Introduction Economy of a country fully depends onits revenue structure and a major source of public revenue in any country istaxation. In India the tax is levied by the ancient time. It is written in aSanskrit mahakavya raguwansham by the Kalidas for the king Delip that “It was only for the good of his subjects that he collected taxesfrom them, just as the Sun draws moisture from the Earth to give it back athousand fold.” In India, the system of taxation as itis known today, has been in force in one form or another even from ancienttimes. There are references both in Manu Smriti and Arthasastra to a variety oftax measures. The detailed analysis given by Manu Smriti and Arthasastra on thesubject clearly shows the existence of a well-planned taxation system, willdevelop a state.
So if the tax structure of any country is simple andunderstandable by its citizens then the country will grow and people willwillingly contribute in taxation and we will get the Progressive GDP and viceversa. As the time changes we needimprovements in the methods and structure of tax system so that we can increasethe tax collection and make it simple, transparent and understandable to thecitizens. So tax reform is the process of changing the way taxes are collectedor managed by the government and is usually undertaken to improve taxadministration or to provide economic or social benefits. In India the tax structure opted afterthe Independence was very critical and filled with numerous problems such astax evasion, irregular tax collection, dual taxation etc. Due to that peoplestarted taking tax as a burden instead of contribution so government felt theneed for reforms and the first step taken by the government towards tax reformsin the mid 1980, government issued first long term fiscal policy and as well asprepared the new system for Indirect tax structure after that the reformsaccelerated in 1990s due the liberalisation after that government never lookback and the process to make taxation simple started but the process andtax-rats was different in different stats so government felt the need of auniform tax structure and on the recommendation of Vijay Kelkar committeegovernment introduced Goods and services tax in 2006 and the GST come intoforce from 1 July 2017 i.e.
implementation 122nd amendment by theIndia. After the implementation the multi indirect tax of central and stateconverted into a single tax in india i.e. GST .
Objective: To find out the impact of GST in the behalf indirecttax system in India.Benefits of Study:The study helps in understanding the impact ofGoods and service tax launched by government to resolve the challenges andproblems in current indirect tax structure in India.Overview of major taxreforms in indirect taxation:The efforts to reformIndia’s tax system began in mid 1980s when the government announced a Long TermFiscal Policy, 1985. This policy recognized that the fiscal position of thecountry is going downhill and there was a need to make changes in the taxationsystem. In that decade, a technical group to review and rationalize the centralexcise duties was established and this led to introduction of Modified Systemof Value-Added Tax (MODVAT) in 1986. To rationalize the custom duties, theharmonized system (HS) of the classification of goods was introduced.
Government appointed aTax Reforms Committee under Prof Raja Chelliah to lay out agenda for reformingIndia’s tax system. This TRC came up with three reports in 1991, 1992 and 1993with several measures, which can be summarized in these points:· Reforming the personal taxation system byreducing the marginal tax rates.· Reduction in the corporate tax rates.
· Reducing the cost of imported inputs bylowering the customs duties.· Reduction in the number of Customs tariffrates and its rationalization.· Simplifying the excise duties and itsintegration with a Value-Added Tax (VAT) system.· Bringing the services sector in the tax netwithin a VAT system.· Broadening of the tax base.· Building a tax information andcomputerization.· Improving the quality of tax administration.The tax reforms thatbegan with the Chelliah Committee recommendations are still going on.
Later on,government appointed the Vijay Kelkar Committee in 2002 which further provideddirection to the tax reforms in the country.Vijay Kelkar CommitteeThe latest impetus to indirecttax reforms in India came with the recommendations of the Task Force on Direct& Indirect Taxes under the chairmanship of Vijay Kelkar in 2002.First Indirect Tax Reformoccurred in India when the Modified Value Added Tax (MODVAT) was introduced forselected commodities in 1986 to replace the Central Excise Duty. It wasgradually extended to all commodities through Central Value Added Tax (CENVAT).The states also followed the suit and enacted the VAT acts to replace the salestax with Value Added Tax. Following are the key indirect tax reforms done.Reduction In CustomDutiesIn 1990, the custom dutyon non-agricultural products was around 128%. It was brought down gradually.
Currently, the average custom duties are 11-12%, however, they range from 0 to150%.Central ExciseCentral Excise dutieswere first replaced with MODVAT and now CENVAT is applicable. The number ofdifferent types of duties was cut down.Service TaxService tax was firstintroduced on some limited services in 1994-95 at 7%. The rate was graduallyincreased and so was the number of taxable services. Currently, we pay up to15% service tax on around 119 services.Goods And Services TaxThe GST is a biggestchange in the current tax system when it is introduced on 1 july 2017 in theindia.GST implementation incountry was a big impact on every sector .
After the GST introduce a manufacturesector should stand to benefit due to removable of complex tax system. GST has reduce the some of the tax rate from 25%to 40% with certain categories being tax to low rates .GST rates can beclassified 0% to 28% there could be a reduction of tax rates in several item.
