The whole system of GST is banking on GSTN infrastructure any error will halt the entire taxation system
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]he present taxation system of India provides for taxation of goods by States and taxable of services by the Centre and is quite different from dual GST(Goods and Service Tax). Taxes on goods, earlier known as Sales Tax was changed in 2005 and the VAT Law replaced the earlier law. The VAT system provides a system with input tax credit mechanism for taxation of goods. Similarly, services, respectively, with limited cross-levy set-off is levied after 1994 as Service Tax apart from this there is Central Excise Duty also levied by the centre on the manufacturing activity. So as such right from 1947 the parallel powers of the Centre (to levy a tax on services) and States (to levy a tax on goods) existing.
The Constitution was amended, whereas even without amendment, we could have amended the Concurrent list but a permanent solution was worked out by amending the constitution
And for last few years, there has been a debate in the country that our taxation system is complex, multilevel and not progressive. Moreover, we were having multiple rates of taxes on multiple schedules of items, the tax rates were 0, 0.5, 1, 2, 3, 4, 5,6, 8, 12.5, 13, 14, 26 and state cesses. So it was felt that we must have a simple taxation structure, which should be easy to understand and the classification problem should not be there, which at present is on a very high scale. For example, Fax is in electronic category and taxable at 12.5 % to 14%, whereas the computer is in information technology category and taxable @4% to 6%. The software is a good or service, this litigation is going on for decades without any end to it. Restaurants are levying Service Tax and VAT on same component and lot of litigation is going on many High Courts. A cable if used in fax is taxable @12.5% to 14% whereas a cable used in a computer is taxable @4% to 6%. So classification problem is there and endless litigation is going on, regarding the multiplicity of rates. Apart from this, there is Central Excise Tariff which too has many problems, on the rates of various items.
Further, the states were changing the rates accordingly to their own suitability which also created multiple slabs of taxes for example eatables are taxable @12.5% in Chandigarh, @13.25% in Haryana, 14.30% in Punjab and 5% in Himachal Pradesh. So lots of disparities are there.
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]S[/dropcap]o it was thought that a simple single tax is introduced in the country so that people should not have any problems in understanding the same. For example, Thailand is a country, who taxation system of Sales Tax is quite impressive and simple i.e. rate of sales tax is 7% and in Japan it is 8% flat, on all items.
So the Constitution was amended, whereas even without amendment, we could have amended the Concurrent list but a permanent solution was worked out by amending the constitution. Now after the introduction of Acts and Rules everybody started waiting for the tax rate slabs and now when the same is out the situation of coming legislation is as under.
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]W[/dropcap]e have Central GST Act, UT GST Act (for UTs without legislature like Chandigarh), IGST Act (for interstate sales), Compensation Act, 31 SGST (of States and UTs with legislatures like Delhi) multiple rules including migration, transition, registration, invoice, refund and so on. And now we have multiple tax slabs as 0%, 0.25%, 3%, 5%, 12%, 18%, 28%, 40% and the cess. Then we have economic criteria related to the rate of GST such as Footwear below 500 is taxable @ 5% and footwear above 500/- is taxable @18%. Similarly, apparels are taxable @ 5% if they are priced at Rs. 1000/- or below and taxable @ 12% if they are above. Then anti-profiteering clause, whose authority is yet to be seen, will cause havoc, as chances of escalation of prices cannot be ruled out. GSTN is already under suspicion due to foreign equities and access of the entire trade data to people sitting abroad. The confidentiality is the real victim. The whole system of GST is banking on GSTN infrastructure any error will halt the entire taxation system in the country.
Moreover the compensation formula will be acceptable in long run or not because under GST the manufacturing state gets no revenue, and in the beginning, whatever revenue it gets from sales will ultimately be transferred to consuming state. As such under GST, there is no incentive to manufacturing state.
As the chorus grows louder about the implementation of GST from 1 July 2017, one is unable to understand as to how can we say that we entering into a simple and progressive regime with 35 Acts, multiple rules and multiple tax slabs.
1. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.