YOJANA ANALYSIS – AUGUST 2017

BY – SHYAM S KAGGOD

CASCADING EFFECT

A B CSelling

Price= ₹ 100Selling

Price= ₹ 130

Tax @ 10%

Will buy it

at ₹ 110 &

adds profit

of ₹ 20Tax @ 10%

Will buy it

at ₹ 143

INPUT TAX CREDIT

A

Tax paid is ₹ 100

B

Tax paid is ₹ 120

C

Tax paid is ₹ 130

Tax to be paid

is ₹ 400

INPUTS

OUTPUT

Tax Paid to the

government is

₹ 50

WHY GST?

Cascading effect

Multiplicity of indirect taxes

Setting off not allowed/difficult in some case

The transportation costs will add to the costs

Lines between goods and services have blurred (eg-

IPR are considered goods for imposing sales tax and

as services for imposing service tax)

PROBLEM

Raw materials

Internal-VAT

External-Customs, CVD etc

Research/Technology

Internal-service tax

External-customs or

service tax

Others

Interstate tax

Entry tax

Octroi

GST

Streamlining/subsuming all the indirect taxes-

one nation one indirect tax

First introduced in 2011 and again in December

2014

115th CAB and 122nd CAB

GST

PROVISIONS OF GST BILL

The bill empowers both central and state governments

to take decisions/make laws regarding taxes

GST council

Set up by the president

Union Finance Minister + state Finance ministers

Functions-model GST laws, taxes/surcharge/cess to

be levied by the centre and state, exemptions to be

given etc

GST council to decide regarding resolution of disputes

PROVISIONS OF GST BILL

PROVISIONS OF GST BILL

The additional Interstate GST will be levied by

central government (additional levy of 1%

withdrawn)

Exemption-alcoholic liquor for human

consumption, GST council to decide when to

impose taxes on crude petroleum, high speed

diesel, petrol, natural gas and Aviation Turbine

Fuel (ATF)

Compensation to be given for 5 years

COMPENSATION & CESS

The government has imposed cess under GST

The cess collected will be used to provide

compensation

GST WILL SUBSUME

GST-EXEMPTIONS

OLD VS NEW

Old method GST

Goods and services were taxed

separately

No differentiation between Goods

and services

Different states different tax rates Uniform tax rates across the

country

National market not possible National market can be

established

Tax on production (origin based

taxation)

Tax on consumption (target/end

based taxation)

Cascading effect No cascading effect

Many indirect taxes Only one

Setting off in some cases not allowed Setting off is allowed

GST EXAMPLE

SUBRAMANIAN COMMITTEE

Simplify tax administration, protect revenues and encourage

compliance

Three rates-Standard rate (17% to 18%),Lower rate

(12%),Sin rate/demerit rate (40%)

Alcohol and real estate must be brought under GST

1% Interstate GST should not be implemented

Compensation to reinforce trust between centre and states

GST implementation must be evaluated every 1 or 2 years

SUBRAMANIAN COMMITTEE

GSTN (GST NETWORK)

COMPOSITION SCHEME

BENEFITS OF GST IMPLEMENTATION

GST BENEFITS – EASE OF DOING BUSINESS

Increase tax compliance, reduce tax burden,

eliminate cascading effect, boost tax revenues,

improve tax administration etc

It will replace host of indirect taxes and cesses

Businesses dealing with exempted goods and

having a turnover of ₹ 20 lakh will be exempted

GST – BENEFITS

Coverage of textile, clothing and real estate

Expansion of tax base – the number of tax payers

and direct tax collections

Logistics cost

GST & LOGISTICS

Home Market effect

Centralizing hub operations – Nagpur (Zero Mile

City)

Reason Time taken out of

the total

Transportation

time

40%

Check posts 25%

Other official

stoppages

35%

GST – CONCERNS

Compliance burden

GST – CONCERNS

Anti-Profiteering Measures

Set of rules/guidelines that prevent the companies

from making excessive profits with introduction of

GST

Were cleared by GST council on June 18, 2017

A National Anti-Profiteering Authority will be set up

Has a sun-set clause of two years

GST - CONCERNS

Tax rate - multiple tax rates

Revenue protection

Inflation

Training and Infrastructure

Compliance amongst the small businesses

GST – CONCERNS

The gold should be brought under the higher

tariff

Health and education should be brought under

the ambit of GST

Tax over GST would be counter-productive

MULTIPLE TIERS

Need/Necessity

There are too many groups using too many goods. Hence

based on the goods used by these groups different tax rates

are needed

The government needs to maintain revenue neutrality

It may lead to inflation (if all/majority of the commodities

used by poor are in higher slab)

It may also become regressive in nature

Disadvantages

Administrative difficulties

Goes against the central idea of GST-One Nation, One

Indirect Tax

May lead to inflation

MULTIPLE TIERS

Worries with the present tiers and commodities

allocation

Old wine in a new bottle

Better structure required

Complicated structure

Way ahead

Exemptions should be phased out

Taxes on all the goods and services should be rationalized

Fiscal space for GST rationalization through reforms in

Direct Tax structure

GLOBAL EXPERIENCE

Rationalization of tax rates

Inflation

Compliance

Has been regressive in some cases

QUESTIONS

GST has led to co-operative federalism/economic Union of India-elaborate

GST though revolutionary needs fine-tuning if India wants to reap the benefits-discuss

GST implementation rather than reducing the litigation may lead to tax terrorism-discuss

GST regime represents an improvement in form as well as content compared to previous tax regime-explain