“IMPLEMENTATION OF GST IN INDIA”

Bachelor of CommerceFINANCIAL MARKETS

Semester VI

(2015-2016)

Submitted by

SOWJANYA SAMPATHKUMAR

Roll No. 51

H.R. COLLEGE OF COMMERCE & ECONOMICS

123, D.W. Road, Churchgate, Mumbai – 400 020

1

INDEX

Sr. No. Particulars Page No.1 Introduction of GST in India 1

2 Current status of the GST Bill 4

3 Analysis of GST in India 7

4 Analysis of GST in other countries 16

5 Major beneficiaries(Sectors) due to

GST

31

6 Impact of GST on ultimate consumers 47

7 Overall benefits in the economy 52

8 Conclusion 539 Bibliography 57

2

Introduction of GST in India

The Goods and Services Tax Bill or GST Bill, officially known as The

Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014,

proposes a national Value added Tax to be implemented

in India. "Goods and Services Tax" would be a comprehensive indirect

tax on manufacture, sale and consumption of goods and services

throughout India, to replace taxes levied by

the Central and State governments. Goods and services tax would be

levied and collected at each stage of sale or purchase of goods or

services based on the input tax credit method. This method allows GST-

registered businesses to claim tax credit to the value of GST they paid

on purchase of goods or services as part of their normal commercial

activity.

Taxable goods and services are not distinguished from one another and

are taxed at a single rate in a supply chain till the goods or services

reach the consumer. Administrative responsibility would generally rest

with a single authority to levy tax on goods and services. Exports would

be zero-rated and imports would be levied the same taxes as domestic

goods and services adhering to the destination principle.

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%

3

As India is a federal republic GST would be implemented concurrently by

the central government and by state governments.

A single taxation point system can bring about more transparency and

accountability in the country’s tax regime.

It is considered to be a game changing reform which will not only

increase the economic growth by upto 2% (Finance Ministry) but also

have many other spin offs for the economy. It will usher in a single

market in the country and considerably enhance the 'Ease of Doing

Business in India'

Backdrop of GST-

The constitution provides for the separation of tax related

powers in the constitution on the basis of the 7th schedule viz,

Union, State and Concurrent list with residuary power of

taxation being vested with the Centre. (Service tax imposed on

the basis of residuary power)

Broadly there are two types of taxes in India; Direct Tax and

Indirect Tax. Direct Tax refers to that tax whose burden can't be

passed on to someone else (Income Tax, Wealth Tax,

Corporation Tax, MAT etc.). Whereas Indirect Tax's burden can

be passed on to the next person in the chain of transaction (eg

excise duty, sales tax, service tax, octroi, customs duty etc.)

and ultimately on the final consumer.

GST is concerned only with Indirect taxes. Some of these are

levied by Centre and some by State. Those imposed by states

are done at varying rates across the country. Further there are

state specific variations in remissions also.

4

The Excise duty was levied on both inputs used and outputs

produced. Thus the amount paid on input was taxed at each

stage. This resulted in cascading effect of taxes.

The issue of cascading taxation was partly addressed through

the VAT regime. However, certain problems remained. For

example, several central and state taxes were excluded from

VAT. Sectors such as real estate, oil and gas production etc.

were exempt from VAT. Further, goods and services were taxed

differently, thereby making the taxation of products complex.

Timeline of GST-

GST was first mooted by Dr Manmohan Singh in the mid 90s

The BJP Government under Atal Bihari Vajpayee started

consultation on GST and established a committee under Asim

Dasgupta for implementation of GST

The GST was recommended by the Kelkar Task Force on FRBM

act in 2005

In 2011, the Constitution (115th Amendment) Bill, 2011 was

introduced in Parliament to enable the levy of GST. However, the

Bill lapsed with the dissolution of the 15th Lok Sabha.

Subsequently, in December 2014, the Constitution (122nd

Amendment) Bill, 2014 was introduced in Lok Sabha. The Bill

was passed by Lok Sabha in May 2015 and referred to a Select

Committee of Rajya Sabha for examination.

5

Current status of the GST Bill

We can always recollect the Budget 2015-16 from last year where the

Goods and Services Tax (GST) formed one of the major pillars for ‘Ease

of Doing Business’ in India. And in stark contrast with last year’s

Finance Ministers speech, this year we only heard a meagre reference

of GST in FM budget speech, which read:

“The Government shall also endeavour to continue with the ongoing

reform programme and ensure the passage of the Constitutional

amendments to enable the implementation of the Goods and Service

Tax”

As GST remained a political hotbed over the past year, a direct

reference of GST policies through the Budget Speech would not have

been a prudent political decision in any case. Rather the Finance

Minister chose to be smart, by disguisedly introducing various

‘transparency’ and ‘Ease of Doing Business’ driven changes, in line with

the proposed GST regime. Many changes, although administrative,

showcase the continuous commitment of the government towards GST.

Some of the major proposed changes have been:

•    Reorganizations of field formations of Central Excise and Service Tax

in the event of implementation of GST; and 

•    Proposal to revamp the Maharashtra VAT Return procedures more in

line with suggested GST Business Processes; 

•    The Allocation of GSTN Contract to Information Technology giant

Infosys.

6

These small changes show enough promise that the GST is not yet

down and out. Also the Economic Survey 2015-16 (released on 26th

February 2016) which preceded the Union Budget 2016-17, has clearly

indicated that GST would remain a central focus for India’s Make in India

project.

The Economic survey 2015-16 enumerates that:

•    A move to GST would eliminate tax leakages due to

rationalisation of indirect tax exemptions which account to an

estimated cost of Rs. 3.3 lakh crore.

•    GST would affect potentially 2-2.5 million excise and service

taxpayers; and

•    GST is an unprecedented reform in modern global tax history.

 The 122 Constitution Amendment Bill has been passed in the Lok

Sabha and is pending in the Rajya Sabha. The government had set a

deadline of 1st April 2016 for the implementation of GST. The Rajya

Sabha stalled on various issues and the differences faced by opposition

party view have made the realization of the target unlikely.

Some of the issues are:

GST rate of 18% to be made a part of the Constitution

Amendment Bill.

The 1% levy must be abolished.

Dispute redressal Authority to be established.

Since the bill seeks to alter major provision of taxations in the

constitution that affect the states, it must be passed in both the houses

of the Parliament and also endorsed by half the states.

7

The Budget 2016 under the subtle tone of indirect tax changes i.e.

improving litigation procedures, Digitization of government procedures,

unifying interest rates, subsuming of 13 indirect taxes etc. is slowly but

certainly moving towards an organized indirect tax system (GST).

The Economic Survey 2015-16 acknowledges GST bill to be a step in

the right direction. However, it also recognizes that a lot more needs to

be done by the States, including, creating better physical IT

infrastructure, procedural amendments, etc. in order to ascertain GST

preparedness for the future. Thus, in the backdrop of Make in India,

Manufacturing goals of India and proposed Budget changes, GST even

though not mentioned in budget, still appears to be in the priority and is

mostly discussed to be implemented from April 2016 onwards.

8

Analysis of GST in India

GST is a consumption based tax levied on sale, manufacture and

consumption on goods & services at a national level. This tax will be

substitute for all indirect tax levied by state and central government.

