The anatomy of a unified tax regime
The Goods and Services Tax has been termed a potential game changer, the single biggest tax reform in independent India, one that the government says is founded on the concept of “one nation, one market, one tax”.
GST is a tax levied at each stage of value – addition in the supply of goods and services. It seeks to eliminate inefficiencies in the tax system that results in ‘tax on tax’. GST is a destination-based tax on consumption, so the state’s share of taxes on inter-state commerce goes to the one that is home to the final consumer, rather than to exporting state.
What is input tax credit? To ensure that tax is levied only on the amount of value addition at each stage of the supply chain, credit for the taxes paid at the previous stage is granted. For example, a garment manufacturer gets credit for the taxes paid on the materials purchased while computing the final indirect tax liability on his product that is collected from the consumer.
Who is liable to pay GST? Businesses and traders with annual sales above Rs 20 lakh are liable to pay GST. The threshold for paying GST is Rs 10 lakh in the case of north-eastern and special category states. GST is applicable on inter-state trade irrespective of this threshold.
What are the existing taxes that are subsumed into GST?
Taxes on production such as central excise duty and additional excise duty, import duties such as additional customs duty known as countervailing duty and special additional customs duty, state taxes like VAT, central sales tax on interstate trade of goods, luxury tax, entertainment tax except those levied by local bodies, taxes on advertisements, and state cesses and surcharges on supply of goods and services are subsumed into GST.
What are the benefits of GST?
GST brings transparency on the taxes levied on the supply of goods and services. At present, when an item is purchased, the common man sees only the state taxes on the product label. GST will improve the ease of doing business as entry barriers along state borders will be dismantled. The new indirect tax system is expected to accelerate GDP growth rate by an estimated 1.5-2 percentage points. Elimination of cascading of taxes will result in reduced tax burden on many items. How are imports treated? Imports are treated as interstate supplies and will attract Integrated Goods and Services Tax (IGST). Exports do not attract any tax. Taxes paid on raw materials and services used in export are refunded to the business.
What is the anti-profiteering mechanism?
To prevent the possibility of prices going up and to make sure that the reduced tax burden on products and services are passed on to consumers, the government introduced an anti-profiteering clause in GST law. The anti-profiteering authority will act on complaints of profiteering and direct a profiteering supplier to cut price, return the benefit of reduced tax burden to the buyer.
How are decisions taken at the GST Council?
No decision can be taken in the Council without the concurrence of both the Union or the state governments. Decisions will be taken by a 75% majority of the weighted votes of members present and voting. Union government’s vote has a weightage of one third of the votes cast, while all states together will have a weightage of two third of the votes cast.