(Goods and Services Tax) GST A Tool for Ease of Doing Business in India

While being the second largest democracy in the world, India is also categorized as a Newly Industrialized Country, being a member of the elite G8+ 5 Group of countries. Already, at the start of this decade, the ‘International Yearbook of Industrial Statistics-2011’ Report by the UNIDO had declared India to be among the top 10 industrial nations in the world. But, the biggest challenge facing the twenty first century Indian business is to build a competitive global business environment which facilitates ease of doing business in India. In this regard one of the most important tools is the Goods and Service Tax (GST) which is going to be implemented in the country on July 1, 2017. check more details for “GST A Tool for Ease of Doing Business in India” from below…

Already, in around 160 countries the GST or the Value Added Tax (VAT) has already been implemented (though GST and VAT are not sme).It is being thought that the GST models being followed in different countries are going to have a long-term effect on the world business. So, it can be said without any hesitation that the GST Bill, 2016 is going to chart a path-breaking trajectory in the Indian taxation scenario that will ultimately convert the whole country into a single market and largely help in paving the way for ease of doing business in India.

GST A Tool for Ease of Doing Business in India

The GST System

Since the change of guard at the centre in 2014, a lot of major reforms has been orchestrated. For example, Voluntary Income Declaration Scheme of 2016, the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act of 2015, Benami Transactions (Prohibition) Amended Acts of 2016 and so on. Among all of these reforms, the GST is considered one of the most important. The GST is an important step as it will decrease the cost of capital in the long run, will attract foreign investors, will generate employment, will increase the collection of tax and in an overall way, will lead to the development of the Indian economy.

After the 101st amendment to the Indian Constitution on the 8th of September, 2016 and the notification of the GST Council on 15th September of 2016, a revolutionary step and an important reform was initiated. With the proper implementation of the GST, tax will henceforth be collected at each step of the process right from its manufacture upto the ultimate consumer where the tax paid earlier will be allowed as credit. When GST is fully operationalised, tax will be paid at every step on the amount of value where value which is added. In the GST scheme of things, there will be no negative things like tax charged on tax which will result in decreasing the tax burden on the consumers. This will result in increasing the competitiveness of goods and services and at the same time increase the tax base and improve tax incidence. Needless to say, all this will greatly help in increasing the ease of doing business in India. In keeping with the federal structure of the country, a GST Council was set up with representatives from both centre and state to formulate a GST structure where both the central and state governments will have the power of levying and collecting tax in the GST regime. The Central Finance Minister, the Central Revenue Minister (State) and the Finance Ministers of the various state governments constitute the GST Council which is giving important suggestions based on which the rate of GCT tax will ultimately be decided. According to the 101st amendment to the Constitution in 2016, at least 3/4th majority is required for any decision making the GST Council. In the meeting of the GST Council, the value of the Central Government vote is 1/3rd of the total vote cast and the value of the votes of the State governments is 2/3rd of the total votes cast. Needless to say, the GST system is nicely balanced and equitably oriented.

Among all the reforms in India in the last few years, the Goods and Services Tax (GST) is one that has generated much interest in recent times and has the potential to help in increasing the ease of doing business in the country. In keeping with the federal structure of the country, a GST Council was set up with representatives from both centre and state to formulate a GST structure where both the central and state governments will have the power of levying and collecting tax in the GST regime. International experience has shown that GST helps in improving the economy in the long run. Important stakeholders like the business, government and consumer sectors stand to gain under the GST regime. The Cost and Management Accountants also are poised to play leading roles in the GST system, both in pre- and post-GST eras and thus helping in increasing the ease of doing business in India.

The International Experience and the GST Tax Rate

The GST tax rate is an important determinant in building business confidence and helping in easing the way in doing business in the country. In this regard, one can take confidence from developments in other countries worldwide. Looking at the world scenario, it is seen that in most cases the GST tax rate is relatively less. To gain a clear picture of the GST tax rate in the international scenario, the following Table 2 has been prepared to present the GST tax rates in some countries.

