GOODS AND SERVICE TAX (GST) AND ITS IMPACT
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1 104 Journal of Management and Science ISSN: e-issn: Special Issue. No.1 Sep 17 GOODS AND SERVICE TAX (GST) AND ITS IMPACT P.KANAGARAJ Assistant Professor in Commerce Department of Commerce with Professional Accounting Dr. N. G. P Arts and Science College (Autonomous), Coimbatore 048. GOKULA PRIYA. A III-B.Com (PA) Dr. N. G. P Arts and Science College (Autonomous), Coimbatore ABSTRACT: Goods and Service Tax is a comprehensive tax levy on manufacture, sale and consumption of goods and services. GST is termed as biggest tax reform In Indian Tax Structure. It will not be an additional tax; it will include central excise duty, service tax additional duties of customers at the central level, VAT, central sales tax, entertainment tax, octroi, state surcharge, luxury tax, lottery tax and other surcharge on supply of goods and services. The purpose of GST is to replace all these taxes with single comprehensive tax, bringing it all under single umbrella. The purpose is to eliminate tax on tax. This paper will throw light on GST its features and also effect of GST on prices of goods and Services. Keywords: G.S.T., mechanism of GST, feature, impact, prices, organized sector, employment. INTRODUCTION The Rajya Sabha unanimously passed the constitution (22nd amendment) bill 2014, on 3 rd August 2016 with 203 votes in favour. GST would be a comprehensive indirect tax on manufacture consumption and sale of goods and services throughout India, to replace taxes levied by central Government and state Government. GST would be levied and collected at each stage of sale or purchase of goods and services. Taxable goods and services are not distinguished from one another and are taxed at single rate in supply chain till goods and services reach the consumer. It was facilitated by the congress after the Government made key changes, including scraping of 1 percent manufacturing tax and incorporating clearer provision for Compensating state for revenue loss for five years. Mr. Arun Jaitly assured the house that the tax rates would be kept as low as possible. As today some taxes are levied by the state Govt. and some are levied by central Govt. How nice will it be if there is only one unified tax rate instead of all these taxes, GST is applied on goods and services at the place where actual consumption happens. It is based on the Destination Principle. GST would be levied and collected at each stage of sale or purchase of goods and services. Goods and services are not distinguished and are taxed at single rate in supply chain till the goods and services reach consumer. It is the consumer of goods and services who bears the tax. The manufacture or wholesaler or retailer will pay the applicable GST rate but will claim back through tax credit mechanism.
2 105 Journal of Management and Science ISSN: e-issn: Special Issue. No.1 Sep 17 Administrative responsibility would be generally rest with single authority to buy tax on goods and services. Under the current system, levies are charged at multiple points and by different authorities, for example at the police at check points, by state Govt. agencies at inter-state borders. This encourages corruption, that a common nationwide tax is expected to eliminate. It is believed that it would make the tax procedure more fair, transparent and efficient. The current tax structure does not allow business person to take tax credit. There are many chances of overlapping or doubling of taxation at every step of supply chain. This will be eliminated with the implementation of GST. Indian Govt. is opting for dual system of GST. This system will have two components which will be known as: - Central Goods and Service Tax (CGST) State Goods and Service Tax (SGST) The current taxes like excise duties, service tax, custom duty etc. will be merged under GST. The taxes like sales tax, entertainment tax, VAT, and other state taxes will be included in GST. HOW GST IS LEVIED? GST will be levied on the place of consumption of goods and services. It can be levied on following states. Intra-state supply and consumption of goods and services. Inter-state movement of goods. Import of goods and services. FEATURES OF GST GST will subsume central indirect taxes like excise duty, services tax etc and also state levies like VAT, Octroi, entry tax, luxury tax etc. It will have two components, central GST levied by Centre and State GST levied by the States. Only Centre may levy and collect GST on supplies in case of inter-state trade and collection of tax will be divided between centre and state. A two-rate structure will be adopted. It means lower rate for necessary items and goods of basic importance and a standard rate for goods in general. There will also be a Special rate for precious metals and a list of exempted items. Over-lapping of tax, tax on tax will be eliminated with GST.
