GST: Will it be beneficial to all stakeholders?

NOVEMBER 25 2!!"
B# $shish %h&n'ar and $khil $rora $(ic&s Rar&s )ons&lts
T*E +hite,a,er on GST has been bro&'ht o&t +ith (&ch fanfare ass&(in' that it is
,anacea of all ills that ha-e been faced b# the indirect ta. re'i(e in /ndia 0 The refor(
,rocess on indirect ta.es +hich started in ri'ht earnest in 1"23 +ith introd&ction of
MO4V$T is no+ seein' its c&l(ination +ith GST +ith re(o-al of all the cascades
considerable si(,lification and broad basin' of ta. co-era'e0 5et &s not for'et that +hile
/nco(e6ta. no+ holds n&(ero &no ,osition as far as )entral Re-en&e is concerned the
share of ta. re-en&e that indirect ta. 'arners fro( 'oods is considerabl# hi'h if both
)entral and State do(ains are incl&ded0 So at stake in this refor( is re-en&e of (ore
than a (illion crores0 Therefore it +ill be no e.a''eration to ter( the GST6 as the (other
of all ta. refor(s in /ndia0
The introd&ction of GST at the )entral le-el +ill not onl# incl&de co(,rehensi-el# (ore
indirect )entral ta.es and inte'rate 'oods and ser-ice ta.es for the ,&r,ose of set6off
relief b&t (a# also lead to re-en&e 'ain for the )entre thro&'h +idenin' of the dealer
base b# ca,t&rin' -al&e addition in the distrib&ti-e trade and increased )o(,liance0
7&rther the introd&ction of /nter6State Goods 8 Ser-ice ta. 9/GST: +ill lead to re(o-al
of cascadin' effect0 $nother (a;or benefit of GST +ill be that there +ill be i((ense
red&ction in ti(e for dealers<(an&fact&res to a-ail credit fro( central or state
'o-ern(ent and hence interest cost +ill lessen to a (a;or e.tent0
What lies in store for all stakeholders?
i: There +ill be a s#ste( of co(,rehensi-e set6off relief incl&din' set6off for cascadin'
b&rden of ,resent )ENV$T and ser-ice ta.es0 /t +ill lead to red&ction in ta. b&rden for
cons&(ers0
ii: S&bs&(in' of se-eral ta.es in the GST +ill be ,ossible0
iii: The ta. chain of )entral E.cise +hich is no+ confined to clearance of 'oods fro(
factor# +ill beco(e broader based to incl&de in its a(bit e-en +holesale and retail
transactions ri'ht &, to the &lti(ate cons&(er &nder the ne+ no(enclat&re of )entral
G0S0T0
i-: =nder the (echanis( of /0G0S0T set off of G0S0T0 9state or central: +ill be a-ailable
across the states +ithin the territor# of /ndia 0
-: Si(,lified ta. str&ct&re for all stake holders : The reco((endations that follo+in'
central and state ta.es sho&ld be s&bs&(ed &nder Goods and Ser-ices Ta. +ill lead to a
-er# si(,lified str&ct&re of all stakeholders0
To be'in +ith follo+in' )entral ta.es are reco((ended to be s&bs&(ed in GST:
6 )entral E.cise 4&t#
6 $dditional E.cise 4&ties
6 The E.cise 4&t# le-ied &nder the Medicinal and
6Toiletries >re,aration $ct
6 Ser-ice Ta.
6 $dditional )&sto(s 4&t# co((onl# kno+n as )o&nter-ailin' 4&t# 9)V4:
6 S,ecial $dditional 4&t# of )&sto(s 6 ?@ 9S$4:
6 S&rchar'es and
6)esses0
7ollo+in' State ta.es and le-ies +o&ld be to be'in +ith s&bs&(ed &nder GST:
6 V$T < Sales ta.
6 Entertain(ent ta. 9&nless it is le-ied b# the local bodies:0
6 5&.&r# ta.
