Tax Levy on One and Collect from Another – Boon or Bane

I. Introduction

GST is a multi-stage tax system which is comprehensive in nature and applied on the sale of goods and services. The aim of this taxation system is to curb the cascading effect of other Indirect taxes and it is applicable throughout India. It is an Indirect tax which introduced to replacing a host of other Indirect taxes such as value added tax, service tax, purchase tax, excise duty, and so on. GST levied on the supply of certain goods and services in India. It is one tax that is applicable all over India. The Goods and Services Tax implemented in India on 1^st July 2017. But the process of implementing the new tax regime commenced a long time ago. In 2000, Atal Bihari Vajpayee, then Prime Minister of India, set up a committee to draft the GST law. In 2004, a task force concluded that the new tax structure should put in place to enhance the tax regime at the time. In 2006, Finance Minister proposed the introduction of GST from 1st April 2010 and in 2011 the Constitution Amendment Bill passed to enable the introduction of the GST law. In 2012, the Standing Committee started discussions about GST, and tabled its report on GST a year later. In 2014, the new Finance Minister at the time, Arun Jaitley, reintroduced the bill in Parliament and passed the bill in Lok Sabha in 2015. Yet, the implementation of the law delayed as it was not passed in Rajya Sabha.

GST went live in 2016, and the amended model GST law passed in both the house. The President of India also gave assent. In 2017 the passing of 4 supplementary GST Bills in Lok Sabha as well as the approval of the same by the Cabinet. Rajya Sabha then passed 4 supplementary GST Bills and the new tax regime implemented on 1st July 2017. The GST works in the following ways,

• Manufacturer: The manufacturer will have to pay GST on the raw material that is purchased and the value that has been added to make the product.
• Service Provider: Here, the service provider will have to pay GST on the amount that is paid for the product and the value that has been added to it. However, the tax that has been paid by the manufacturer can be reduced from the overall GST that must be paid.
• Retailer: The retailer will need to pay GST on the product that has been purchased from the distributor as well as the margin that has been added. However, the tax that has been paid by the retailer can be reduced from the overall GST that must be paid.
• Consumer: GST must be paid on the product that has been purchased.

II. Clear view on GST

GST is levied on the supply value of goods and services. The movement of commodities across states require preparation of an e-way bill, which has national validity. Only one return has to be filed every quarter, with the last return being the combined return of the entire accounting year. With regard to tax rate and state laws, GST rates across the country are the same. There are no differences in tax rates in different states. SGST and CGST collected on every sale transaction are correspondingly distributed among the center and the state. Tax proceeds benefit both state and central governments. State GST (SGST) is levied for states, while Central GST (CGST) is levied for the center. For the supply of goods and services across states, Integrated GST (IGST) is charged. If a Union territory is involved, then Union Territory GST (UGST) is levied. Unlike VAT (the state level, several taxes were charged like VAT, luxury tax, entertainment tax, various cesses, sales tax, etc. Meanwhile, numerous taxes at the central level made the entire system quite complex) All the taxes that were levied on state and central level were discontinued. Only one tax is charged on goods and services across the country. However, there are some exceptions, namely petroleum and natural gas, motor spirit as well as high-speed diesel.

In recent times GST rates had been revised in 44th GST Council for crucial Covid-19 relief goods till September 2021 and under the exempted category, import of Amphotericin B (medicine for black fungus) has been included.

The four different types of GST are,

1. Central Goods and Services Tax: CGST is charged on the intra state supply of products and services.

2. State Goods and Services Tax: SGST, like CGST, is charged on the sale of products or services within a state.

3. Integrated Goods and Services Tax: IGST is charged on inter-state transactions of products and services.

4. Union Territory Goods and Services Tax: UTGST is levied on the supply of products and services in any of the Union Territories in the country, viz. Andaman and Nicobar Islands, Daman and Diu, Dadra and Nagar Haveli, Lakshadweep, and Chandigarh. UTGST is levied along with CGST.

