GST is one indirect tax for the whole nation, which will make India one unified common market. GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
Following are the main attributes of the GST:
- Goods and Services Tax (GST) is an indirect
- GST is levied on the supply of goods and services.
- GST is a consumption tax because it is levied on the final consumption and not on intermediate products.
- GST is comprehensive tax because it has subsumed almost all the indirect taxes except a few state taxes.
- It is a multistage tax because it is a value added tax as it is levied on “value addition” at every stage of production.
- It is a destination-based tax as it is levied in the state where it is consumed and not in the state of origin where it is produced.
- The single GST subsumed several taxes and levies, which included central excise duty, services tax, additional customs duty, surcharges, state-level value added tax and Octroi. Other levies which were applicable on inter-state transportation of goods have also been done away with in GST regime.
- Among the taxes levied and collected by the centre, the GST replaced Central excise duty, duties of excise (medicinal and toilet Preparations), additional duties of excise (goods of special importance), additional duties of excise (textiles and textile products), additional duties of Customs (commonly known as CVD), special additional duty of customs (SAD), service tax and central surcharges and cesses relating to supply of goods and services.
- Among the state taxes, GST subsumed state VAT, central sales tax, luxury tax, entry tax (all forms), entertainment and amusement tax (except when levied by the local bodies), taxes on advertisements e.g. purchase Tax, taxes on lotteries, betting and gambling and state surcharges and cesses so far as they relate to supply of goods and services.
Goods kept outside the GST
- Alcohol for human consumption (i.e., not for commercial use).
- Petrol and petroleum products (GST will apply at a later date), i.e., petroleum crude, high-speed diesel, motor spirit (petrol), natural gas, aviation turbine fuel.
Structure of GST
Keeping in mind the federal structure of India, GST act proposed that it will have two components of GST – Central GST (CGST) and State GST (SGST). Both Centre and States will simultaneously levy GST across the value chain. 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. The input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Similarly, the credit of SGST paid on inputs would be allowed for paying the SGST on output. No cross utilization of credit would be permitted.
In case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services under Article 269A (1) of the Constitution. The IGST would roughly be equal to CGST plus SGST. The IGST mechanism has been designed to ensure seamless flow of input tax credit from one State to another. The inter-State seller would pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST and SGST on his purchases (in that order). The exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The importing dealer will claim credit of IGST while discharging his output tax liability (both CGST and SGST) in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST. Since GST is a destination-based tax, all SGST on the final product will ordinarily accrue to the consuming state.
Benefits of GST
For business and industry
- Easy compliance: A robust and comprehensive IT system would be the foundation of the GST regime in India. Therefore, all tax payer services such as registrations, returns, payments, etc. would be available to the taxpayers online, which would make compliance easy and transparent. o Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are common across the country, thereby increasing certainty and ease of doing business.
- Removal of cascading: A system of seamless tax-credits throughout the value-chain, and across boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden costs of doing business.
- Improved competitiveness: Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for the trade and industry. o Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.
For Central and State Governments
- Simple and easy to administer: Multiple indirect taxes at the Central and State levels are being replaced by GST. Backed with a robust end-to-end IT system, GST would be simpler and easier to administer than all other indirect taxes of the Centre and State levied so far.
- Better controls on leakage: GST will result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an inbuilt mechanism in the design of GST that would incentivize tax compliance by traders.
- Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of the 3 Government, and will therefore, lead to higher revenue efficiency.
For the consumer
- Single and transparent tax proportionate to the value of goods and services: Due to multiple indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at progressive stages of value addition, the cost of most goods and services in the country today are laden with many hidden taxes. Under GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer.
- Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit consumers.
