One Country… One Tax!
There are three things that are difficult to understand in the entire universe. First two are Women, Duckworth louis’ system in Cricket and the third being GST.
Before marriage, we give money to mother, father, brothers, sisters and friends. The condition will be different after marriage where we give our money only to our wife (GST).
The above mentioned funny definitions of GST are making rounds in the social media. In fact, the above two examples are correct. The shape of GST changes in the way we look at it. To be precise, the government wanted a single tax for the entire country. That is Goods and Services Tax. Within the GST, different slabs were formed like 0, 5, 12, 18 and 28% for the benefit of the common man. It will not be correct to levy same tax on slippers and a Benz car.
What is GST?
We, the people of India use to pay taxes before independence. We are still paying taxes which are on a rising spree. In an attempt to bring some minor reforms and improvements in our tax system, VAT (value added tax) had been introduced by the government 12 years ago, which was successfully implemented by every state in the country. VAT has lot of loop holes and the implementation was also not perfect. India being the second most populous country with 125 Crore in which only 1.9 Crore people i.e. 1.5% are paying income tax to the government. About 24 lakh people declare their annual income more than 10 lakhs whereas 25 lakh cars are getting sold in our country every year. In addition to that, all the villas and luxury apartments are indirectly showing that income declarations are wrong. In order to change this situation by collecting tax from every eligible tax payer, there should be a new concrete tax system that should come into existence. After a lot of brainstorming for many years by our big politicians and financial advisors, GST has arrived.
Lot of indirect taxes on the likes of Sales tax, Service tax, Central excise duty, Entry tax, Purchase tax etc got eliminated and there came only one tax as GST which will be same all over the country. Different states use to levy taxes as per their convenience even if the item is same and they use to exempt tax in special cases. In the current GST environment, states have lost the power to levy the taxes. There will be a single tax now from Kashmir to Kerala for all products according to their slabs.
Let us understand this case with an example. Before GST, let Rs100 is the manufacturing cost for a product. It was sold to distributor at Rs110 after adding tax at 10%. He then adds another 10% tax and sells it to a retailer at Rs121. In the series of moves, the product is reaching the end consumer at a price of Rs133 which means the item has been taxed multiple times at various levels before reaching the end user. The entire terminology got changed with the entry of GST where manufacturer will get some “input credit”. If a dealer purchases a product at Rs150 which is costing Rs100 to the manufacturer, dealer should pay tax only for Rs50 and manufacturer will pay a tax for remaining Rs100. This method of Input credit will promote the tax payments and reduces the cost to the manufacturers.
The tax used to be origin based before GST which means that the product is taxed in that state where it is manufactured. In the present scenario, it became destination based i.e. the state where the product got sold will get the tax. This implies that the states which have more purchasing power will get more amount of taxes. In addition to this, there use to be different entry taxes between the states which was blocking the transit of goods from backward states which cannot afford those huge taxes. The current scenario where there will be only one tax throughout the entire country will make it beneficial for backward states to send and sell their goods to other states.
GST – a Burden?
There is a significant rise in the income of middle and upper middle class in our country which is prompting a change in their lifestyle. Expenses are increasing along with the income. Air conditioners, refrigerators, washing machines, watches and leather bags are going to be expensive with the arrival of GST. Irrespective of the profit earned on the product, the new rule says that tax should be paid on every product that is released to the market. Hence there may not be free offers given anymore because the merchant should pay tax for the free item as well.
Small and medium enterprises:
A tax rate of 28% has been fixed on furniture, clothes, granite etc which is worrying the corresponding merchants as sales will drop because of increase in the price. Furthermore, new rule suggests that all the companies whose annual turnover is more than 20 lakhs has to enrol in GST which is not required for small merchants. There is a small clause here which says that benefits under GST will be applicable to an institute registered under GST purchases any item from another GST registered institute. For example, A purchases an item from B where A is responsible to pay the tax of that item to the government. If A is not registered under GST, then B is liable to pay the tax for that item which increases burden to the buyer. Hence because of this reverse charge, there is more possibility of having business transactions between the GST registered companies. Thus, lot of non-registered companies which doesn’t fall under the GST bracket may incur losses. Hence this clause is indirectly notifying that everyone should get enrolled under GST.