III. Objectives of GST

GST, which will boost export and manufacturing activity, generate more employment and thus increase GDP with gainful employment leading to substantive economic growth. Ultimately it will help in poverty eradication by generating more employment and more financial resources. GST Will prevent cascading of taxes as Input Tax Credit will be available across goods and services at every stage of supply.

• Overall reduction in Prices for Consumers
• Reduction in Multiplicity of Taxes, Cascading and Double Taxation
• Uniform Rate of Tax and Common National Market
• Broader Tax Base and decrease in “Black” transactions
• Free Flow of Goods and Services – No Checkpoints
• Non-Intrusive Electronic Tax Compliance System

IV. Importance of GST

1. Parity with international market: - The main reason is to be in parity with international market. India is now a open economy. Huge foreign investment is coming to an already in India. GST is already been adopted in 160 countries all over the world. For a foreign company it is very difficult to do business after complying so many laws in India. But after GST India will be at per with international market.

2. Transparency in tax: - As this is a indirect tax at last the consumer pays the tax. As of now we don't know how much we are paying as tax like excise duty. Sometimes we can see only the sales tax (CST or VAT). But after GST there will be only one tax, and you will know every time how much tax you are paying for the product.

3. Credit: - Suppliers and manufactures are not getting adjustable credit if they pay CST and that has been collected by a different state govt. Also, the service portion is also cannot be set off against VAT and CST.

4. Curve Tax evasion: - GST filling is very transparent. You have to file monthly return and most the cases documents of one return will be re-verified by another return. If your supplier has not paid GST, then you will also not get the credit. This way everybody is forced to pay taxes.

5. To facilitate Inter-State moving of good smoother and faster: - As of Now trucks need to spend hours to cross state boundaries and tax collection is also not up to mark. After GST there won’t be any such check posts.

V. Main advantages of GST

• A unified indirect tax system.
• Reduction in manufacturing cost.
• It will replace other taxes like VAT, CST, Service tax, CAD, SAD, Excise, Entry tax, Purchase tax etc.
• Less complex tax system
• GST is one single tax replacing all the indirect taxes levied at central and state level in India. GST is a single tax on the supply of goods and services. There is a facility to avail the credit of input taxes paid at each stage in the subsequent stage of value addition. Thus, GST is only on the value addition at each stage. It is a destination-based tax (not the origin based one).
• GST is a destination-based tax or consumption-based taxation.
• There are 3 different types of levies in GST. They are CGST, SGST/UTGST, IGST.
• CGST and SGST are levied on the supply made by a registered person within the state.
• UTGST will be levied along with CGST on supply made by a registered person within a union territory.
• IGST will be levied on import or interstate supply of goods or services or both. IGST would be equal to the sum total of CGST and SGST/UTGST.

VI. Difficulties in GST

There are so many problems related to GST. GST was rolled out on 1st July 2017 in a semi prepared condition. The only interface between the trade and the Government is GSTN (GST Network) which is run by a company with the Central Government and the State Government and Union Territories together holding 49% share in it and the Financial Institutions holding 51% share. The Network is completely information technology based. At the time of rolling out, most of its modules like uploading of invoices, returns, payment challans were not operative, though these are coming to life gradually.

A person or a business entity with business turnover of more than Rs. 20 lakhs per annum will have to submit at least 37 returns per year. The credit issues will be settled subject to satisfactory reconciliation of data between the transacting companies.

For example: Company A sells a goods to Company B. Both the companies will have to upload outward supply return (GSTR - 1 to be uploaded by 10th of the succeeding month of transaction) and inward supply return and credit thereon (GSTR - 2 to be uploaded by 15th of the succeeding month of transaction) and a duty payment Return (GSTR - 3 to be uploaded by 20th of succeeding month of transaction) . The credits will be allowed if the receiver’s and supplier’s return match perfectly. In case of mismatch, the receiving company will have to bear the burden of deduction of disputed amount of credit with penal interest, though they may not be responsible for it. These credits will be revived or interests refunded when the mismatch issue is sorted out. If one fails to monitor the matter closely and regularly, there is possibility of permanent losses.