3 106 Journal of Management and Science ISSN: e-issn: Special Issue. No.1 Sep 17 Both Goods and Services are taxed in same manner in chain of supply till they are reached to consumer. They are not distinguished under GST. IMPACT OF GST ON PRICES OF GOODS AND SERVICES Tax experts claim that the current practice of tax on tax for example, VAT is being charged on not just cost of production but also on the excise duty that is added at the factory gate leading to cost building up, will go once GST is rolled out. This will help in bringing down the prices of consumer durables, electronic products and ready-made garments. On the other hand, for goods which are currently taxed at low rate, the impact of GST will bring price hike. Services barring essential ones like ambulance, cultural activities, pilgrimages etc. are exempted from levy, will become costlier. GST is the most powerful tax reform that India has seen, aims to do away with multiple - tax regime on goods and services and bring them under one rate. We can just predict the following impact of GST on prices. WHAT WOULD BE CHEAPER? Electronic Goods: Electronic goods like AC, microwave ovens, refrigerators, washing machines etc. will be cheaper because presently there is 12.5% excise and 14.5% VAT is levied on them but after GST only single tax will be levied which will bring the prices of these electronic goods. Restaurant Bill: Eating out will also be cheaper because presently both VAT and service tax are levied on it. But when GST will be levied, it will cut the bill. Multiplex and Media: Currently 22 to 24 percent taxes are charged on multiplex and media as service tax and entertainment tax both are levied. But after implementation of GST this tax amount will be reduced to 18 to 20 percent. Medicines: On medicines different taxes are levied. After GST the rate of tax may be reduced by 6 percent. Small SUV Cars: Small cars will also be cheaper. Cement: After implementation of GST 18 to 20 percent less tax will be charged on cement, this will reduce the prices of cement. Accepts these luxury cars, FMCG products, consumer durable, ready-made garments etc. will be cheaper when GST will be implementation. On the other hand following are some items which will be costly after levy of GST. WHAT WILL BE COSTLY? Packed Food: Packed food will be costly by 12 percent. It include tea, coffee etc. on which presently no duty is charged, but after levy of GST, if Government charge at base rate, even then prices of packed food will increase. Diamonds, Jewellery, Ready-made Garments: After GST implementation diamonds, Jewellery and readymade garments will be costly because currently three percent tax is charged on them and after implementation GST the tax may be 12%. Services: There will be increase in prices of mobile bill, Credit Card bill etc. Presently 15% tax is charged on these services and with levy of GST it will be 18%, which will make these services costly.
4 107 Journal of Management and Science ISSN: e-issn: Special Issue. No.1 Sep 17 Textile, edible oil, Low Value, Footwear: Tax rate of excise duty is nil and VAT in most states is 5%. Thus the overall tax cost for these goods is about 8 to 9 percent. If these goods are kept at standard GST rate of 18% then there would be significant increase in cost of these items for the end customers. If these are kept at lower GST of 12% there would be an increase in cost for consumers. While the Government is sure of the benefits of GST will bring to common man, it is still early days to predict that which items will be more cheaper are expensive. Experts say inflation can go up for a year after implementation of GST that's has been the international experience. We have on economy where services tend to dominate and GST will on services will be higher that current situation. On the other hand some articles are outside the taxation right now which will also get added. This is also the reason of higher prices. IMPACT ON TRADERS POSITIVE IMPACT No dispute good Versus Service In past regime of tax structure, the big issue is whether the transaction amount to sale of good or service. Though this dispute still may arise from view of time/place of supply from good or time/place of supply of services as both are separately given. However, net impact is neutral, on either of them needs to pay GST. Composition levy Increased In past regime of taxation the limit under Composition Scheme is 40 lakhs whereas under GST it is increased up to 50 Lakhs. It is beneficial as 10 lakhs in turnover is a big thing from trader point of view. Credit of Excise Duty and Service tax In past regime of taxation then a trader is not eligible to take credit of input service as well as the Excise duty. However, in GST regime he will be eligible to take all credits and it will make positive impact on trader. No Margin to Disclose Pastly a trader who wants to pass on the CENVAT Credit of excise duty needs to obtain dealer registration and have to disclose the margin. But now this is no more relevant as trader is eligible to take credit as well as no requirement of separate dealer registration. NEGATIVE IMPACT Stock transfer made taxable In past regime of tax, stock transfer is not taxable on being made available Form F where as in current regime stock transfer made taxable. Due to this Warehouse decision to be taken more appropriately. No Form C In current regime of tax, on being made available the Form C, CST rates charged at the rate of 2% instead of 14.5% which is local tax rate, however in GST regime interstate will be taxed at standard rate i.e IGST. Goods sent to job work are taxable