Many multinational companies in the likes of Microsoft, Google are making profits with the information services from India without paying taxes. In addition to this, E-commerce companies are not paying any of the taxes on the margins that they get from delivery and other charges. Now the scenario changes with all these charges coming under GST where every company who is getting services in India should get enrolled under GST. IT sector has to bear more tax now than earlier.
Will the black money reduce?
Lot of financial analysts estimate that there can be a considerable reduction in the black money if GST is implemented perfectly across all sectors.
Check post fraud:
A lorry filled with goods travelling from a state should pay an entry tax to other state which it is entering. Lot of fraud is happening in collecting the tax. Without paying the complete tax amount, drivers use to put some amount in the hands of officials at check post to cross the borders silently. It is estimated that this fraud accounts to thousands of Crores annually. All these illegal transactions will be blocked with the entry of GST. Entry tax has been lifted along with the removal of check posts. This is a direct attack on black money by the GST. Lot of time is getting wasted in waiting queues on highways to clear the check posts. On an average, goods carriers and trucks use to travel 260 km a day which is 800 km in USA. The average run time is expected to increase significantly with GST.
Effect of GST on GDP:
In our entire GDP, the contribution of taxes is only 16%. It is very high in the case of countries like China, Russia, Brazil etc. If the taxes increase with the decrease in black money, it will result in the increase of treasury there by increase in the contribution of taxes to the GDP. We need not look at other options for money in implementing welfare programs in the country. A report by international monetary fund estimates that there will be a significant rise in the GDP of India with the implementation of GST.
Why High taxes in India?
The tax rate in Canada is 5%, Malaysia is 6%, Thailand being at 7% and Japan’s tax rate is 8%. Many countries in the world like mentioned above have a lower GST than us. The main reason attributed for that is the number of people paying taxes in our country. Despite having a higher income, majority of them are evading the taxes by manipulating the financial statements. There is also a high rate of corruption in the tax department. It would be very difficult for India to grow forward with the amount of current tax paying people. So, GST will be high in the initial days and many financial experts state that it will come down in future as tax evasion is difficult that will result in positive economic growth. The tax rate is high even in many countries in the initial period and gradually got decreased. Hence the reduction in GST is also dependent on amount of taxes collected and on the loyalty of the people as well.
What is our responsibility?
Instead of blaming the government for everything, it is the primary responsibility of every citizen of the nation to pay taxes properly. One should keep in mind that the taxes we pay accounts to gas subsidy, pure water supply, construction of highways, hospitals, schools and many welfare policies for wellbeing of the citizens. People should not feel tax as a burden. The growth of USA as a supreme power should not be credited solely to the government. The number of people who pay tax (48%) in comparison with us (1.5%) is more and also one of the key factor for the country’s growth. Taking bill for every product we purchase is our responsibility even if it is of Rs10 or Rs100000. We are indirectly giving an opportunity to evade tax in case of not receiving the bill.
Recently implemented ban on old currency notes, current GST bill and any other new policy going to be implemented by the government are all aimed at eradicating the corruption and to promote the economic growth of the country. It is said that “Rome was not built in a day”. Similarly, every new policy and scheme will take some time to see the light and show its results. Today, people are waiting for IPL matches and some movies like Bahubali for almost years. There is nothing wrong in waiting to watch out for the positive results that can be explored by new government policies. So let’s see whether the goods and service tax will be a foundation stone for our nation’s great successful transformation.
Around 160 countries in the world are implementing GST, India being a late entrant. France is the first country to implement GST in the year 1945. Majority of the developed countries in the world are implementing GST except the USA.
In order to provide suggestions and information on GST to everyone, government has established GST help desk centres. Without anticipating for profits, they’re establishing good IT infrastructure for this implementation that will also promote employment growth.
Everyone who is making annual financial transactions more than 20 lakhs are supposed to get registered under GST. In case of Singapore, people with annual income less than 4.8 Crore need not pay taxes under GST.
It took 17 long years for formulating and implementing the GST in India wherein it took just 2 to 3 years for the same in some other countries.
Till now, mid night meeting in the Indian Parliament happened only 4 times. For the first time on Independence Day in 1947, second time in 1992 for 50 years’ anniversary of quit India movement, third being for 50 years anniversary of our independence in 1997 and now the fourth one on July 21st 2017 for GST bill.