Unified, simpler taxation regime has helped to streamline India’s economy

ALL readers, be they individuals or corporates, will be unanimous in their dislike for taxes of all types, direct or indirect. Taxation becomes more irksome when the regime is unpredictable and erratic.

India crossed the Rubicon around a year ago when it introduced a new, indirect taxation regime in the form of the Goods and Services Tax (GST).

GST, an indirect tax for the whole country, which turned India into one unified common market, was launched at midnight on July 1, 2017 by the president and prime minister of India at an historic, midnight (June 30-July 1) joint session of the Indian parliament (comprising both the upper house ‘Rajya Sabha’ and the lower house ‘Lok Sabha’). July 1 has been appropriately christened as “GST Day”.

In India, joint sessions of the parliament are convened only on some special occasions. The same Central Hall witnessed the first meeting of the newly formed Constituent Assembly on December 9, 1946 to discuss the constitution of the soon to be independent country (India achieved independence from colonial rule on August 15, 1947).

The same hall witnessed the famous “Tryst with Destiny” speech by freedom fighter and the first prime minister of India, Jawaharlal Nehru, on August 14, 1947. On November 26, 1949, the constitution of independent India was accepted by the nation at the very hall.

The launch of GST was an equally momentous and historic occasion, for it ushered in a new “tax unity” in India, a diverse nation of 29 provinces, most of which speak different languages, and seven federally administered areas.

There were seven taxes of the federal government and eight taxes of the provinces, and several different taxes for different commodities. As per an estimate, the number of taxes amounted to 500.

GST underwent an arduous journey of its own; GST was introduced after a 13-year-long journey, since it was first discussed in the report of the Kelkar Task Force on indirect taxes.

We love diversity and rigours (sometimes) but not in matters related to taxation!

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.

GST has two components – Central GST (CGST) and State GST (SGST) – maintaining a fair balance in the federal structure of India. Both Centre and States simultaneously levy GST across the value chain.

Tax is levied on every supply of goods and services. Centre levies and collects CGST, and provinces levy and collect SGST on all transactions within a province.

Five tax slabs, ranging from no tax to 28% tax on a range of commodities, attempt to cause the least price pressure on essential commodities and services while taxing “sin goods” under a higher bracket. While a few sections have been critical of GST’s structure with five separate tax slabs, this is perceived as important in view of the diversity of the country, both in terms of geography as well as income levels.

Further, India had multiple markets, each constituting a different market which needed to be consolidated.

The introduction of a unified and simpler taxation regime was essential for India to get rid of the legacy issues and make a transition to an efficient and fast-moving economy. India has long been suffering from an extremely low tax base as well as compliance, thus limiting avenues for the redistribution of wealth and social welfare measures by the government.

GST brings benefits to all the stakeholders of industry, government and the consumer. It will lower the cost of goods and services, give a boost to the economy and make the products and services globally competitive.

GST aims to make India a common market with common tax rates and procedures and remove economic barriers, thus paving the way for an integrated economy at the national level.

Bringing efficient digital processes into tax management, reducing the number of tax returns, minimising human interface and cutting down on the inordinate delays of multiple checkpoints, and obstacles, has helped GST usher in certainty in tax matters and ease of doing business in India.

GST is also aiding efforts by the government to curb the menace of “black money”, ie income for which tax has not been paid. GST would make doing business in the country tax neutral, irrespective of the choice of place of doing business.

Further, a system of seamless tax credits throughout the value chain, and across boundaries of provinces, would ensure that there is minimal cascading of taxes, thus reducing hidden costs of doing business.

India jumped 30 positions to become the top 100th country in terms of ease of doing business in the ranking published by the World Bank in October 2017. With GST, further improvements are expected this year.

The Goods and Services Tax could translate into “Good and Simple Tax” by bringing about positive changes in ease of doing business, leading to the ultimate aim of ease of living.