Political parties after decade of deadlock are finally debating The Goods and Services Tax (GST) in Parliament and in all possibility India will be in for the biggest business reforms when the bill is passed. Congress and BJP have fought bitter battles over GST and after changes the final bill is witnessing the debate.
Now that the GST is turning a reality let us see what are the pros and cons of GST. GST is a value added tax which enable India to have one single tax replacing various indirect taxes levied on goods and services by the government both Central and states. GST is expected to create single,cooperative and undivided Indian market making Indian economy powerful and strong.
The bill was first recommended by the Kelkar Task Force on implementation of Fiscal Reforms and Budget Management Act 2004.GST will reduce/eliminate tax evasion and corruption and helps in increase in productivity and transparency and increase tax GDP ratio. At present businessman (includes manufacturers, whole-sellers, retailers), purchaser and even a salaried person are paying variety of taxes and GST subsumes all the taxes like Taxes levied by Central Govt. : Central Exercise. Service Tax. Service Tax. Central Surcharges. Central Cesses and Taxes levied by State Govt. : VAT/Sales Tax. Entertainment Tax. Luxury Tax. State Taxes and Cesses.
GST didnot see light all these years as states feared loss of autonomy. But after various consultations and discussions between states and centre, the fears are addressed to. France was the first country to implement GST in 1954 and now more than 140 countries are having GST including Australia,Canada,Germany,Japan and Pakistan.
Pros
India is expected to gain $15 billion ever year as it promotes more exports,create employment opportunities and divide tax burden between services and manufacturing.
Taxes for centre and state will be collected at the point of sale and will be charged on the manufacturing cost. Individuals will benefit as prices will comes down and lower prices increases consumption which ultimately help companies.
Statutory Forms will be eliminated(C-Form, F-Form etc.)
Composite contracts (Goods + Service)would become simpler Ex: Hotels, works contract
Cons
GST impact real estate market. It would add up to 8 percent to the cost of new homes and reduce demand by about 12 percent.
Some Economist says that CGST(Central GST), SGST(State GST) are nothing but new names for Central Excise/Service Tax, VAT and CST.
Non inclusion of petroleum and alcohol products will result in loss to the exchequer.
Common man paying taxes will suffer as it highights goods and service tax.
High rates of taxes 16% compared to 12.5% VAT.
Tax sharing between states and centre may result in confrontation.
Any supply (Ex: stock transfer, job-work)would be taxable (although fully creditable) leading to cash flows gettingblocked
Service businesses operating pan-India need to take state-wise registration leading to increased compliance
Many exemptions would be removed.
No ITC for purchases from Compounding dealers
Requirement to determine ‘Point of Supply’
Businesses operating in multiple statesneed to re-align their branch network / warehouse / logistics strategy
