34% of the total tax collection in India comes from indirect taxes. With the implementation of GST, the GST Council will ensure that India will see a total overhaul of the indirect tax system. On November 3, 2016, the fixed slabs rates of 5%, 12%, 18% & 28% were finalised. To keep inflation under check, essential commodities like food grain will have no tax. The highest tax slab is applicable for items that are currently taxed at 30% which include excise duty plus VAT.
On the categorisation of goods in these slabs MS Mani, Senior Director, Deloitte Haskins & Sells LLP expressed, “It is also necessary to ensure that majority of manufactured products are kept at 18 percent and the temptation to push more products into the 28 percent slab should be resisted,” He added, “While the goods will have a multiple rate structure, no clarity is provided on rates applicable to services.”
Mr. Jaitley stated that Rs. 50,000 crore will be compensated to states for loss of revenue caused by the GST rollout. To ensure a smooth passage of these GST bills, the Centre looks to pass them on as Money Bills. The Money Bill under Article 110 (1) (a) contains certain provisions that allow for the imposition, remission, regulation and abolition of taxes.
Sin Tax could be applied to good like luxury cars, tobacco and aerated drinks upto 40%. Having an estimated 275 million tobacco consumers, India has the second largest number of tobacco users in the world. With the implementation of a 40% tax, tobacco consumers in India could be more conscious about safeguarding their health.
Issue of Dual control and the threshold set
Two contentious issues that the GST Council resolved were the application of threshold and dual control assessment by tax officials. After its passage, the threshold was fixed at Rs. 20 Lakh based on annual turnover. Entities with a daily sales worth Rs. 5,500 would not be taxable under GST.
The Dual Control issue was also resolved where state official can assess upto Rs. 1.5 crore of annual turnover in terms of goods without intervention by the Centre. In terms of services, the centre and state will have jurisdiction equally. Further rules on granting exemptions based on GST tax slabs have been drafted for registration and invoicing based on region.
Talking about the difficulty on its implementation, S.D. Majumder, former Chairman of Central Board of Excise and Customs cautioned that in a dual GST model, dual control is inherent. States may find it difficult to monitor service tax assesses since they have never levied service tax till now and require the Centre’s support for the initial years.
The Union Finance Minister fixed the indirect tax exemption limit to Rs. 10 Lakhs for north-eastern and hill states and Rs. 20 lakh for others to absorb all cesses from the previous indirect taxes.
Enact GST and make amends after passage
For GST to move forward, a space of evolution and improvement is needed to lay the groundwork after the passage and implementation of the bill. On the priority and significance of the GST, Rajeev Chandrasekhar, Bangalore MP said, “I believe that it is important for the GST Council to bear in mind that changes can be made to the GST structure in the future.” He further explains on the availability of data, the government can assess its initial impact on state revenues and determine its future course of action.
On why the GST is imperative, FM Arun Jaitley said that the ‘GST could be rolled out anytime between April 1-September 16,’ as it is does not need a financial year unlike Income Tax. “If GST not rolled out by September, there won’t be taxation in country,” he warns. With the GST being a transaction tax, changes to the it can be levied, modified and implemented regardless of the time period during a financial year.
On how GST will lead to increased business revenues
GST forecasts show that business revenues will surge as it is a system that allows for input tax credits for businesses that become tax compliant. It will also provide a mechanism to halt the process of creating black money and bring in transparency.
With the resolution of the dual control issue, the Centre and State will stand to gain from increased tax collections from GST based on the success of its implementation. GST Council Meeting on December 22-23 will finalise the sharing of power between state and centre. This should resolve the disruption to the house caused by the Opposition to lay the final ground work for the implementation of the Bill on April 1, 2017.