6 Ta.es on lotter# bettin' and 'a(blin'0
6 State )esses and S&rchar'es in so far as the# relate to s&,,l# of 'oods and ser-ices0
6 Entr# ta. not in lie& of Octroi0
-i: >ositi-es for s(all traders<ta. ,a#ers : /GST (odel +hich is inte'rated GST (odel
for inter6state transactions c&ts across borders in ,ro-idin' set offs0 The ,ro,osed GST
also talks abo&t a threshold of Rs 105 crore at a central le-el and Rs 1! lakh at the state
le-el0 /t is a ,ositi-e (o-e beca&se (an# of these s(all ta. ,a#ers or s(all traders +ill
'et e.cl&ded at least at the central le-el0
-ii *o+ +ill cons&(ers benefit? : With the introd&ction of GST all the cascadin' effects
of )ENV$T and ser-ice ta. +ill be (ore co(,rehensi-el# re(o-ed +ith a contin&o&s
chain of set6off fro( the ,rod&cerAs ,oint to the retailerAs ,oint than +hat +as ,ossible
&nder the ,re-ailin' )ENV$T and V$T re'i(e0 )ertain (a;or )entral and State ta.es
+ill also be s&bs&(ed in GST and )ST +ill be ,hased o&t0 Other thin's re(ainin' the
sa(e the b&rden of ta. on 'oods +o&ld in 'eneral fall &nder GST and that +o&ld
benefit the cons&(ers0
-iii: What it (eans for s(all entre,rene&rs and traders? : The ,resent threshold
,rescribed in different State V$T $cts belo+ +hich V$T is not a,,licable -aries fro(
State to State0 The e.istin' threshold of 'oods &nder State V$T is Rs0 5 5akhs for a
(a;orit# of bi''er States and a lo+er threshold for North Eastern States and S,ecial
)ate'or# States 0 $ &nifor( State GST threshold across States is desirable and therefore
the E(,o+ered )o((ittee has reco((ended that a threshold of 'ross ann&al t&rno-er of
Rs0 1! lakh both for 'oods and ser-ices for all the States and =nion Territories (a# be
ado,ted0 %ee,in' in -ie+ the interest of s(all traders and s(all scale ind&stries and to
a-oid d&al control the threshold for )entral GST for 'oods (a# be ke,t at Rs0105 crores
and the threshold for ser-ices sho&ld also be a,,ro,riatel# hi'h0 This raisin' of threshold
+ill ,rotect the interest of s(all Traders0 Both these feat&res of GST +ill adeB&atel#
,rotect the interests of s(all traders and s(all scale ind&stries0
i.: E.,ort to re(ain Cero rated : E.,orts +o&ld be Cero6rated0 Si(ilar benefits (a# be
'i-en to S,ecial Econo(ic Dones 9SEDs:0 *o+e-er s&ch benefits +ill onl# be allo+ed to
the ,rocessin' Cones of the SEDs and not to non6,rocessin' Cones0
.: /(,ort inter(ediaries to benefit: Tho&'h GST +ill be le-ied on i(,orts +ith necessar#
constit&tional a(end(ents f&ll and co(,lete set6off +ill be a-ailable on the GST ,aid
on 'oods and ser-ices0
.i: Ne+ dis,ensation &nder s,ecial /nd&strial $rea sche(e: $fter the introd&ction of
GST the ta. e.e(,tions re(issions etc0 related to ind&strial incenti-es +ill be
con-erted into cash ref&nd sche(es +hich +ill be (ore beneficial for these ind&stries
after collection of ta. so that the GST sche(e on the basis of a contin&o&s chain of set6
offs is not dist&rbed0 *o+e-er this (a# entail (ore ,a,er +ork as +ell as transactions
costs in 'ettin' the ref&nds sanctioned0
$ll this (a# so&nd too 'ood to the ears0 B&t ha-e there been an# ta. refor(s +itho&t
stin's? Ta. a&thorities +ill ne-er be ha,,# +ith an# refor( ,rocess that does not brin'
abo&t 'reater re-en&es in their coffers &lti(atel#0 Therefore des,ite all the bi' talk abo&t
re(o-in' cascades to (ake 'oods and ser-ices chea,er e-ent&all# the ,rod&ct and
ser-ices costs are 'oin' to end &, hi'her0 While the direct ta. refor(s brin' do+n the ta.
rate b# co-erin' (ore indi-id&als and b&siness enter,rise0 /n indirect ta.es this is 'oin'
to be achie-ed b# brin'in' in the ta. a(bit (ore ser-ices 9or ta.in' ser-ices at hi'her
rate: or b# brin'in' (ore transactions in relation to 'oods &nder the ta. net+ork0
)onsider that E.cise +as bein' le-ied on 'oods ,rod&ced in the )entral do(ain b&t no+
it +ill be )entral GST co-erin' transactions ri'ht &, to &lti(ate cons&(er0 7&rther there
+as no ta. on ser-ices b# the state b&t no+ these +ill be ta.ed at the state le-el0 $rea
+ise e.e(,tions +ill beco(e hard to 'et +ith ,a# and 'et ref&nd sche(e +hich
e-ent&all# (eans no si(,lification b&t f&rther co(,lication0 Gi-en that set off chains in
an# case ha-e the sco,e of red&cin' the n&(ber of ta. e-aders as +ell as the B&ant&( of
it there e.ists B&ite a +ide sco,e to increase co-era'e of 'oods and ser-ices &nder GST
and if this ,otential can be realiCed there e.ists a ;&stification to kee, the GST rate at a
reasonable le-els of 1?@ to 13@0 $n#thin' abo-e this (a# onl# indicate that the ta.
a&thorities lack in confidence to (ake e-asion diffic&lt and therefore are contin&in' to
rel# on a'e old a,,roach of e.tractin' (ore fro( those +ho are (ore ta. co(,liant0
Therefore +hen it co(es to the cr&nch the &lti(ate fi'&re of GST +ill be the decider as
to +hether or not it is beneficial to all stake holders0