The investors are positive for market returns in mid-term. But the reforms will attract more investment and boost the confidence. The best point in GST reform is it will integrated IT system network. Implementation of GST will yield higher tax collections for Indian Governments. The implementation of GST pump new energy in economic system and it is a long awaited reform. If it gets clearance from both house of parliament even then it will take couple of years’ time to bring results. The implementation of GST will also be challenge for the governments. India is favoured nation for investors because of growth rate and socio-economic factors over developed economies and emerging market.
Policy makers are trying to revamp the direct tax structure in India. New direct tax code (Income Tax Act, 1961 & Wealth Tax Act, 1957 would be scrapped) has been drafted but still to be implemented. Policy makers are in process to scrap several obsolete indirect tax laws to bring on a single indirect tax as soon as possible. Indian public is aspiring for a composite single tax instead of multiple taxes which are currently applicable. With the introduction of GST, a continuous chain of set-off from the original producer’s point and service provider’s point upto the retailer’s level would be established, eliminating the burden of all cascading effects including the burden of CENVAT and service tax. GST shall have two components, first Central GST – Levied by the Centre and second State GST- Levied by the States. Central GST and the State GST would be applicable to all transactions of goods and services made for a consideration. Periodical returns to be submitted to both Central GST authority and to the concerned State GST authorities. Uniform procedure for collection of Tax would be prescribed in the respective legislation for Central GST and State GST. Taxes which may be out of Purview of GST will be Purchase tax – Issue is being discussed in consultation with the Government of India and several states are contemplating that this tax shall continue to levy other than GST and Tax on Natural Gas – It is being decided whether Natural Gas would be outside the purview of GST or not. Current Location based tax exemption scheme may be phased out slowly. Tax exemptions, remissions etc. related to industrial incentives to be converted into cash refunds schemes after collection of tax so that continuous chain of set-offs in GST scheme is not disturbed.
Dual GST will result in better revenue collection for states with higher consumption of goods and services. The backward and less-developed states would see fall in collections. The Centre is expected to put in place a mechanism to compensate states for any revenue loss due to GST.
The evident benefits of GST structure would be a simple and transparent tax structure. There will be reduction in the number of taxes at the Central and state levels. There will be cut in effective tax rate for many goods. There will be removal of the current cascading effect of taxes and increased tax collections due to wider tax base and better compliance.
The scope of GST should be wide enough and also cover ecommerce companies. E-commerce companies must be at par otherwise they will take away market share. E-commerce platforms should pay service tax on the fee they charge for providing platform for buyer and seller. Policy so far restricts foreign investment in multi-brand retail, only online marketplaces are exempt. Tax the marketplace service, and the sellers for the sales they do.
Online retail is growing at a fast pace, and the government must not lose on revenues. The share of service tax revenues is just 2% of the GDP despite services contributing to over 60% of the economy. To raise the share of revenue, ecommerce companies must come under GST. It will also prevent base erosion and profit shifting. Rightly, the OECD, a club of rich countries, says it would be difficult to ring-fence the digital economy for tax purposes. It, therefore, wants countries to impose value-added tax. In the US, for instance, many states charge online retailers sales tax, and have also enforced state online laws, known as Amazon tax laws. The proposed Marketplace Fairness Act, introduced in the Senate this year, gives states the option of making businesses that are not physically located within their borders collect sales tax, but in return, states must simplify their tax codes. Hence, ecommerce transactions do not find an explicit mention in these laws, and that needs to change. Tax compliance must be facilitated to ensure that e-retailers are not harassed, and the dispute resolution mechanism must be robust and speedy.
The fate of the GST bill looked uncertain after the National Herald case triggered a full-fledged political war between the Congress and the NDA government. Even functioning of Parliament in the remaining days of the Winter Session looked bleak. It was evident that the Congress is trying to replicate Indira Gandhi’s strategy of portraying herself as a victim after the Janata Party regime dragged her to courts. Congress chief Sonia Gandhi led the Congress when she told reporters in Parliament, “why should I be scared of anyone? I am Indira’s daughter-in-law. I am not scared of anybody.”
GST impact needs to be analysed in larger prospective but there is no doubt that we need to have a GST and get out of the complex taxes that exist today at different levels. However, the impact on GDP and inflation is still uncertain. While prima facie it is hoped that prices will come down and GDP may go up, such a win-win situation may not be easily forthcoming. GST is expected to integrate State economies and boost the overall growth of India. The speculation is being made against the passage of Bill and introduction of nation-wide GST, the Government can use the delay period to create a system to deal with the new structure. Any further delay will not lead to better preparation. Therefore, we hope that the Bill is passed through in this winter session in national interest for implementation of the much-anticipated tax regime.