Keyfeatures of the GST are as under:-1. Dual Goods & Service Tax : CGST and SGST2. Inter-State Transactions & the IGST : The Central Government levied IGST when goods sale one state toanother state or inter-state sale .IGST pay to Central government after adjusting of input tax whichalready pay to the government on behalf of purchase goods3. UTGST: The Unitary Governmentleaved UGST when goods and services supply with in the UT . 4.
Consumption Tax: GSTwill be a consumptions tax.This means that all SGST which is collected by thecustomer is merged in GST. 5. Computation of GST on the basis of output tax and input tax : The ouput tax collected by assesse when the goods sold to thecustomer and input tax pay the assesse when Goods purchase to the dealer after the adjustment of ouput tax and input tax final amount pay toGovernment. For eg: output tax is 1000 Rs and input tax is 300 Rs so final GSTpay to Government is 700 Rs. 6. Payment of GST when Goods and Services Supply in state: The Central and State GST paid each other respectively in hisaccounts. 7.
GST IT System: GSTnetwork are setup online that share sevices over network i.e. tax payer ,taxreturn GST registration etc. 8. Procedure of INPUT TAX in GST Centraland state government allow to Input Tax Credit for CGST &SGST 9.
GST on Imports : Import of goods will be subject to basic customs duty and IGST.10. Keeps of Records: A Taxpayer maintain the separate books of accounts for theutilization and refund of the input tax credit. So we can say that GST is a destination basedindirect tax which has replaced several otherindirect taxes earlier levied in the country.
The tax has created a coalition between central andstate levels and reformed the taxationregimes. It has provided a basic single and cooperativelinkup between the Indian markets which inturn will boost the economy as a whole. Our nation has gained a lot from GSTbut there have been some losses tooAdvantagesof GST1. All GST system is online is called GSTN.It is helpful to assesse to do everything in online like registrations,returns, payments, etc which would make easy and transparent.It is paperless system.2. GST will be common for all the state andUT such as tax rate of GST is equal to across the country and it is ease todoing business.
3. GST will reduce hidden cost of doingbusiness and the customer easy to know GST amount which is to be pay4. Reducing the cost of tax return becausein old system business man pay different tax return like service tax , exciseduty sale tax etc but in new system only one return pay is GST return.5. The FDI was facing problem to development in india because they don’tunderstand the multi tax system in india.
Now is easy to understand the taxsystem after the implementation of GSTbecause it already implemented around 150 other countries.6. GST was replaced multiple tax system which wasleived by Central and State Government.
Backed with a robust end-to-end ITsystem.7. GST is the better result of differenttax combine into a single. In the design of GST that would incentivize taxcompliance by traders.
8. GST is expected to decrease the cost ofcollection of tax revenues of the Government, and will therefore, lead tohigher revenue efficiency. The cost of collection of tax revenues of theGovernment is excepted to decrease by GST and government revenue is assumedthat increased after implementation of GST. Because of efficiency gains and prevention of leakages, the overall taxburden on most commodities will come down, which will benefit to allDisadvantages of GSTAccording to the experts, terms such as GST whichincludes CGST, SGST, and IGST is nothing but just a new name in accordance withthe existing tax system, kind of old wine in a new bottle. 1. The Service Tax which stood at 15% inthe previous regime has now been replaced with GST at 18%. As such manyservices have become costlier with telecom, airline and banking affectedmajorly. In fact, insurance and petroleum are also said to be majorly affectedby the enactment of GST Tax.
2. The GST Act has given the control ofbusinesses to Central and State Governments with businessmen bindingby-laws. This has given rise to complexity for many businessmen across thenation.3. Post GST implementation, the first fewinstances of application have resulted in high tax outgo for businesses.Businesses are trying to claim the credit of input tax but several casesof mismatch of data are coming up. As a result, there is chaos among the taxfilers.4.
The opposition has called it as aDisability Tax as many of the things related to disabled people which wereearlier tax-free are now included in GST taxation. Prior to implementation ofGST, brail paper, typewriter, hearing aid and motorised wheelchair weretax-free whereas these things are being taxed now. The opposition has madepleas to roll back the tax on such items.5. On one end, the government is trying togive a push to banking services and insurance in India and on the other end,the government has decided to tax banking and insurance service at higher rateswhen compared to the previous rates.6.
GST has also had an impact on discountand reward programs as well. The product is being taxed on the ratespre-discount whereas the products were earlier taxed at post discount prices.Most of the companies have also suspended reward programs for temporary basisbecause of complexities of GST.7. The government has chosen a mid-yearlaunch for GST and this will lead to problems in taxation and reporting duringthe end of the financial year. Ideally, the government should have launched GSTat end of financial year as this would have avoided a lot of confusion duringtaxation and reporting.8. As per GST, the seller requiresregistering in all the states that it does business in and it has increased thecomplexity for the seller.
