsequent stage of value addition. It aims to eliminate the cascading tax effect, or the phenomenon of ‘tax on tax’.
After the GST Council meet on November 4, the finance minister announced the tax rates and also that each assessee will have to face only one assessing officer – either from the centre or the state tax departments.
The GST structure is made up of central GST and state GST, which will be applicable to all transactions, except the exempted ones. While the former will fall under the central government officials’ jurisdiction, the latter will be under the states’ charge.
Tax payers can claim input tax credit against central GST payable at each stage. Similarly, the state GST input credit can be set off against SGST paid. Cross-utilisation between central and state GST, however, will not be permitted.
Next, for inter-state transactions, again, the central government will operate at the forefront. The central tax officials will collect the Integrated Goods and Services Tax (IGST), that is, the sum of CGST and SGST.
The key benefits for small and medium enterprises will be a uniform tax structure (but not a single tax rate) across the country, irrespective of the state they operate in. Bureaucratic hurdles are expected to ease, as is the time-consuming compliance work. Harassment by several tax assessing officers could also be contained as the system goes digital and jurisdictions get clearly defined.
Given that the GST Council has come up with a four-tier tax structure, GST will not exactly qualify for the ‘One Tax’ moniker. Also, given that centre and states will continue to share the jurisdiction over assessees between themselves, compliance will not be a walk in the park either. While the finance minister mentioned discussions around setting up a common authority under the new regime, he also admitted that it is not likely to translate into reality in the near future.
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