Exports and direct tax like income tax, corporate tax and capital gain tax

will not be affected by GST. With the increase of international trade in

services, GST has become a global standard. The proposed tax system

will take the form of “dual GST” which is concurrently levied by central

and state government. This will comprise of:

Central GST (CGST) which will be levied by Centre

State GST (SGST) Which will be levied by State

Integrated GST (IGST) – which will be levied by Central Government

on inter-State supply of goods and services.

9

Scope of GST

GST is applicable on the supply of goods or services.

Alcoholic liquor for human consumption is exempt from GST.

Initially, GST will not apply to: (a) petroleum crude, (b) high speed

diesel, (c) motor spirit (petrol), (d) natural gas, and (e) aviation turbine

fuel. The GST Council will decide when GST will be levied on them.

Tobacco and tobacco products will be subject to GST.

Levy of GST

Both, Parliament and state legislatures will have the power to make

laws on the taxation of goods and services. A law made by

Parliament in relation to GST will not override a state law on GST.

The central government will have the exclusive power to levy and

collect GST in the course of interstate trade or commerce, or imports.

This will be known as Integrated GST (IGST).

A central law will prescribe the manner in which the IGST will be

shared between the centre and states, based on the

recommendations of the GST Council.

An additional tax of up to 1% on the supply of goods will be levied by

centre in the course of inter-state trade or commerce. The tax will be

collected by the centre and directly assigned to the states from where

the supply originates.

This tax will be levied for two years, or for a longer period as

recommended by the GST Council. The central government may

exempt certain goods from such additional tax.

The principles for determining the place of origin from where the

supply of such goods takes place will be formulated by a law of

Parliament.

10

Justification at the Central level At present excise duty paid on raw material consumed is

being allowed as input credit only. For other taxes and duty paid for

post manufacturing expenses, there is no mechanism for input tax

credit under  the Central Excise Duty Act.

Credit for service tax paid is being allowed by the manufacturer or

service provider to a limited extent. In order to give the credit of

service tax paid in respect of services consumed, it is of  utmost

necessity of an existence of comprehensive tax system under

both  the goods and services are covered.

At present service tax is levied on a few items only. With 

government realizing “Negative List” from time to time in which

the  listed services will be out of the purview of service tax.

Justification at the State level A major defect under the State VAT is that the State is charging

VAT on the excise duty paid to the Central Government,

which goes against the principle of not levying tax on taxes.

The present State VAT scheme, CENVAT allowed on goods

remain included in the value of goods to be taxed which is

cascading effect on account of CENVAT element.

Many states are still continuing with various types of indirect

taxes.

As tax is being levied on inter-state transfer of goods, there  is no

provision for taking input credit on CST leading to additional 

burden on dealers.

11

Alternatives to the IGST The Bill permits the centre to levy and collect GST in the course of

inter-state trade and commerce, called the Integrated Goods and

Services Tax (IGST). Such tax will be apportioned between the centre

and the states in a manner to be decided by a law made by

Parliament.

The Task Force set up by the 13th Finance Commission had

suggested an alternative to the IGST.5 The Commission had

recommended a modified bank model with regard to inter-state

transactions. Under this model, the seller levies GST on the buyer

state, and deposits the tax collected to a nodal bank. The nodal bank

then credits payment to the consuming state. This model was

recommended, given that inter-state transfers under GST should be

designed (i) to avoid any distortions or cascading effects, and so that

(ii) tax accrues to the state where the final consumer is located.5 The

Standing Committee examining the Constitution (115th Amendment)

Bill, 2011 had recommended the modified bank model as an

alternative to the IGST as it would simplify tax compliance and ease

administrative burden in inter-state transactions.

The New Indian Express in their article ‘GST SO NEAR YET TOO FAR’

have pointed out the fact that India will gain an estimated $15 billion by

the implementation of GST. With a simpler and sophisticated indirect tax

model, there will be an ease in understanding between the revenue

officials and the tax payers.

12

Positive Aspects

The main reason to implement GST is to abolish the cascading

effect on tax. A product on which excise duty is paid can also be

liable for VAT. Suppose a product A is manufactured in a factory. As

soon as it releases from factory, excise duty has to be paid to central

government. When that product A is sold in same state then VAT

has to be paid to state government. Also no credit on excise duty

paid can be taken against output VAT. This is termed as cascading

effect since double tax is levied on same product.

The GST is being introduced to create a common market across

states, not only to avoid enfeebled effect of indirect tax but also to

improve tax compliance.

GST will lead a more transparent and neutral manner to raise

revenue.

Price reduction as credit of input tax is available against output tax.

Simplified and cost saving system as procedural cost reduces due to

uniform accounting for all types of taxes. Only three accounts;

CGST, SGST, IGST have to be maintained.

GST is structured to simplify the current indirect system. It is a long

term strategy leading to a higher output, more employment

opportunities, and economic boom.

GST is beneficial for both economy and corporations. The reduced

tax burden on companies will reduce production cost making

exporters more competitive.

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Negative Aspects

GST is being referred as a single taxation system but in reality it is a

dual tax in which state and centre both collects separate tax on a

single transaction of sale and service.

At present the main Indirect tax system of central Government is

central excise. All the goods and commodities are not covered by the

central excise and further there is an exemption limit of Rs. 1.50

Crores in the central excise and further traders are not liable to pay

central excise.

Majority of dealers are not covered with the central excise but are

only paying VAT in the state. Now all the Vat dealers will be required

to pay “Central Goods and service tax”.

The calculation of RNR (Revenue Neutral Rate) is very difficult and

further Govt. wants to enhance its revenue hence rate of Tax will be

a problem. As per the News reports the proposed rate for State GST

is 12% and Central GST is 14% Plus Govt. wants to impose 1% CST

at the initial stage of GST on the interstate sale of Goods and

services. So the normal rate of overall tax will be 26%. This rate is

very high comparing to the fact that small and medium Industries are

at present not covered by the central excise and most of the Goods

such as agricultural products are out of the preview of the Central

Excise.

Improvement in the Manufacturing and distribution of Goods and

service, increase in exports, various reforms, check on corruption,

less Government control are some of the factors which are

responsible for the economic growth of the country.

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Impact of passage of the GST bill

Creation of a 'harmonized system of taxation' in the country by

subsuming all the indirect taxes into one GST

It will eliminate cascading taxes (tax on tax) hence reduce the cost of

goods

It will ensure higher compliance on account of input tax rebate system

Single tax for Goods and Services hence no need for differentiation

between the two which is not only difficult in the age of IT but also

results in double taxation

It will widen the tax base and lower the tax burden

It will help ensure the same price for a single good or service across

the country

By extension, it will help increase the saving rate and thus help the

economy grow. The government feels it can help enhance the growth

by upto 2 %. Even the Task Force under leading economist Kelkar

had pointed out that it will increase growth.