The government should have created a provision forcentralized registration of State GST as this would have helped many sellersduring the rollout.GST is the new regime of indirect tax in the nation which hasmodified the existing indirect tax rules. It has scheduled a coalition betweencentral and state government amidst the cry for better taxation system which itduly delivered. However, a coin holds two sides, and as such GST has both, someadvantages and some disadvantages.Tax structure inGSTGSTtax structure is classified in CGST ,SGST ,UTGST and IGST. GSTTax Rate is 0%, 5%, 12%, 18% and 28% apply on goods in India and GST may goup to 40 per cent after the GST Council proposed raising the peak rate. The lowest rates will be applicable for essential items and the highest forluxury and demerit goods. Servicetax was raised rapidly from 12% to 14% to 15 % which was harmful for theservice industries like airlines, telecom, restaurants ,hotels etc.
Service industries is benifical after theimplementation of GST.FMCG raised upto 24 to 25 percent but after the GSTtax system it may reduce to 18 percentbut some of the tax are in 28% which is disappoint for the market . As thetelecome affected by GST system 18 to 15 %. Therefore, these goods do not comeunder VAT and have no input tax credit.Centraltaxes to be engaged under GST are Central Sales Tax, Central Excise Duty, ServiceTax, Countervailing Duty, Special Additional Duty of Customs, CentralSurcharges and Cess like cess on rubber, tea, coffee and national calamitycontingent dutyStatetaxes to be absorbed under GST are Value Added Tax, Entertainment tax, Luxurytax, Taxes on lotter, Betting and gambling, Tax on advertisements ,State Cess,Octroi, entry tax and purchase taxExciseand service taxes convert to CGST, Value Added Tax and other state taxes convertto SGST. Cental Sale Tax will be replaced with IGST.
Thefour-tier tax structureThenew tax structure was carefully crafted to keep both the burden of the commonman and inflation rates in mind, therefore four separate tax rates a zero rate,a lower rate, a standard rate, and a higher rate introduced. v Zero rateThe zero rate tax is a nil tax rate that is appliedon goods and services. This is equivalent to tax exemption and does not haveany effect on the price of the product.
Items that are eligible for zero ratetax are decided by the government.As per the four-tier tax structure, the zero ratetax will be applied on 50% of the items of the consumer price index (CPI)basket – an index that constantly measures prices of commonly purchasedconsumer goods and services to measure inflation. The zero rate items couldinclude items such as, food grains, milk, curd, and other food items like eggs,cereal and meat. Also, metro travel, education and healthcare are exempted fromGST.v Lower rateAlower rate of 5% will be applied on the rest of the items in the CPI basket andother items of mass consumption. This includes food items like sugar, tea,coffee, oil, and other essentials like PDS kerosene and LPG. Since the taxationon coal is likely to reduce from 11.
69% to 5% under the GST regime, electricitygeneration is expected to be less expensive. The GST council has decided toplace transport services in the 5% sector, which is applicable to Ola and Uberaggregators. Air-conditioned train tickets will be taxed at a rate of 5%, whilenon-AC train tickets will be exempt from GST. v Standard rateThereare two standard rates that have been finalized by the GST Council: 12% and18%. Imagine a product, which is currently taxed at 13%, charged a rate of 18%GST. This would increase the price of the product by 5%, leading to inflation.
To avoid this, the GST council decided to tax all goods and services that arecurrently taxed at 9-15% at a standard rate of 12%. Processed foods will alsobe taxed at 12%. The rest of the goods and services will be taxed the secondstandard rate of 18%. Toiletries like hair oil, soap, and toothpaste will betaxed at 18%. Also, capital goods, industrial intermediaries, iron and steel,financial and telecom services will be included under this sector.
v Higher rateA higher rate of 28% will be levied on white goodssuch as washing machines, air conditioners, refrigerators, small cars, etc.Aerated drinks and cement are also included in this tier.Previously, the tax on white goods was around 27%(including an excise of 12.5% and VAT of 14.5%), but the cascading effect elevatedthe tax as high as 30-31%. This will be minimized by the new higher rate of28%. ConclusionGST may at first come across as a mere tax change, butas we ponder further, one may observe that GST will have a multifaceted impacton the business.
Given the omnipresence of indirect taxes in almost everybusiness transaction, any change in indirect taxes would practically affectevery sphere of business.To understand the impact of GST is not a change in taxsystem but it is a reform. GST will affect majorly on finance and accountssystem, taxation ,Pricing etc.Every change in indirect taxes, (however small or bigit might be) always has a business repercussion. Then the real question thatbegs attention is, as to ‘how is GST change different from other indirect taxchanges? And why is the GST transition touted to be a game changer? The answerto this question lies in the very fact that GST will not just restructuretaxation but it will seminally influence the way Businesses will function inIndia.
This ability to influence a major business change makes it the ‘gamechanger’ it is touted to be.