History
GST was introduced in India in July 2017, after 13 years when it was first discussed in the report of the Kelkar Task Force on indirect taxes. As the Task force had proposed to introduce a National level Goods and Services Tax (GST) by April 1, 2010, it was first mooted in the Budget Speech for the financial year 2006-07. Based on a broad consensus reached with the Empowered Committee on the contours of the Bill, the Cabinet on 17.12.2014 approved the proposal for introduction of a Bill in the Parliament for amending the Constitution of India to facilitate the introduction of Goods and Services Tax (GST) in the country. The Bill was introduced in the Lok Sabha on 19.12.2014, and was passed by the Lok Sabha on 06.05.2015. It was then referred to the Select Committee of Rajya Sabha, which submitted its report on 22.07.2015. The tax came into effect from 1 July 2017 through the implementation of the One Hundred and First Amendment of the Constitution of India by the Indian government.
GST rates
Goods and services are divided into five different tax slabs for collection of tax: 0%, 5%, 12%, 18% and 28%. However, petroleum products, alcoholic drinks, and electricity are not taxed under GST and instead are taxed separately by the individual state governments, as per the previous tax system. There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold. In addition a cess of 22% or other rates on top of 28% GST applies on few items like aerated drinks, luxury cars and tobacco products. Pre-GST, the statutory tax rate for most goods was about 26.5%, Post-GST, most goods are expected to be in the 18% tax range.
The tax rates, rules and regulations are governed by the GST Council which consists of the finance ministers of the central government and all the states. The GST is meant to replace a slew of indirect taxes with a federated tax and is therefore expected to reshape the country’s $2.4 trillion economy, but its implementation has received criticism. Positive outcomes of the GST includes the travel time in interstate movement, which dropped by 20%, because of disbanding of interstate check posts.
e-Way Bill
The movement of goods and services under the GST regime involves an e-Way Bill. It is an electronic permit for shipping goods similar to a waybill. It was made compulsory for inter-state transport of goods from 1 June 2018. It is required to be generated for every inter-state movement of goods beyond 10 kilometres (6.2 mi) and the threshold limit of ₹50,000 (US$660). It is a paperless, technology solution and critical anti-evasion tool to check tax leakages and clamping down on trade that currently happens on a cash basis. The pilot started on 1 February 2018 but was withdrawn after glitches in the GST Network. The states are divided into four zones for rolling out in phases by end of April 2018.
A unique e-Way Bill Number (EBN) is generated either by the supplier, recipient or the transporter. The EBN can be a printout, SMS or written on invoice is valid. The GST/Tax Officers tally the e-Way Bill listed goods with goods carried with it. The mechanism is aimed at plugging loopholes like overloading, understating etc. Each e-way bill has to be matched with a GST invoice. Transporter ID and PIN Code now compulsory from October 1, 2018. It is a critical compliance-related GSTN project under the GST, with a capacity to process 75 lakh e-way bills per day.
Intra-State e-Way Bill
The five states piloting this project are Andhra Pradesh, Gujarat, Kerala, Telangana and Uttar Pradesh, which account for 61.8% of the inter-state e-way bills, started mandatory intrastate e-way bill from 15 April 2018 to further reduce tax evasion. It was successfully introduced in Karnataka from 1 April 2018.The intrastate e-way bill will pave the way for a seamless, nationwide single e-way bill system. Six more states Jharkhand, Bihar, Tripura, Madhya Pradesh, Uttarakhand and Haryana will roll it out from 20 April 18. All states are mandated to introduce it by 30 May 2018.
Reverse Charge Mechanism
Reverse Charge Mechanism (RCM) is a system in GST where the receiver pays the tax on behalf of unregistered, smaller material and service suppliers. The receiver of the goods is eligible for Input Tax Credit, while the unregistered dealer is not.
GST compensation and controversy
The Section 18 of the Constitution (One Hundred and First Amendment) Act, 2016 prescribes: “Parliament shall, by law, on the recommendation of the Goods and Services Tax Council, provide for compensation to the States for loss of revenue arising on account of implementation of the goods and services tax for a period of five years.” Accordingly, the Parliament enacted a law — GST (Compensation to States) Act, 2017. The law prescribes that the financial year 2015-16 shall be taken as the base year for the purpose of calculating compensation and States were assured of a 14 per cent growth in revenues every year. According to the law, it will be paid for five years from the date GST came into effect; i.e. till June, 2022. However, cess will continue to be levied for repayment of loan taken to compensate States during FY21 and FY22.