It will increase the export competitiveness of the economy

It will enhance the 'Ease of Doing Business' in India and help attract

investment (Make in India)

The ease of a single indirect tax will increase the compliance levels

thus increasing the tax buoyancy

The states will be compensated for first five years for losses incurred

on account of GST implementation for upto 5 years in staggered

manner

Challenges ahead of GST15

Passage of the bill in the Rajya Sabha

Support by at least half of the states

A functionally robust GSTN to facilitate the implementation

Formulating the Revenue Neutral rate for GST

Drafting a model legislation to be adopted by the states

Deciding the minimum threshold value beyond which the GST will be

applicable

Compiling the 'place of supply' rules to determine where the goods

and services will be taxed. India favors the ''destination based

consumption'' principle

Key issues in the GST

Loss of revenue for states- States are going to be compensated for it,

further Alcohol has been left out of the purview of GST. Petroleum

products will be dealt with at a later stage in the GST Council with

states on board.

Loss of fiscal autonomy of the states - although the GST Council will

be a very important player in tax related matters there will be

democratic functioning of the Council. The voting powers will be

shared between Centre and States in the ratio 33.33:66.66.

The additional 1% tax levied on goods that are transported across

states dilutes the objective of creating a harmonized national market

for goods and services. Inter-state trade of a good would be more

expensive than intra-state trade, with the burden being borne by retail

consumers. Further, cascading of taxes will continue.

Highlights of the GST bill

16

The GST Bill amends the Constitution to introduce the goods and

services tax (GST).

Parliament and state legislatures will have concurrent powers to

make laws on GST. Only the centre may levy an integrated GST

(IGST) on the interstate supply of goods and services, and imports.

Alcohol for human consumption has been exempted from the purview

of GST. GST will apply to five petroleum products at a later date.

The GST Council will recommend rates of tax, period of levy of

additional tax, principles of supply, special provisions to certain states

etc. The GST Council will consist of the Union Finance Minister,

Union Minister of State for Revenue, and state Finance Ministers.

The Bill empowers the centre to impose an additional tax of up to 1%,

on the inter-state supply of goods for two years or more. This tax will

accrue to states from where the supply originates.

Parliament may, by law, provide compensation to states for any loss

of revenue from the introduction of GST, up to a five year period.

17

Analysis of GST in other countries New Zealand

Goods and Services Tax (GST) is a value added tax in New Zealand.

GST in New Zealand is designed to be a broad based system with few

exemptions. Exceptions that do exist include rents collected on

residential rental properties, donations, precious metals and financial

services.

End-users pay this tax on all liable goods and services directly, in that

the purchase price of goods and services includes GST.

The existing rate for GST effective from 1 October 2010 is 15%.

GST was introduced by the Fourth Labour Government of New

Zealand on 1 October 1986 at a rate of 10% on most goods and

services. It replaced existing sales taxes for some goods and services.

GST was a part of the economic reforms initiated by Labour Finance

Minister Roger Douglas dubbed Rogernomics. GST was introduced in

conjunction with compensating changes to personal income tax rates.

Since its introduction it has had two increases, on 1 July 1989 the rate

increased to 12.5% and on 1 October 2010 it increased again to 15%.

GST-registered organisations and individuals pay GST only on the

difference between GST-liable sales and GST-liable supplies (i.e., they

pay GST on the difference between what they sell and what they buy:

income less expenditure).

18

This is accomplished by reconciling GST received (through sales) and

GST paid (through purchases) at regular periods (typically every two

months, with some qualifying companies opting for one-month or six-

month periods), then either paying the difference to the Inland Revenue

(IRD) if the GST collected on sales is higher or receiving a refund from

IRD if the GST paid on purchases is higher.

Businesses exporting goods and services from New Zealand are entitled

to "zero-rate" their products: effectively, they charge GST at 0%. This

permits the business to claim back the input GST, but the eventual, non-

New Zealand based consumer does not pay the tax (businesses that

produce GST-exempt supplies are not able to claim back input GST).

Because businesses claim back their input GST, the GST inclusive price

is usually irrelevant for business purchasing decisions, other than in

relation to cash flow issues. Consequently, wholesalers often state

prices exclusive of GST, but must collect the full, GST-inclusive price

when they make the sale and account to the IRD for the GST so

collected.

19

20

Australia

The goods and services tax (GST) in Australia is a value added tax of

10% on most goods and services sales. GST is levied on most

transactions in the production process, but is refunded to all parties in

the chain of production other than the final consumer.

The tax was introduced by the Howard Government and commenced on

1 July 2000, replacing the previous federal wholesale sales tax system

and designed to phase out a number of various State and Territory

Government taxes, duties and levies such as banking taxes and stamp

duty.

An increase of the GST to 15% has been put forward, but is generally

lacking in bi-partisan support.

The idea for a broad-based consumption tax was first proposed by then

federal treasurer Paul Keating at the 1985 Tax Summit but was dropped

at the behest of then Labour Prime Minister Bob Hawke after pressure

from the ACTU, welfare groups and business, which did not like its

association with proposals for capital gains and fringe benefits taxes.

A prominent selling point of the legislation was that all the revenue

raised by the GST would be distributed to the states. In 1999 an

agreement was reached with the state and territory governments that

their various duties, levies and taxes on consumption would be removed

over time, with the consequent budget shortfall being replaced by GST

income distributed by the Commonwealth Grants Commission.

Furthermore, federally-levied personal income tax and company tax was

reduced to offset the GST.

21

All Australian businesses whose turnover is above the minimum

threshold (currently $75,000 per annum) are required to register for

GST. Businesses whose turnover is below the threshold may register if

they wish to.

A GST-registered business must charge its customers GST on taxable

goods and services it provides, but is entitled to a credit for any GST it

has paid for its expenditures on these goods and services as well as

capital purchases (called input tax credits). A registered business must

periodically lodge Business Activity Statements (monthly, quarterly or

annually), and at the same time pay the net amount of GST owed to the

tax office (if more GST is paid than collected, a refund is paid by the tax

office instead).

Some goods and services (notably salaries, wages, fresh food, and real

estate) are exempt from GST. Other goods and services (rental income

and financial services) are "input-taxed", which means that GST is not

charged on the sale, but GST paid by that part of the business is not

eligible to be claimed as an input tax credit.

John Howard had said that the "GST would never become part of Liberal

Party policy ", but his change of heart would become apparent in the

lead-up to the 1998 campaign. It was passed by the Senate in June

1999 in a heavily amended form.

The Leader of the Democrats, Meg Lees, viewed the dilution of the GST

legislation as a success, but the issue split the Democrats, with Senators

Natasha Stott Despoja and Andrew Bartlett voting against the GST.

22

Critics have argued that the GST is a regressive tax, which has a more

pronounced effect on lower income earners, meaning that the tax

consumes a higher proportion of their income, compared to those

earning large incomes. However, due to the corresponding reductions in

personal income taxes, state banking taxes, federal wholesale taxes and

some fuel taxes that were implemented when the GST was introduced,

former Treasurer Peter Costello claimed that people were effectively

paying no extra tax.

23

24

Canada

The goods and services tax is a multi-level value added tax introduced

in Canada on January 1, 1991, by then-Prime Minister Brian Mulroney

and his finance minister Michael Wilson. The GST replaced a hidden

13.5% manufacturers' sales tax (MST); Mulroney claimed the GST was

implemented because the MST was hindering the manufacturing

sector's ability to export competitively. The introduction of the GST was

very controversial. The GST rate is 5%, effective January 1, 2008.

