Goods and Services Tax (GST) is a proposed system of indirect taxation in India merging most of the existing taxes into single system of taxation. The introduction of Goods and Services Tax (GST) would be a significant step in the reform of indirect taxation in India.
Amalgamating several Central and State taxes into a single tax would mitigate cascading or double taxation, facilitating a common national market. The simplicity of the tax should lead to easier administration and enforcement. From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%, free movement of goods from one state to another without stopping at state borders for hours for payment of state tax or entry tax and reduction in paperwork to a large extent.
GST would bring in significant change in doing business in India. Advocacy for best practices, gearing up for changes in processes, training teams and developing IT systems for being GST compliant are the key areas to be assessed.
The Government is committed to introduce GST by April 2017. Tax payers need to be GST compliant to be able to test system changes in time. Depending on the operating geographies, size and sector, the changes would be substantial and may require proactive planning with a time-bound action plan.
In order to prepare for the implementation of GST, companies need to understand GST policy development and its implications for scenario planning and transition roadmap preparation.
GST is a value-added tax levied at all points in the supply chain with credit allowed for any tax paid on input acquired for use in making the supply. It would apply to both goods and services in a comprehensive manner, with exemptions restricted to a minimum.
In keeping with the federal structure of India, it is proposed that GST will be levied concurrently by the Centre (CGST) and the states (SGST). It is expected that the base and other essential design features would be common between CGST and SGST across SGSTs for individual states. Both CGST and SGST would be levied on the basis of the destination principle. Thus, exports would be zero-rated, and imports would attract tax in the same manner as domestic goods and services. Inter-state supplies within India would attract an Integrated GST (aggregate of CGST and the SGST of the destination state).
In addition to the IGST, in respect of supply of goods, an additional tax of up to 1% has been proposed to be levied by the Centre. Revenue from this tax is to be assigned to origin states. This tax is proposed to be levied for the first two years or a longer period, as recommended by the GST Council.
It is likely that all services will be taxed at standard rate of 18%. Cascading of VAT, CST, entry tax, Octroi and additional customs duty will not exist in GST regime. Most of the services are likely to be costlier due to increase in tax rate. However, impact may not be as high as 3%x (from current service tax of 15%) if service providers pass on savings due to higher tax cred.
GST has been envisaged as an efficient tax system, neutral in its application and distributionally attractive.
Wider tax base, necessary for lowering tax rates and eliminating classification disputes
Elimination of multiplicity of taxes and their cascading effects
Rationalization of tax structure and simplification of compliance procedures
Harmonization of center and state tax administrations, which would reduce duplication and compliance costs
Automation of compliance procedures to reduce errors and increase efficiency
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