The Goods and Services Tax (GST), considered as the most profound reform in India’s indirect taxation system finally becomes a reality. GST anticipates that the tax base will be with minimum exemptions. The main expectation from GST is to eliminate all indirect taxes and only GST would be levied. As the name suggests, the GST will be levied both on goods and services.
GST is heralded as a unified system of taxation by which the economy will take an upward swing. GST is a tax imposed on multiple industries, specifically for manufacturing, sale and consumption on goods and services. This tax will be a substitute for almost all indirect taxes by the State Government and Central Government. Exports and various direct taxes such as income tax, corporate tax and capital gains tax are not included in GST, hence will be unaffected by the new taxation system.
The Rajya Sabha has cleared the bill to amend the constitution and bring about a system of GST in India. The new taxation system is perhaps heralded as the most crucial economic reform on current government’s agenda. GST happens to be complicated as most massive taxation reforms usually are.
How is India’s Tax System Structured Today
The constitution divides the taxation powers between the states and center. Income tax is the exclusive province of central government, which is referred to as direct tax. Indirect taxes are levied on manufacture and selling of goods. In India, indirect taxes levied on manufacturers or provision of services are the exclusive domain of state government. There are multiple taxes when there is trade across state borders; in addition, there are some local indirect taxes levied such as Local Body Taxes (LBT) or Octroi. These will be abolished after GST comes into effect.
Billin and GST
When the users have to integrate the new taxation system in the form of GST with the existing ERP system, the exercise does not seem to be simple like a standard software patch to be applied, and from the next day they would be GST compliant. They have to be very clear on which all modules of their software are going to be changed and how they will associate the changes with the GST. They will have to get many more modules generated to link the far reaching changes like the input credit, destination principle, twin rates, exclusions etc. BIllin makes this difficult task easier.
GST Benefits for Businesses and Industries
- Reduce hassle and expense: Not only, GST replaces various indirect taxes, the new system also makes it easier for businessmen to pay taxes. Currently, a businessman has to pay various taxes, file returns and reply for the scrutiny. The GST would put an end to all these hassles in tax payment. There would be an advanced IT platform for the GST. It makes the entire system of GST payment and return filing easy and transparent.
- One GST rate and one mechanism: GST ensures that all indirect tax rates are uniform and a product has one GST rate across the country. Hence the tax rate won’t vary from state to state.
- No overlapping of taxes: If a product is produced and sold to the consumer, there would be a single indirect tax. There is no overlapping of taxes. As a result, seamless ‘tax-credits’ occurs which reduces any hidden cost in doing business.
- GST improves competitiveness: GST ensures significant reduction in transaction costs of doing business and hence increases competitiveness for trade and industries. The GST would help those businesses which have been paying right taxes. Since GST would greatly reduce the tax evasion, the goods business will become more competitive.
GST Benefits for Central and State Governments
- Simple and easy to administer: GST substitutes multiple indirect taxes at the Central and State levels. Supported by a sound end-to-end IT system, GST will be easier to oversee compared to all other indirect taxes of the Centre and the State.
- Better control on leakage: On account of GST and a robust IT platform, it will be difficult to avoid tax payments. Businessmen claim tax credit only if they have the tax invoice for the purchase. Thus, a retailer can ask for a tax invoice from the dealer and, the dealer needs to ask for the invoice from the manufacturer.
- Higher revenue efficiency: GST system is likely to significantly decrease the cost of tax collection. Post-implementation, it is expected to boost revenue for all transactions across different sectors. It will reduce the duplication of indirect tax collection; finally, it decreases the cost of revenue collection.
GST Benefit to the Consumer
- GST will decrease tax on most of the product and services: Since there are only three rates of GST, many products will come into the lower tax band. Since, there is no overlapping of taxes, the overall tax on a product will go down. It will also lead to lower prices.
- Relief in overall tax burden: On account of efficiency gains and prevention of leakages, the overall tax burden on most commodities will descend, which is set to immensely benefit many consumers. If GST manages to increase the revenue of government, a lower rate on direct taxes can be expected.