The goods and services tax is defined in law at Part IX of the Excise Tax

Act. GST is levied on supplies of goods or services purchased in

Canada and includes most products, except certain politically sensitive

essentials such as groceries, residential rent, and medical services, and

services such as financial services. Businesses that purchase goods and

services that are consumed, used or supplied in the course of their

"commercial activities" can claim "input tax credits" subject to prescribed

documentation requirements (i.e., when they remit to the Canada

Revenue Agency the GST they have collected in any given period of

time, they are allowed to deduct the amount of GST they paid during that

period). This avoids "cascading" (i.e., the application of the GST on the

same good or service several times as it passes from business to

business on its way to the final consumer). In this way, the tax is

essentially borne by the final consumer. This system is not completely

effective, as shown by criminals who defrauded the system by claiming

GST input credits for non-existent sales by a fictional company. Exported

goods are exempt ("zero-rated"), while individuals with low incomes can

receive a GST rebate calculated in conjunction with their income tax.

25

The tax is a 5% tax imposed on the supply of goods and services that

are purchased in Canada, except certain items that are either "exempt"

or "zero-rated":

For tax-free — i.e., "zero-rated" — sales, GST is charged by

suppliers at a rate of 0% so effectively there is no GST collected.

However, when a supplier makes a zero-rated supply, it is eligible to

recover any GST paid on purchases used in producing the particular

supply or service. This effectively removes the cascading tax from

these particular goods and services.

Common zero-rated items include basic groceries, prescription drugs,

inward/outbound transportation and medical devices (GST/HST

Memoranda Series ME-04-02-9801-E 4.2 Medical and Assistive

Devices). Certain exports of goods and services are also zero-rated.

For tax-exempt supplies, the supply is not subject to GST and

suppliers do not charge tax on their exempt supplies. Furthermore,

suppliers that make exempt supplies are not entitled to recover GST

paid on inputs acquired for the purposes of making the exempt good

or service. Tax-exempt items include long term residential rents,

health and dental care, educational services, day-care services, legal

aid services, and financial services.

On July 1, 2006, the Government of Canada reduced the tax by 1

percentage point (to 6%), as promised by the Conservative Party in the

2006 election campaign. They again lowered it to 5%, effective January

1, 2008. This reduction was included in the Final 2007 Budget

Implementation Bill (Bill C-28), which received Royal Assent on

December 14, 2007.

26

This change has been estimated to have decreased government

revenues by approximately $6 billion. Opponents of these tax decreases

cited that sales taxes target those who spend more and therefore such

reductions disproportionately benefit Canadians giving those who have

the most and spend the most the largest tax decrease.

Much of the reason for the notoriety of the GST in Canada is for reasons

of an obscure Constitutional provision. Other countries with a Value

Added Tax legislate that posted prices include the tax; thus, consumers

are vaguely aware of it but "what they see is what they pay". Canada

cannot do this because jurisdiction over most advertising and price-

posting is in the domain of the provinces under the Constitution Act,

1867. The provinces have chosen not to require prices to include the

GST, similar to their provincial sales taxes. As a result, virtually all prices

(except for fuel pump prices, taxi meters and a few other things) are

shown "pre-GST", with the tax (or taxes) listed separately.

27

28

Singapore

Goods and Services Tax (Abbreviation: GST) in Singapore is a broad-

based value added tax levied on import of goods, as well as nearly all

supplies of goods and services. The only exemptions are for the sales

and leases of residential properties and most financial services. Export

of goods and international services are zero-rated.

Before 1986, Singapore's corporate income tax rate and top marginal

personal income tax rate both stood at 40%. Such high rates were

deemed to be uncompetitive. On the recommendation of the 1986

Economic Committee, Singapore's government decided that it needed to

shift from direct to indirect taxes, to maintain its international

competitiveness in attracting investments, and to sustain its economic

growth to create well-paying jobs for Singaporeans.

The GST was part of a larger tax restructuring exercise to enable

Singapore to shift its reliance from direct taxes to indirect taxes. The

government argued that tax reform was necessary to maintain

Singapore's competitiveness, to sustain long-term growth and job

creation. The government also argued that with an ageing population,

Singapore's income tax base was expected to decline. With a broad-

based GST, the taxation burden would be more evenly spread among

the population.

A value-added tax, like the GST, also has several features that make it

attractive. A tax on consumption, not income, the tax system inherently

encourages savings and investments instead of consumption. The tax

also has a self-policing mechanism that discourages evasion, unlike a

retail sales tax system or an income tax system, which would be

relatively easier to evade.

29

GST was implemented at a single rate of 3% on 1 April 1994, with an

assurance that it would not be raised for at least five years. To cushion

the impact of GST on Singaporean households, an offset package was

also introduced. Simultaneously, corporate tax rate was cut by 3% to

27%, and the top marginal personal income tax rate was cut by 3% to

30%. The initial GST rate of 3% was among the lowest in the world, as

the focus was not to generate substantial revenue, but to allow people to

get adjusted to the tax.[4]

In 2002, the Economic Review Committee reviewed Singapore's tax

policy, and recommended that further tax reform was necessary to bring

in new investments. The committee noted that other countries were

aggressively cutting their direct tax rates to attract internationally mobile

capital and labour, and recommended that the government rely more on

GST for its tax revenues, while again cushioning the impact on

Singaporean households through an offset package.

The government accepted the committee's recommendations. The GST

rate was increased from 3% to 4% in 2003, and to 5% in 2004. Each

increase was accompanied by an offset package that was designed to

make the average Singaporean household overall better off, even after

accounting for the additional costs imposed by the increase in GST

rates. Direct tax rates were also reduced correspondingly.

On 15 February 2007 (Budget Day), Second Finance Minister  Tharman

Shanmugaratnam announced that the GST rate would be increased to

7% with effect from 1 July 2007.

The rate increase was accompanied by an offset package to help

Singaporeans with the increase in GST. The package would cost the

government $4 billion over five years.

30

The government argued that the offset package would help the majority

of Singaporeans offset their increased GST costs for several years. The

offset package consisted of direct transfer benefits, in the form of cash

payouts (GST credits, growth dividends, senior citizens' bonuses), CPF

top-ups (post-secondary education account top-ups for students,

Medisave top-ups for older Singaporeans), and rebates (on utilities and

public housing service & conservancy charges). Those who earned less

or lived in smaller homes received more benefits. The government also

argued that the Workfare Income Supplement, a wage subsidy, would

provide significant support for lower-income workers on a continuing

basis even after the GST offsets have been distributed.

The government also cut direct tax rates, continuing its practice of

lowering direct tax rates since 1986. As of 2010, the top marginal rates

for corporate tax stood at 17% and personal income tax at 20%, with

effective rates being much lower.

31

32

Major beneficiaries(Sectors) due to GST E-commerce

As industrialists in India wait with bated breath for the rollout of GST as

part of the tax reforms undertaken by the government, one of the biggest

beneficiaries of the rollout could be the booming e-commerce sector in

India.