In order to mobilise resources for compensation, a cess is being levied on such goods, as recommended by the Goods and Services Tax Council, over and above the GST on that item. It is called compensation cess. As on date, compensation cess is levied on products such as pan masala, tobacco, aerated waters and motor cars apart from coal.
The consumer is required to pay for compensation. It is collected by the Centre which releases it to States. The proceeds of the compensation cess will be credited to a non-lapsable fund known as the Goods and Services Tax Compensation Fund in the public account. All amounts payable to the States as compensation will be released bi-monthly, provisionally, from said fund against figures given by the Central accounting authorities. Final adjustments will be done after receiving audited accounts of the year from the Comptroller and Auditor General of India.
However the central government failed in timely payment of compensation to the states due to adequate funds in GST compensation Fund. The central government had revealed in the Parliament that as of September 2021, nearly Rs 52,000 crore of GST compensation was due to the states. Giving details of Goods and Services Tax (GST) compensation released and pending to be released as on November 24, 2021, Minister of State for Finance Pankaj Chaudhary said in the Lok Sabha that Rs 1,10,208 crore and Rs 1.59 lakh crore was released to the states as back to back loan in 2020-21 and 2021-22 fiscals, respectively.
The total GST compensation pending till September 2021 stood at Rs 51,798 crore including Rs 13,153 crore pending to Maharashtra, Rs 5,441 crore to Uttar Pradesh, Rs 4,943 crore to Tamil Nadu, Rs 4,647 crore to Delhi and Rs 3,528 crore to Karnataka.
The economic impact of the pandemic led to higher compensation requirement due to lower GST collection and, at the same time, lower collection of GST compensation cess. The issue of GST Compensation to States was deliberated in the 41st and 42nd GST Council meetings.
Accordingly, in FY21, the Centre had borrowed ₹1.1-lakh crore under a special window and passed it on to the States as back-to-back loan. This was meant to help States meet the resource gap due to short-release of compensation on account of inadequate balance in the compensation fund. The Centre says it is committed to releasing full GST Compensation to the States/UTs as per law for the transition period by extending the levy of compensation cess beyond 5 years to meet the GST revenue shortfall as well as servicing the loan borrowed through a special window scheme.
Subsequent to deliberations in the 43rd GST Council meeting, the Centre has borrowed ₹1.59-lakh crores from the market through a special window in the current fiscal and passed it to the States/ UTs as a back-to-back loan, as was done last year.
States say their revenue situation is yet to improve on two counts — due to the introduction of the GST and because the pandemic has affected revenue collection. At the same time, their expenses have gone up and they expect higher deficit as revenue growth is low. Considering all these, States are seeking an extension of compensation for five more years. Any decision, in this regard, has to be taken by GST Council.
GST collection Data
The government’s goods and services tax stayed above Rs 1 lakh crore for the seventh straight month. GST collections for December, collected in January, 2022 stood at Rs 1,38,394 crore, according to a Finance Ministry statement. That’s 15% higher than the preceding month and a 25% rise year-on-year. The statement attributed the trend to a 26% year-on-year increase in import of goods and revenues from domestic transactions, including import of services, which rose 12% over the preceding year.
Breakup of GST collections for January:
- Central GST: Rs 24,674 crore.
- State GST: Rs 32,016 crore.
- IGST: Rs 72,030 crore, including Rs 35,181 crore collected on import of goods.
- Cess: Rs 9,674 crore, including Rs 517 crore collected on import of goods.
E-way bills generated in December stood at 6.7 crore, a 14% month-on-month rise. “Coupled with economic recovery, anti-evasion activities, especially action against fake billers have been contributing to the enhanced GST,” the statement said. “It’s expected that the positive trend in the revenues will continue in the coming months as well.” The Economic Survey released earlier on Monday said the revival in revenues will provide the government with fiscal space to ramp up capital expenditure.