GST – India’s tryst with history

New tax regime in India at midnight stroke tonight

On the midnight of June 30th, India will be making tryst with history by heralding the much-awaited Goods and Services Tax (GST) regime and turning a new leaf in the annals of the country’s taxation system.

The ‘One Nation-One Market-One Tax’ arrangement is the biggest taxation reform undertaken since Independence and will be a game-changer.

It is expected to benefit both the trader and consumer, while providing buoyancy to government revenues due to increased tax compliance. It is estimated that the GDP will increase by 1.5 to 2 per cent with the implementation of GST.

From July 1, the cascading effect of the taxes will be a thing of the past, providing a huge relief to both the consumer and the trader. They will no longer be required to pay a string of central and state levies as several of them will be subsumed basically into one-tax system, although there are GST, SGST and IGST.

In all, the GST Council, the apex body for deciding the tax rates, has categorized 1211 items into five slabs—0, 3, 5, 18 and 28. However, the majority of items come under the 18 per cent slab.

To pave the way for the implementation of this historic tax regime, the GST Council, which has Union Finance Minister Arun Jaitley as Chairman and the finance ministers of all States as members, had to meet several times over the past few years to thrash out contentious issues and achieve a consensus. I would like to compliment Jaitley and other members of the council for their invaluable contribution in turning the GST proposal into a reality.

The entire political spectrum also has to be appreciated for rallying behind the GST proposal. But a few parties are adopting double standards for short-term gains—they supported GST proposal then, and are opposing now. Hope people will see through their hypocrisy and dispose them.

While there might be some teething problems in the initial period, in the long-term, the GST regime will help the consumers and traders as it will cut down red tape – there will be no inspector raj, harassment by taxmen or check-posts at borders. The officers will have no discretionary powers.

It will ensure transparency, reduce inflation, bring down prices, improve ease of doing business, create a level-playing field, increase tax compliance and help achieve higher economic growth. With the Prime Minister, Narendra Modi stressing on the mantra to Reform, Perform and Transform, this fiscal reform can be described as the biggest transformation of the taxation system. With about 142 nations implementing GST, it is now established that one-tax system will improve efficiency, although the case of India is unique because of the vastness of the country and the huge population.

The common man will be benefited because of zero tax on several daily consumption food items like fresh vegetables, fresh fruits, eggs, milk, bread, flour, cereals, pulses, chicken, fresh meat and natural honey. The other items in the zero tax category, include handloom, bindi, sindoor, stamps, judicial papers, newspapers, printed books and children’s drawing or coloured books.

The Finance Minister, Arun Jaitley had already pointed out that household items like soap, which were taxed 31 per cent earlier due to the combination of central and state taxes, will be in the 18 per cent tax bracket now.

Due to availability of input tax credit and elimination of the tax-on-tax cascading effect, the cash flows for businesses are expected to vastly improve. In the absence of hidden or embedded tax, the final cost for many items is expected to come down benefiting the consumer when compared to the earlier tax system. The consumer would stand to gain in the long run because the overall tax burden on goods is expected to come down from the current level of 25-30 per cent.

Some other items like tea, coffee, rusk, skimmed milk powder, packaged foods, pizza bread, frozen vegetables and fruits have placed in the five per cent category.

Also healthcare, education, hotels and lodges with tariff below Rs1,000 have been kept out of the purview of the GST. With the plethora of taxes such as central excise, VAT, CST and Octroi being replaced with a singe tax, this destination-based taxation system will provide a win-win situation to all the major stakeholders—the consumers, traders, businesses and the government.

The logistics sector is also expected to hugely benefit with introduction of GST as there will be no inter-State barrier. The free movement of goods will eliminate delays associated with check-posts and improve the overall efficiency. The new tax regime will also give a major thrust to NDA Government’s flagship programme of ‘Make in India’ by ensuring that the goods manufactured are competitive in domestic as well as global markets.

An important aspect that needs to be highlighted is that GST is expected to be non-inflationary in the long run with the consumer getting the benefit of input tax credit. Experts have opined that GST will generate thousands of job opportunities, particularly in the areas of taxation, accounting and data analysis in the coming days and months.

The Government has also been quite accommodative regarding the concerns expressed by trade and industry and has given a two-month relaxation for filing returns. In view of the importance of this landmark tax regime to the Indian economy, I would like to briefly recapitulate its journey. It certainly has been a long wait of about 17 years for this game-changing taxation system to come to fruition.

The initial seeds were sown in 2000 when the Vajpayee government appointed the first empowered committee under the then West Bengal Finance Minister, Asim Gupta to study the issue. The UPA government took it forward with the empowered committee submitting a report in April 2008 and the constitution amendment bill on GST was introduced in Lok Sabha in March 2011. After the Centre and the State Finance Ministers decided to resolve all issues by December 2012, the government announced its determination to introduce GST in February 2013.

In December 2014, the NDA cabinet approved the Constitution Amendment Bill on GST and it was passed by the Lok Sabha in May 2015 and by the Rajya Sabha in April 2016.

The resolve with which the NDA government pursued the GST proposal and brought about its implementation from July 1 is one more example of Prime Minister, Narendra Modi’s vision to make India a major economic power, even while accomplishing the all-inclusive ‘Sab Ka Saath, Sab Ka Vikas’. Except, tax evaders, nobody else need to worry.