India currently has no tax laws in place to regulate the e-commerce

industry. As a result, tax imposition is done based on the interpretation of

local taxation authorities in different states. Businesses suffer because

the interpretation varies from state to state.

Implementing GST will actually help eliminate the taxation problem at the

root faced by the e-commerce companies and give a further boost to the

e-commerce sector that is still at a nascent stage, yet growing

exponentially, and has the potential to give a huge boost to the country’s

economy in the coming years. It is currently being perceived, by the

industry, as panacea to endless tax woes. Logistics being one of the

biggest hurdles so far for e-commerce companies, the roll-out of GST is

likely to simplify things to a great extent. The objective of GST is to

simplify and streamline the indirect tax regime in the country.

Since the same tax regulation will apply across different states, e-

commerce companies (as well as those from other industries) will not

have to struggle with the complex regulatory structure that currently

prevails in the country, and with the lack of uniform policies in different

33

states, giving them the levy to devise their strategies in keeping with the

GST norms.

Under GST, both Central and State taxes will be levied on the

manufacturing cost at the point of sale, which will help eliminate the

challenge of tax being levied on the same product/service more than

once.

Moreover, sourcing, distribution and warehousing strategies that are

currently designed by companies from the perspective of how tax liability

can be minimised will change. Companies can now device these

strategies based on what is actually in their best interest, since they no

longer need to have a warehouse in every state as a means to minimize

their tax liability.

Instead, a large warehouse at a strategic location can fulfill the demand

of several states and help minimize costs. In fact, based on research it is

believed that a company’s profit can increase by over 20 per cent by

reducing cost by a mere 2 per cent. Going by this estimate, e-commerce

companies stand to gain tremendously from GST.

Easing regulatory norms is a move that will not just benefit e-commerce

companies by further accelerating their growth, but will also position the

country as industry-friendly and attract more investments from foreign

investors. This in turn will create a ripple effect by generating endless

employment opportunities. It is, therefore, imperative that the

government makes all efforts to make GST a success, since it will be a

win-win for both, the industry and the economy.

34

Logistics

With the Government hoping to pass the Goods and Services Tax (GST)

bill in the Parliament's budget session, transportation and logistics

companies are preparing for changes in their operations. Industry

experts feel that GST will not only make them more efficient but also

reduce their actual requirement for commercial vehicles.

The GST is expected to be implemented by fiscal 2016-17 and is aimed

at reducing multiple taxes. Inter-state sales transaction will become tax

neutral, the whole country become one single common market without

any state borders.

Logistics companies will therefore see a major change in transportation

of goods and location of warehouses. In the past the warehouses were

set up for avoiding state taxes at the cost of operational efficiencies.

Vivek Ganguly, Director (Investments), Nine River Capital, an investment

banking firm, said that because of trade barriers such as entry taxes,

local body taxes, octroi and other hurdles, trucks are sitting idle 30 to 40

per cent during their delivery schedule.

“When you remove these barriers, you will have 30 to 40 per cent, less

downtime for vehicles, which effectively would mean companies would

need lesser number of vehicles for carrying out the same business. Post

GST implementation there would be a dip in the replacement demand for

vehicles, at least for a period of 12 to 18 months,” Ganguly said.

35

There would also be a move for procuring higher tonnage trucks due to

the new efficiencies brought about by the GST. Companies will

consolidate small warehouses, which were set up for avoiding taxes.

Trucks with load capacity up to 20 tonnes would be replaced by larger

trucks for carrying additional cargo, Gangulay said.

Logistics costs in the country are about 14 per cent of GDP, while in

developed countries they are nine per cent. In the logistics sector only

about 10 to 20 per cent of the companies are organised. Rest of the

space is taken by small fleet and warehouse operators, which leads to

tremendous inefficiencies in operations.

Past president of All India Motor Transport Congress, Bal Malkit Singh,

said that on an average a truck runs about 220 km per day. After is GST

is implemented could run up to 300 km to 315 km, efficiencies of the

logistics companies will also increase, leading to a reduction in demand

for new trucks.

Managing Director of DHL Supply Chain Vikas Anand, said that in the

post GST scenario, location of the warehouse would be more driven by

the market forces of demand and supply. In the coming years the

smaller warehouses of 15,000 to 20,000 sq ft would be merged and

larger ones of over 2 lakh sq feet would be set up,

GST will transform the way goods are transported within the country.

Today because of sizes of warehouses are very small, corresponding

smaller inefficient trucks with a carrying capacity of nine to 20 tonnes are

being used. In the near future, trucks with 40 tonnes plus carrying

capacity will run on the highways, which will service large warehouses,

he said.

36

Plywood

Plywood manufacturers in the organised sector expect the rollout of the

goods and services tax (GST) to boost their sales in a market dominated

by the unorganised sector.

In the Rs 25,000-crore Indian plywood market, the unorganised sector

has a market share of 60-65 per cent. Organised players in the segment

include Greenply, Century Plywood, Kitply,National Plywood and Uniply

Industries.Keshav Kantamneni, chief executive of Uniply Industries, said

the introduction of GST would result in "goods being taxed at every level,

thereby creating a level playing field for the organised manufacturers,

and would also make inferior-quality plywood less competitive".

The price advantage enjoyed by unorganised manufacturers would

diminish gradually, making high-quality plywood competitive, he said.

Existing manufacturers pay 16 per cent excise duty and four per cent

sales tax on their products. According to the Federation of Indian

Plywood & Panel Industry, lowering of excise duty to less than 10 per

cent would force the unorganised plywood units to make excise

payments regularly.

The Bengaluru-based Indian Plywood Industries Research & Training

Institute also expects the rollout of GST to make things tough for the

unorganised sector, as inferior-quality plywood would become less

37

competitive. This would also lead to a reduction in the import of low-cost

Chinese plywood in the coming years.

Plywood demand meanwhile is set to witness a jump owing to a rise in

real estate demand and the Centre's plan to establish smart cities and

other urban infrastructure projects. As against 5-6 per cent growth seen

last year, it is expected to clock double-digit growth in the current fiscal

year.    

Top producers, therefore, are expanding capacity and are increasingly

looking to acquire manufacturing units in the northern and western

regions, where the demand is anticipated to come from. Green Ply

Industries is currently expanding its Rajasthan laminates factory plant,

and is open to considering new investments in its plywood factories

located at Kolkata and Nagaland.

Also, with labour costs going up in China, producers there are losing out

to competition from India, Vietnam and Indonesia. This is helping Indian

manufacturers to plan capacity additions and step out aggressively to

source raw material, said Naresh Tiwari, president, North India Plywood

Manufacturers Association.The protracted slowdown in Chinese

domestic plywood demand had resulted in companies there reducing

capacity and some even shutting down their units due to the imposition

of a ban on logging of high-quality wood in Myanmar, the source of the

most-preferred wood.

As a result, low-cost producers in India are either sourcing veneers

(facing layers) from established players or through imports, and binding

38

them with rubber plantation wood, bamboo and other materials, which

has poor durability.

Pharmaceutical sector

With the implementation of GST, cost of any service, including logistics,

will be considered as value add, and the manufacturer will get tax credit

for the service tax paid.