Table 2 GST tax rates in some countries

Countries GST tax rate
Japan 5%
Canada 5%
Singapore 7%
Australia 10%
Newzeland 15%
Germany 1%
France 19.6%
Sweden 25%

The GST tax rate is going to be determining factor in the Indian economy as the GST regime will have impact on the people residing below the poverty line. Drawing lessons from international experience, India has rightfully focused on constructing a flexible and inclusive GST structure in the country where the inputs of the different states will be given due weightage.

Table 3 The GST tax rate structure in India

The percentage of GST The GST tax rate
7% 3%
14% 5%
17% 12%
43% 18%
19% 28%

Benefits of Ease of Doing Business under GST Regime

‘The introduction of GST at the Central level will not only include comprehensively more indirect Central taxes and integrate goods and service taxes for the purpose of setoff relief, but may also lead to revenue gain for the Centre through widening of the dealer base by capturing value addition in the distributive trade and increased compliance. In the GST, both the cascading effects of CENVAT and service tax are removed with set-off, and a constant chain of setoff from the original producer’s point and service provider’s point up to the retailer’s level is established which reduces the burden of all cascading effects. This is the real meaning of GST, and this is why GST is not simply VAT plus service tax but an improvement over the previous system of VAT and disjointed service tax. Moreover, with the introduction of GST, burden of Central Sales Tax (CST) will also be removed.’

There are numerous stakeholders in the soon-to-be operationalised GST regime in India. The principal three stakeholders among them are the business sector, the government (centre and state) sector and the consumers. The Department of Revenue of the Central Government had drawn up a white paper highlighting these advantages and benefits derived by the three important stakeholders in the GST regime, which has been shown below in Table 4 in a concise form.

Benefits of GST

Table 4

Sectors Benefits
Business
  • Easy Compliance
  • Uniformity of tax rates and structures
  • Removal of cascading effect
  • Improved competitiveness
  • Gain to manufacturers and exporters
Government (Centre and State)
  • Simple and easy to administer
  • Better control on leakages
  • Higher revenue efficiency
Consumer
  • Single and transparent tax proportionate to the value of goods and services
  • Relief in overall tax burden

India is well advanced and equipped in Information Technology which will be one of the pillars of GST regime. Online gst registrations, gst returns, payments, refunds and penalties will help in easy compliance of business sector with the legal provisions. There will be no tax n tax, in other words the negative side of cascading effect has been removed under GST. Together with this, the subsuming of major central and state taxes in the GST regime, the complete and comprehensive set-off of input goods and services and the phasing out of Central Sales Tax (CST) would help in reducing the cost of locally manufactured goods and services and improving the competitiveness of Indian business. Since the GST will help in better tax compliance and plugging of leakages, there will be higher revenue efficiency which will help the government. Due to the efficiency gains and prevention of leakages and payment of tax proportionate to value, the consumers will ultimately stand to gain. All this will help in building confidence, trust, transparency and volume of business in India.

Conclusion

‘GST is one of the most crucial tax reforms in India which has been long pending. It was supposed to be implemented from April 2010, but due to political issues and conflicting interests of various stakeholders it is still pending. It is a comprehensive tax system that will subsume all indirect taxes of states and central governments and unified economy into a seamless national market. It is expected to iron out wrinkles of existing indirect tax system and play a vital role in growth of India.

GST is arguably one of the potentially most important tools for improving Indian business scenario in terms of ease of doing business. The GST rates has already been categorised. In one of the previous GST Council Meeting held on 18-19 May, 2017 at Srinagar in Jammu and Kashmir, the GST tax rates to be implemented from July 2017 onwards had been decided in five different categories , namely 3%, 5%, 12%, 18% and 28%., where the luxury items have attracted the highest GST tax rate, which is 28%. Also, efforts are underway to help in more equitable distribution of goods and services coming under the different tax brackets. In the GST Council’s 16th Meeting on June 10, 2017, out of 166 representations made to it, the tax rates of 66 items were reduced, including important and essential dayto-day items like insulin, school bags, agarbattis and printers which became much cheaper. Interestingly, in the GST Council’s previous 15th Meeting on June 3, 2017 a consensus was reached for rolling out the GST regime on July 1, 2017. 16 So, it can safely be said that the GST regime is going to roll out in a very precise, structured and inclusive manner which will go a long way in improving the ease of doing business in a diverse country like India.

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