Smaller companies do not have enough IT resources to upload so many returns in a year. They may find it difficult to cope up with the system requirements. The GST Acts give one registration per combination of PAN and State. Suppose a company has a pan Indian existence and, in each state, it has one or more than one business establishments. The Company will be given a Registration number (GSTIN - GST Identification Number) per each state with the same PAN number. For example, if the Company has five business establishments in state of West Bengal, all five will come under one Registration number for the state (GSTIN). This makes the accounting system very complex for department and business both.

The duty rate on Goods and services are in many cases difficult to ascertain. At present there are five rates of duty i.e., 0%, 5%, 12%, 18% and 28%. For example, in a non-AC restaurant the duty rate on service is 12%, but the same in an A.C restaurant will attract 18% and in a five-star hotel it will be 28%. This will make the matter more evasion prone due to multiplicity of duty rates for the same service. During the pre-GST regime, the number of assesses were far less for central taxes. But it has gone up manifolds in the GST system. There was no central excise duty on goods manufactured by a company whose turnover was less then Rs.1.5 crores. But the threshold limit has been brought down to Rs 20 Lakhs in GST regime. The enormous pressure of the additional number of assesses will put extra burden on the system and the department both and the untrained businessmen will find it difficult to meet up the requirements of the system. For smaller businesses, the problem will be huge to meet up the timely tax compliance requirements. Unless some device is drawn out, the smaller business people will find it difficult to survive.

VII. Multiple tax rates

When the GST was conceived it was supposed to be a single uniform rate across all product categories, but the shape that the GST has taken is far removed from the actual concept of one country-one tax. What instead we have got is a multi-ties tax structure with 4 different tax rates -5, 12, 18 and 28 per cent. Besides, there would be exempted and zero-rated goods, which means there would be at least six different categories of products under GST.

Fear of high tax rates: One of the earlier expectations from GST was moderate tax rates on goods and services. However, with a peak rate at 28 per cent (which can go up to 40 per cent) and a cess of 15 per cent over and above the peak rate for demerit goods have dashed all the hopes of a moderate tax regime at least in the near future.

Anti-profiteering measures: The government is planning to set up an authority to see if any reduction in tax rates after GST is passed on to the consumer by companies or not. The industry and businesses are not taking this idea kindly and they see it as a backdoor entry of inspector raj. Experts say that prices should be market determined and no government authority has the business of deciding prices for goods and services.

Taxation of free supplies between related parties: The GST law proposes to tax any free supplies between two related parties. The problem arises especially in case of related parties located in different states. Such transactions between related parties in different states mean each party would have to generate invoice, maintain documents, etc. There is no centralized registration under GST and therefore, this would create compliance issue for companies.

Controls conundrum: To avoid dual control, the GST council has reached a compromised formula --90 per cent of tax assesses with an annual turnover of Rs 1.5 crore or less, will be assessed by states and the rest by the Centre. For those with turnover of over Rs 1.5 crore, the states and the Centre will share it equally.

Issue of casual taxable person: If a person registered in one state moves to another state for a short period for some business transaction -- say to participate in a fair or exhibition, then that person would have to get himself registered in that state for that period.