The biggest advantage to the industry would be that of reduction in

transaction cost, with an immediate impact coming from the

discontinuance of CST. The multistage taxation along with the inability to

take full benefit of the CENVAT credit /refund has been an issue for the

industry. With central GST expected to be a single rate for goods and

services, going forward credit accumulation may not be an area of

concern. Furthermore, if the legislation provides for carrying forward of

the unutilised credit this would be an additional boost to the industry.

This will result in lower cost which can add to margins or can be passed

on to customers.

Opportunity to explore alternate distribution models: Organisations will

be able to explore different distribution models such as setting up mother

warehouses and regional distribution hubs and consider stepping away

from traditional C&F and distributor based models currently adopted.

This will lead to logistics and distribution to evolve as a competitive

advantage through improved service levels, faster turnaround times and

better fill rates at lower costs. 

39

Furthermore, the pharmaceutical sector currently enjoys various location

based tax holidays on its manufacturing activities. Under the proposed

structure of GST, such area based exemption will be done away with.

However, taking into account past precedents suitable work

around/refund process would be constituted to ensure that any existing

hubs do not get impacted and continue to get the agreed benefits.

However, the challenges faced in distributing from these remote

locations could be addressed by designing logistics efficient networks of

mother and daughter warehouses to ensure optimisation of cost and

superior availability of products. 

While the qualitative benefits arising out of GST are well established,

there is a definite impact to economics of companies as well. Logistics

cost accounts for nearly 13-14 per cent of our GDP. Of the total logistics

cost transportation contributes ~35 per cent, warehousing & storage ~10

per cent, inventory holding cost ~25 per cent and other inefficiencies’

make up the balance 30 per cent. Implementation of GST and alignment

of a firm’s supply chain to it will directly help in reducing cost on

transportation, warehousing and inventory holding by 5-8 per cent, 10-12

per cent and upto 28 per cent respectively for each of the cost heads,

leading to an overall savings in the range of 10-12 per cent of the total

logistics cost.

As Indian pharmaceuticals companies look forward to revenue growth on

one side and the need to reduce costs, GST offers a great opportunity to

revisit their Supply Chain & distribution strategy to develop an agile,

customised and cost-efficient supply chain. Companies need to act now

to assess the impact of GST on their businesses and functions and

40

develop an action plan and road map for the future. Those who move

early are likely to gain an advantage on cost and service levels over their

competitors and deliver a better value proposition to the customer. 

Manufacturing industry

The proposed Goods and Services Tax (GST ) rate of 17-18 per cent as

suggested by a panel headed by Chief Economic Adviser Arvind

Subramanian would benefit most companies engaged in manufacturing

of goods, according to tax experts, economists and brokerage houses.

"Most goods manufactured in the country have an average 27-30 per

cent indirect taxes component. If the proposed standard rate of 17-18

per cent is implemented, the final prices of these goods can come down

by 10-12 per cent," says Sachin Menon, partner and head, indirect tax

and COO, tax and regulatory services, KPMG in India.

At present, manufactured goods attract 12 per cent excise duty, 5-15 per

cent value-added tax (VAT) and in case of inter-state sales, a central

sales tax of 2-15 per cent. Besides, some states also impose entry tax

and Octroi of up to 15 per cent. With GST, all these taxes would be

subsumed and a standard rate would be applicable across the country.

Though initially the government was planning a single uniform rate

across the country, due to protests from states, which fear losing out on

tax revenue, the government has proposed a three-tiered tax structure to

begin with - a low rate of 12 per cent for essential items, a high rate of 40

per cent for luxury cars, tobacco products and aerated beverages, and a

standard rate of 17-18 per cent for most goods and all services.

According to a report released by Nomura, the announcement is positive

for most FMCG companies. "Currently, most consumer companies in

41

India incur tax rates of around 22-25 per cent, due to which a standard

rate of 17-18 per cent should benefit them.

We see companies such as Hindustan Unilever, Colgate-Palmolive and

Asian Paints benefiting from this recommendation the most, especially

as their exemptions have recently expired. One should see a positive

effect either in their volumes or through margin expansion," says the

report.

However, companies which are into food processing business - edible

oils, biscuits, chocolate, cocoa and baked items - may get negatively

impacted as they would reap the benefits exemptions extended to

processed food items.

There are other sectors such as pharma and locally manufactured

mobile handsets that enjoy lower incidence of indirect taxes.

According to a Religare report on the impact of GST, sectors such as

automobile, capital goods, cement and building materials would gain due

to lower incidence of tax post-GST implementation. The report points out

that these sectors pay around 24-40 per cent indirect taxes.

The GST is also likely to widen the tax net as Sachin Menon of KPMG

says it is very difficult in the GST regime to escape paying taxes. This

would benefit the companies that operate in sectors with large number of

unorganised players.

"The price competitiveness of the unorganised entities is likely to

deteriorate, resulting in narrowing of the price differentials. This is likely

to lead to accelerated top-line growth and also increase in market share

of the organised players," says the report from Religare.

According to Religare, companies like BATA India (Footwear), Kajaria

Ceramics, Somany Ceramics (Tiles), Mayur Uniquoters (Artificial

42

leather), Finolex Industries (Pipes), Pidilite (adhesive), etc may benefit

from unorganised players losing the price differential benefits post GST.

Automobile

The government’s plan to introduce the goods and services tax (GST)

will allow the automobiles, logistics and entertainment sectors to reap a

rich dividend from the rollout targeted for next year. But for petroleum,

the wait will be longer as it is not been included in the GST framework.

Analysts and corporate tax experts said under the GST, the cumulative

duty rates on large cars and sports utility vehicles would fall from 41-41

per cent to 20-24 per cent, making these the biggest beneficiaries of the

rollout.

For some segments of the automobile industry like tractors, which are

exempted from excise duty but pay four per cent value added tax, the

GST rate will increase to 12 per cent. Overall, Mahindra & Mahindra

would be a beneficiary because the company earned 25 per cent of its

revenue from sports utility vehicles, analysts said. 

Automobiles, pharmaceuticals and consumer products companies enjoy

tax benefits by setting up manufacturing units in states that offer

incentives like excise, VAT and income tax concessions. Many fast-

moving consumer goods companies, especially in food products, enjoy

rates of zero to six per cent versus the current excise rate of 12 per cent.

If the GST rates go up, they will increase costs and the companies will

pass them on to consumers.

Adi Godrej, chairman, Godrej Group, said the GST would add two per

cent to gross domestic product growth and it was good that the Centre

43

and states had come to terms on the issue. “Though there have been a

few compromises. For instance, petroleum products have been

exempted for now. So is alcohol.

Once all the items are included, the full impact of the GST will be felt.

But there is no denying how critical this development is. We are better

off getting started with this (GST) rather than delaying it,” he said.

Corporate lawyer Sumit Lunker of BDO India said the entertainment and

telecom sectors would be big beneficiaries as the GST would eliminate a

multiplicity of taxes–entertainment tax, luxury tax, VAT  and service tax–

and end classification disputes on software, SIM cards, franchise fees,

and annual maintenance contracts for telecom companies.

