Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
What is GST?
GST is a unified taxation system which would end multiple taxation (Central Excise, Service Tax, VAT, Central Sales Tax, Octroi, Entry Tax, Luxury Tax and Entertainment Tax etc.) across the states and create a level playing field for businesses throughout the country.
It is a multi-stage destination-based tax which will be collected at every stage, starting from procuring the raw material to selling the final product.
The credit of taxes paid at the previous stage(s) will be available for set-off at the next stage of supply.
How GST portal works?
3 main functions are done on GST portal
Registration of tax payers
Payment of taxes
Filing of return
Registration process started from 8th November 2016 for existing tax payers under central excise, service tax, VAT and other small taxes so that everyone is ready before GST role out.
Till now approx. 70 lakh tax payers out of existing 83 lakh have already enrolled. New tax payers are slowly coming into the ambit of tax structure.
However, payment has seen no drastic change from previous collection of indirect taxes. Majority of indirect taxes like VAT, service tax are paid electronically. The only difference is now is that government has now allowed NEFT, RTGS as payment form. This means payment can be made from any bank. There is credit card and debit card option too. Hence, more facilities are there for businesses to pay taxes as per their convenience.
Working of GST
In last 8 years, all the VAT departments have been automated so the tax returns are filed online for states as well as for central government service tax and central excise. The difference is that business to business data entry has to be given.
The business has to give the sales data, the system generates the purchase data of everyone based on sales data. So here, based on suppliers’ data, purchasers’ data is created where all the errors which are caught later are taken care of while making the entry into the system.
How to ensure that proper record of input tax credits is put up.
The GSTN for computing the input benefit ensures that the cascading effect of GST ultimately benefits the consumer.
Everyone is a buyer or seller, and this is B2B portal. So when the seller uploads the supply data, the opposite party becomes the purchaser and thus get relevant input tax credit. So there is an option of accept, reject and modify the transactions if forgotten. The business doesn’t have to wait to file the return. As and when the supplier uploads the information, the payment of tax can be seen.
For small and medium tax payers, especially those selling to consumers, they don’t have to do B2B. It is not business to consumer invoice but only business to business.
For them the return is finalised at according to turnover.
Benefits of tax reforms?
There will be transparency in record keeping. The government needs finances to take development work like roads, bridges and welfare programmes. So higher buoyancy in the taxes, which means government has more money for undertaking these projects, which will ultimately lead to development.
Anti- profiteering laws– the parties shouldn’t take advantage of non-payment of taxes or lower taxes made possible by GST. If there is total reduction in price of the product on account of change of taxes, that should be passed on to customers. This comes under income tax department and not GSTN. It has the role to see that such transactions are processed properly.
Inter-state taxation- Indian GST will have a unique Integrated GST mechanism to monitor inter-state trade of goods and services. It will ensure that GST is truly a destination-based consumption tax, and there is seamless flow of input tax credit, even when goods are moving from one state to another. The manufacturing state used to get 2% of CST when exported the product. Now it won’t happen. Buyer pays entire IGST but that is available to him as input tax credit. So the tax gets to the state where it is consumed. So overall the consuming state will benefit from it. Based on the returns filed, the tax adjustments or adjustments of IGST will happen, data will be provided to department of revenue which will ultimately do the adjustment between centre and state.
4 slab tax structure
The tax rates are never hardcoded into the design as they can be changed any time. So it is always kept outside as they have to be changed within few hours of announcement.
The cess will help compensate states for five years with base period being 2015-16.
The luxury items and certain other items will have cess on them. If the supplier is paying after collecting it against the purchase, this cess will be counted separately. This will be used to finance if there is a fall in collection of any state.
Cost benefit to the taxpayer
One could not earlier calculate the time and cost factor because the system was very diverse and opaque. The GST will be audited by statutory audit and also CAG. Whatever is spent on software development, hardware etc. and also office salary and other expenses will be visible to a common man.
IT Infrastructure: The goods and services network, which is responsible for providing IT backbone, is geared up to match more than 3 billion invoices per month. This will not only check fraud and tax evasion in a big way, but also bring in more and more businesses into the formal economy. However, if the number of taxpayers goes up, the system performance should not degrade and continue to get same kind of performance.
End note: For addition of 10% new tax payers every year, 3% cancel. But this time it is higher as some of the sectors which were not anticipated before like textile, they will come. So may be in next 5 years, there might be 1.2 crores of taxpayers.
Connecting the dots:
Why GST is called a beginning of India’s integrated tax reform? Explain