GST sees the light of day

In December, 2014, the Union Cabinet cleared the ‘Constitutional Amendment Bill’, paving way for the introduction and enactment of the GST in India. The Bill proposes to amend India’s constitution, thereby allowing the central and state gov-ernments to frame laws and collect taxes on goods and ser-vices. It now needs approval from both houses of parliament,

following which it has to be sanctioned by a majority of the state governments, before re-ceiving assent from the Presi-dent. Currently, goods and services are subject to multi-layered taxation enacted under a myri-ad of separate laws including excise duty, customs, service

tax, VAT, and entertainment tax. India practices a unique dual system of taxation at state and central level. This bill intends to combine all indirect taxes under one comprehensive law—reducing tax complications arising due to the multiplicity of regu-lations, compliance requirements and litigation. Creating a uniform tax structure in India is a challenging feat. Indeed, this bill is widely regarded as the most important reform since independence. It will end India’s fragmented tax structure where each state levies tax on different commodities under dif-ferent laws and at different rates. It has numerous implications, one of the most important being the aim to equalise the distribu-tion of taxation between manufacturing and services. There are other perceived benefits too:

The intent is that GST will streamline India's tax system

and create a mutually beneficial market across all 29

states, leading to increased compliance and growth in

the tax-to-gross domestic product ratio.

As a result of GST, reports indicate that economic

growth will further increase by an additional 0.9%–1.7%; exports are set to grow by an additional 3.2–6.3% and imports by a further 2.4%– 4.7%. (Source: National Council of Applied Economic Research).

By eliminating the existing ‘cascading’ tax impact, the

average tax burden on companies is set to reduce con-

siderably. This will be beneficial for the corporates as the

drop in production costs will make exports more competi-

tive.

Any decrease in the costs for goods and services manu-

factured within India will obviously boost exports.

The Indian manufacturing sector is one of the highly

taxed sectors in the world. This bill will eliminate the tax

complexities and will prevent the loss of competitive ad-

vantage which India has over western nations based on

lower manufacturing costs. (Source: gstindia.com)

Tax revenues for the government are also set to in-

crease significantly. By simplifying the administrative

systems and compliances, increasing the taxpayer base,

and reducing litigation, GST is expected to further stimu-

late the growth in the economy and infrastructure. Ac-

cording to a recent report, the government is predicting a

profit of $15bn a year by implementing GST. (Source:

gstindia.com). This will be delivered by a resulting rise in

employment, promotion of exports and a significant

boost to overall economic growth.

A few critical issues still persist—hot topics of debate include

whether products such as petroleum, alcohol and real-estate

should be taxed. More clarity is also needed around the taxation

for inter-state sale of goods and the ‘calculational’ complexities

arising from the central and state governments sharing of reve-

nue and any potential tax loss compensation. Concerns regard-

ing the rate of tax, threshold limits for exemption and place of

supply rules are still under discussion.

Implementing a completely new tax system across a population of over 1.2 bn will no doubt be challenging. Modi’s government remains optimistic and has stated that 2016 will be the ‘kick-off ‘ year for GST. We are now eager to hear exactly how the gov-ernment will implement the new system, across the 29 states, over the next few months. Finally, as Kapil Dua, Director of Financial Consulting at San-nam S4 says, “This Constitutional Amendment Bill is a signifi-cant step towards the introduction of GST in India. There has been considerable debate on this law in recent years, and we are now finally getting to see some action on the regulatory front. GST completely overhauls India’s current indirect tax sys-tem, and will have a huge impact for doing business in India. All stakeholders need to keep a very close watch on this subject in the coming months.” To learn more about the GST bill, its provisions, and how it will impact your organisation in India, contact us at: consult@sannams4.com.

O r g a n i z a t i o n

The long awaited Goods and Services Tax (GST) bill finally gets cabinet approval…

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