44

Footwear sector

With no major announcements for shoe manufacturers, members of

Agra's footwear industry are now looking towards the passing of the

Goods and Services Tax (GST) Bill with the hope that it might provide

some relief to their woes. They were disappointed that despite being

among the priority sectors under Prime Minister pet 'Make in India'

initiative the industry did not get any special mention in this year's

Budget.

Industry insiders commented on two announcements made by Union

finance minister . First, reduction of excise duty on rubber sheets and

resin rubber sheets for soles and heels from 12.5% to 6%. Second, the

abatement rates for the retail sale price (RSP) based assessment of

excise duty for all footwear have been revised from 25% to 30%. This,

shoe manufacturers said, will just marginally benefit consumers and

exporters.

"As far as the overall Budget is concerned, it is pro-development. There

is no major tax burden on the public. The increase in abatement rate

from 25% to 30% will have a positive effect, and it will increase

production, which may lead to fall in footwear prices," said Puran Dawar,

president of Agra Footwear Manufacturers & Exporters Chamber

(AFMEC), talking to TOI.

"The footwear industry has not got anything from this Budget, even as

this sector was made a thrust area during the Make in India campaign.

Now, our hopes are focused on the GST, where we see reforms. It will

45

bring uniform taxation and resolve many issues. The announcements will

make no difference to domestic as well as export products," said

Valentino shoes director Chander Daultani.

Former president of AFMEC Nazir Ahmed said the Budget was a

"letdown" for footwear exporters. "We have sought certain incentives to

compete with the international market like duty-free import. High duties

on import of components are making it difficult for us. Focus product

licence was reduced from 4% to 2%. We wanted that restored to the

original percentage. The budget looks to have political aims more than

commercial," Ahmed added.

46

Start-up sector

Over from a decade, the culture of running startups and small

businesses has been evolved and still growing rapidly. Now-a-days the

trend of online business is emerging very fast, stepping back the

outdated traditional set-up.

The government has also realized the same. For promoting this

innovative idea, it has recently announced the “Startup India” campaign.

For generating interest among the youth, the campaign has proposed a

series of regulatory and tax-related benefits. Out of a diversified range of

proposals that are necessary to encourage the startups, Goods and

Services Tax(GST) is the one, which is quite important too in terms of

indirect tax perspective.

Under the GST scheme, which is based on the business process

document on registration disclose by the Government’s Joint Committee,

anticipations are there that for gaining the benefit of the indirect tax

registrations, there would be standardized and centralized registration

cell. By this, much of the time and efforts can be saved for startups and

resultantly they can focus more over their business concerns rather than

the tax compliance and administration.GST regime should also be

having similar provisions so that the initial burden regarding registrations

can be further reduced.

Apart from the positive changes in legislative provisions, there are many

ground-level realities that must be dealt very carefully. As per the GST

47

rules, it is expected that upto a large extent, the present state tax

borders would be diminished.

Some of the advantages we can see under this aspect are:

Goods can be transported efficiently.

Storage and transportation costs will be reduced.

The exclusive function of business requirements is only the supply

chain.

Having a glance over the current Indirect Taxes framework in India, it

has been found that there’s an obstruction of input credits. This causes

high costs to be incurred for the startups. There are several non-

creditable taxes like Central Sales Tax(CST), entry taxes, luxury and

entertainment taxes. Moreover, output service tax can’t be used as VAT

and vice-versa. GST can resolve this upto some extent. Tax costs would

be cut down for the startups if there is an increase in credits. By this,

they can price their products in a more efficient manner.

GST regime provides more like a distribution model that is probably

based on commercial concerns.

A business-friendly tax policy must be there for the precise and clear

administration. For the development and growth of startups in the

country, it is anticipated that the GST would do something about this

aspect. What a new entrepreneur need is to not have the burden of tax,

disputes and difficulties while setting up the business. That’s all, which is

expected from GST. The fact, that these procedures and policies are so

necessary, it is important too that the same should be followed at the

ground level.

48

Making this initiative as an effective one, it is very important to consider

this innovative idea to be executed properly. Real boost to the startups

can only be done through a well-planned GST regime rather than an

inefficient taxation model.

Impact of GST on ultimate consumers

Any regulation change in taxation usually either means more taxes or

difficult procedure. Either ways such kind of change in regulation is

usually opposed by people. However the proposed Goods and Service

Tax regulation is aimed at simplifying the current taxation structure and

reduce the cost of total tax

borne by end user.

Convenience to the honest tax payer and disincentivising the

tax evaders are two major benefits of this method of taxation.

To explain in a nutshell, when you purchase goods from one state you

pay sales tax (CST) and when you sell that goods in another state you

have to pay VAT again.

So there is a “double taxation” of the same goods and of the same

transaction as you do not get credit of tax already paid. What GST aims

at is in the above situation you have to pay tax only on the increase in

sales value and you get the credit of the tax you have paid while

purchasing. Biggest benefit will be that multiple taxes like  central sales

tax, excise duty, service tax state sales tax, entry tax, entertainment tax,

luxury tax, turnover tax etc., will no longer be present and all that will be

brought under the GST.

Apart from the avoidance of double taxation the biggest benefit is to

reduction of compliance costs. The paper work is going to be reduced as

there will be single authority to file returns, assessments and appeals.

So unproductive work like maintaining separate records, meeting

49

different consultants and complying with different departments will be

reduced.

This is a tremendous benefit to any size of business and in particular

National players. These tax savings eventually get passed on to

consumers. Moreover small businessmen will get input credit of taxes

they pay on varied services. As of now Service Tax paid was not used

as a credit for payment towards Central Sales Tax. However in GST you

can take benefit of service tax paid on telephone bills, AC service

charge, computer AMC, Internet expense etc.

Doing Business now will be easier and more comfortable as various

hidden taxations will not be present. Starting a new business will be

easier and hence the consumers will have the luxury of multiple choices

for whichever goods or services he wants. This automatically keeps

prices in check and ensure that the benefits of decreased taxes be

passed on to the end users.

The rate of tax may seem high and for the first year end consumer may

have to pay higher tax, however after the first year the tax burden will

reduce. Combined with increased competition, no double taxation and

reduced paperwork – end user is definitely going to reap the dividends.

It will improve corporate earnings, attract investment, generate

employment and boost the economy. The GST will replace most other

indirect taxes and harmonise the differential tax rates on manufactured

goods and services. Right now, the effective tax rate on manufactured

goods works out to 20%, while services are taxed at 10.3%. The GST

rate has not been decided yet, but it is likely to be around 15%. So, the

50

tax on manufactured goods could go down while that on services could

go up.

This doesn’t mean that the GST is a zero-sum game for consumers. The

real benefits for them could come from the way it reduces the tax burden

on corporate.

Right now, businesses pay taxes levied by the Centre and states at

every stage of the supply chain. This cascading effect of taxes pushes

up the

costs

of

products and services, which the consumer has to bear.

51

Under the GST, businesses will be allowed to set off the taxes they pay

when they purchase any raw material, good or service (see graphic). In

the example, all players in the supply chain pay 15% GST on the value

addition done by them. The consumer also pays only 15% tax on the

price of the product. “The strength of the GST lies in avoiding the

continuous levying of taxes from producer to consumer.”