5 108 Journal of Management and Science ISSN: e-issn: Special Issue. No.1 Sep 17 In current regime of tax, the goods sent for job-work are not liable to CST on being made available of Form H whereas in Current GST regime it became taxable. Increased burden of Compliances Instead of 4/12 Returns (state wise vary), now a trader needs to file 37 returns in year and much more compliances. IMPACT ON MANUFACTURES POSITIVE IMPACT One Tax In present structure of tax, there are various kinds of taxes such as excise duty, Service tax, VAT, Entry tax, Central Sales Tax etc. But in GST regime there is only one tax i.e. GST however, there will be three parts such CGST, SGST, IGST. This is measure relief for the manufacturer. Electronic Mode for Forms In current regime of tax there is very much manual filing of documents such as initial declaration, Numbering of Invoices etc. But in GST regime there will be less manual filing of documents and more through electronic mode. Further, the communication with department also could be through electronic mode. Reduction in Cost In GST regime there will be reduction in cost of production as credit will be eligible of tax on purchases made from interstate purchases and no cascading effect. Hence, a manufacturer need not take the decision regarding purchase from point of view of tax implication as credit is eligible on all purchases. Speedy Movement of Goods In GST Regime of tax structure there will be minimization of trade barriers, such as filing of way bills/entry permits. Compliance under entry tax will be abolished. There is much compliance in current regime on interstate movements or locally such as way bills, statutory forms etc. which lead to slow movements of goods whereas this concept is going to be abolished though check points will still be eligible. NEGATIVE IMPACT Time of Supply In current regime of tax the time of duty on manufacture attracts at the time of removal where as in GST regime it will earliest of the four such as (Date of Issue of Invoice, Date of Payment, Date of Removal, Debit in the books of Receiver). Increase in Working Capital In GST regime of tax, stock transfer has been made taxable, which requires the huge working capital because the realization of tax going to be on final supply tills that It may block the capital. Post supply Discount If the discount has to be given post supply than it must be known to both the parties at the time of supply or pre-supply and the proof of being known is the clause of discount must be there either in contract or agreement or offer etc.
6 109 Journal of Management and Science ISSN: e-issn: Special Issue. No.1 Sep 17 No Compliance of C and F Forms As stock transfer has been made taxable in GST Regime hence Concept of F Forms is no more relevant and IGST has been levied on all inter-state purchases or sale and credit will be allowed, hence No Concept of form F is relevant. IMPACT OF GST IN STATE GOVERNMENT LESS THAN 46% OF STATES OWN TAX REVENUE TO BE SUBSUMED INTO GST GST subsumes various taxes levied by states, including sales tax, entertainment tax and entry tax, except the revenue from excise on alcohol and sale of alcohol and petroleum products. We do not have disaggregated data on sales tax on alcohol. Tax revenue to be subsumed (plus revenue on sale of alcohol) was 46% of states own tax revenue in Excluding sales tax on alcohol, which will continue to be taxed separately by states, revenue subsumed would be lower than 46% of own tax revenue. FEW STATES SEEM TO BENEFIT FROM THE COMPENSATION
7 110 Journal of Management and Science ISSN: e-issn: Special Issue. No.1 Sep 17 States will be compensated for any shortfall in revenue collection due to implementation of GST in the following years. The baseline is assumed to be a growth of 14% compounded from On average, the growth in revenue from the subsumed taxes for these states grew 14% between and This is not adjusted for sales tax on alcohol and petroleum products. However, as GST subsumes some central taxes too (such as excise and service tax) and states get half the share, there may be a difference in the tax base and tax growth. IMPACT OF GST ON ORGANIZED SECTOR Another major regime is that it will shift trade from unorganized to organized sector and improve efficiency in the system. India has significant presence of unorganized sector. According to some estimates in 2005, out of 485 million persons employed in India, 86% to 395 million worked in unorganized sector, generating 50.6% of GDP. Implementation of GST is expected to narrow the large indirect tax difference between organized and unorganized segments. This would be achieved by ensuring better compliance and enforcement by reducing the thresh-hold limit for exemption from indirect taxes, tracking the flow of GST in entire chain. IMPACT ON EMPLOYMENT Analysis say that the fear of job losses in GST regime persist as it hits the unorganized players, who have to now come under tax compliance while benefitting the mid large sized companies which are already under the organized sector.
8 111 Journal of Management and Science ISSN: e-issn: Special Issue. No.1 Sep 17 CONCLUSION At the end we can say no doubt it is the biggest ever change in tax structure of India. There will be fall in prices of some commodities but on the other hand price of some other goods and services will rise. There is threat of inflation too and states may face reduction in their financial resources. But overall it will be a great change. REFERENCES 1. GST to hit Consumers, unorganized jobs, Sanjeev Sharma, The Tribune, Ajit, The Tribune, Indianexpress.com>business>Economy. 7. M.economics.com 8. http//hindustantimes.com *****
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