VIII. GST implementation and its impact in India

• Import as Inter-State Supply – Import into India will be considered as Inter-State supply under Model GST Law and accordingly will attract Integrated Goods and Services Tax (IGST) along with BCD and other surcharges.
• Import of Services – Model GST law accord liability of payment of tax on the service receiver, if such services are provided by a person residing outside India. This is similar to the current provision of reverse charge, wherein service receiver is required to pay tax and file return.
• Transaction Value based Valuation Principal – Model GST law has borrowed the concept of transaction value-based valuation principal from current customs law for charging GST. This will have implication at the time of tax liability determination as currently CVD is charged on MRP valuation principle. Under the new regime IGST which subsumes CVD will be charged on transaction value. This may also require working capital restructuring. This may also reveal the margin of Service Provider which is currently not the case.
• Refund of Duty – Under the new law, tax paid during import will be available as a credit under “Import and Sale” model, whereas no such credit is available presently. Also refund of SAD which is available now, after doing specific compliance, no such restrictions are placed under GST.
• Withdrawal of Current Exemptions – The current customs import tariff is loaded with multiple exemption notifications which are likely to reviewed and possibly withdrawn or converted into a refund mechanism. This could mean change in the structure of export-linked duty exemption schemes under the FTP where the duty exemptions may get limited to exemption from payment of BCD, while IGST may not be exempted. Withdrawal of exemptions or changing them to refund mechanism could fundamentally change the attractiveness and viability of some of the key schemes under the FTP like EOU, STP, Advance authorization etc.

IX. Conclusion

All most every industry body are "fully prepared" for implementation of the new indirect tax regime, while commending the government's efforts towards its rollout. The nationwide GST will overhaul India's convoluted indirect taxation system and unify the over $2 trillion economy with 1.3 billion people into a single market. The medium-term impact of GST on macroeconomic indicators is expected to be extremely positive. Inflation will be reduced as cascading of taxes will be eliminated. India would move many notches up the global ease of doing ladder by this single, but this would be the most important tax reform in the country.

On the other hand, India has adopted dual GST instead of national GST. It has made the entire structure of GST fairly complicated in India. The center will have to coordinate with 29 states and 7 union territories to implement such tax regime. Such regime is likely to create economic as well as political issues. The sharing of revenues between the states and the center is still a matter of contention with no consensus arrived regarding revenue neutral rate. Pre GST service tax of 15%, which would increase to 18-20% in post GST. Hence, although prices of goods and products can come down, service industry will bear the brunt of higher taxes. Air travel, hotels would become more expensive. Currently, economy class tickets are taxed 6% and non-economy class tickets are charged 9%. After GST is implementation, it has now increase to 18%, thereby leading to direct increase of 9-12% tax on the tickets. Unless the airlines absorb this increase, the additional tax has to be paid by the consumer.²

• Proposed GST Rate Is Higher Than VAT The rate of GST is proposed to be higher than the current VAT rate in India, which although reducing the price in the longer run, will be of no help in cutting down prices of commodities.
• Dual Control A business will be indirectly controlled by both the Centre and the State in all tax related matters. The State will lose autonomy to change the tax rate which will be regulated by the GST Council.
• Loss Incurred By the Manufacturing States. Since GST is mostly related to the manufacturing segment, most manufacturing states may incur losses. But the government has proposed to compensate for those losses for a period of 5 years.

There are approx. 140 countries where GST has already been implemented. Some of the popular countries being Australia, Canada, Germany, Japan and Pakistan, to name a few. Implementation of GST impacts a nation both ways, positively and negatively. Ignoring negative aspects, positive aspects can be taken into consideration, in order to improve the economy of the country. In order to measure the Impact, the GST we need to wait for the time and the Government needs to communicate more and more about the systems. It could be a good way to reduce the black money and good effort by the Government of India after the Demonetization of the money in 2016. But the worst situation is again the government is failed to consider the position of the downtrodden, middle class and upper middle class will ultimately suffer due to the implementation of this thing in our nation, because they all are the subjects filled with this society irrespective of persons born with silver spoon. Apart from the people concern the GST more importantly affected the import and export process because of the price issue and tax on some products makes the business people to fall in dilemma situation to export or not and it is worst that they sold their products in their locality itself in lower price in order to evade the heavy loss instead of facing wash out in their business.

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