The setting off provision of the GST has far-reaching implications for

businesses. If they are refunded the taxes paid on inputs, service

providers, producers and distributors will see a significant dip in costs.

Also, the supply chain structures will become more efficient. Consumers

stand to gain if these cost benefits for producers translate into lower

prices. For instance, companies may no longer have to set up depots in

every state to avoid tax. Instead, one large depot can service three-four

states.

However, the gains for the aam aadmi are still wrapped in conjecture. It’s

not clear if the benefits will be passed on to the consumer. When

Australia introduced the GST in 2000, the government had set up a

commission to protect the interests of consumers. The commission

monitored prices to ensure that consumers got full benefits from the

reduction in tax rates. If the tax rate went up, it ensured that consumers

were not charged more than what was necessary. It could levy fines of

up to $10 million on businesses if they resorted to excessive profiteering.

The ACCC had also launched a nationwide consumer awareness

campaign on how GST would affect prices. The Everyday Shopping

Guide with the GST provided a range of expected price movements for

185 household goods and services and was widely distributed.

52

Indian lawmakers, however, do not think it important to discuss the

impact on the consumer. The issue of price control did not figure in the

discussions of the empowered committee of state finance ministers.

“Price control was not discussed, but the GST will generate employment

and boost growth. The common man will also gain from this,” says the

finance minister of Punjab.

While state intervention in pricing might seem regressive, experts agree

that consumer interests need to be protected.

Speaking at a meeting of the Parliamentary Consultative Committee

attached to his ministry, Finance Minister said GST will help reduce tax-

on-tax and will be beneficial to consumers. GST like state-level value

added tax (VAT) is imposed on value addition in each stages of

production and, hence, avoid cascading effect, or tax-on-tax.

"GST will benefit most of the states from Day 1, especially consumer

states," he said, according to a statement issued by the finance ministry.

GST is a destination-based tax imposed on products and services in the

states where these are consumed.

GST would be beneficial to the Centre, states, industrialists,

manufacturers, the common man and the country at large since it will

bring more transparency, better compliance, increase in gross domestic

product growth and revenue collections.

As the volume of trade expanded and growth momentum picked up,

every state would benefit with the rise in their revenue collections, he

added. The Centre proposed to levy a non-vat able additional tax of one

per cent on goods involved in inter-state trade which would be assigned

to states. While this tax will be levied for two years, it could be extended

if recommended by the GST council.

A Constitutional Amendment Bill on GST was introduced in the Lok

Sabha on December 19. It would be taken up by Parliament in the next

53

session.The government intends to roll out GST, which will subsume

most of the indirect taxes, from April 1, 2016. He also said the

government was open to suggestions for making further improvements

to the GST Bill.

"GST is a continuing process, which would further evolve and improve

with time," the statement quoted him as saying.

In this regard, members made suggestions, including that the Centre

brings out a White Paper, giving details on revenue to the Centre, states

and who will be the ultimate beneficiaries. Clarity was also sought on

whether the manufacturers, suppliers or consumers would be the

ultimate beneficiary of the move.

Overall benefits in the economy

Government:

Consolidation of multiple Centre & State taxes

Increased tax collection on wider tax base

Improved tax GDP ratio –revenue aligned to the economy

Better and effective administration

Business:

Ease of compliance

Reduction in effective tax rate on goods & services

54

Reduction in cascading effect of tax

Efficient deployment of resources

Consumer:

Reduction in incidence of tax on goods / services

Reduce double taxation

Conclusion

55

With the ongoing political debate in the Upper House of the Parliament,

passage of the Constitution (100th Amendment) Bill, 2015 is still a step

away from reality. Nonetheless, the central government seems positive

and expects significant movement on GST in the coming days. It is

visibly working in a constructive manner to have the Bill passed in the

latter half of the Budget session of the Parliament. As far as creating the

ecosystem is concerned, even there the government does not seem to

be putting its foot off the pedal. 

Absent any official extension of the April 2016 timeline as yet, the

bureaucracy as well as all agencies responsible to assist the

government in GST implementation including the Goods and Service

56

Tax Network (‘GSTN’) team is working tirelessly to meet their respective

timelines. Gauging the unstoppable approach of the central government

even the state governments have also initiated some ground level

preparatory work.

All this action, however, does not seem to excite India Inc enough, which

continues to hold very meagre hopes of GST seeing the light of the day

anytime soon. The fact that the Indian government has failed to deliver

GST on multiple committed timelines has led to an unforeseen scenario

wherein the government seems fully geared to implement GST but the

industry at large continues to be in slumber.

While the official announcement is likely to come only with the

announcement of Union Budget 2016 next month, the government is

likely to make serious attempt to bring in GST in October 2016 or latest

by April 2017. In either case, time with the industry to get ready for GST

is perceptibly very limited. Within this time frame, businesses need to be

prepared to switch over to new indirect tax regime. This calls for

undertaking a host of activities such as training of people, aligning the

indirect tax compliance processes, understanding the impact on

business, updating accounting and information technology systems and

taking other suitable measures to ensure a smooth transition.

As GST is envisaged to be driven on an online platform with real time

updating of data on the GSTN portal, a robust information technology

(IT) infrastructure would be required to meet the voluminous reporting

and compliance requirements under GST. ERP systems would need to

be revamped and developed stringently to capture the additional

information which is not captured presently.

For instance, state of supply on the invoices for goods and services,

HSN/ accounting codes for the goods or services, segregation of B2B

and B2C supplies etc may be required under the GST regime.

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Compliances and record keeping at the warehouses may also become

equally important for manufacturers. As evident, IT teams would require

significant time to update all ERPs and to realign their process flows.

Transitional accounting features and facilitation of audit trail in the

accounting systems are crucial to avoid any last minute glitches.

Depending on the size, scale and complexities of the business, the

process of implementation of GST by corporate tax payers may need

constitution of a dedicated steering committee involving various process

owners for effective implementation of transition to the new indirect tax

landscape. Meticulous training of all stakeholders as well as overhauling

the tax compliance processes is other important dimensions in preparing

for the impending change in indirect taxation system.

Over the past couple of months, several reports have been issued by the

Joint Committee discussing several aspects such as registration, return,

payments and refunds. Further, the draft GST laws are also expected to

be released soon in the public domain for comments. Considering the

information available in the public domain, it is possible to map the broad

contours of the proposed GST regime.

This information would help businesses to undertake the impact analysis

and other necessary steps for a smooth shift to the GST regime. Such

steps would further facilitate a SWOT analysis based on which they may

harness the strengths and minimize the weaknesses while identifying the

various opportunities and threats for the business under GST regime.

The process of readying the business teams for transition to GST would

also help in identification of areas of advocacy. 

Interaction with the government by making representation through

forums and industry chambers ahead of the official GST rollout could

also be a very relevant exercise at this stage.

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The government’s continued action on GST is a strong wake up call for

India Inc to now gear up and get rolling. The additional time on account

of delay in passage of the Bill is in fact a buffer for the businesses to

make preparations for shifting to GST regime which is a undeniably a

mammoth task. As someone said “if you fail to plan, you are planning to

fail”.

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