AIR spotlight summary on “Consensus at the GST Council Meeting”
Country moved a step closer in realising its dream of implementing GST and the GST council reached a consensus on the rate structure. The rate structure has different rates starting from exempted goods without any tax, tax rate of 5% on essential commodities, and standard rate of 12%, 18% and 28%. For luxury goods and tobacco it would be tax plus cess.
Rationale behind multiple tax structure
- There are different goods and services present in the economy. While consolidating different taxes in the economy which range from 0% exempted goods to as high as 55% and when a single tax was suppose to be implemented it would have come out to be a very high tax rate. So as to cover all the goods and services with a single tax rate, it would have been extremely inflationary.
- So given the different goods and services and to meet up the demand for these goods and services a multitier tax system was introduced. Basic goods of consumption will be taxed at 5%. It is believed that certain commodities like paints, lights, fans, LED bulbs will become cheaper. Luxury cars and tobacco products are likely to be taxed at a higher rate.
Highlights of multiple tax structure
- Cess would be used to compensate the loss of revenue on implementation of GST. Cess will be applicable on sin goods, tobacco products and luxury cars which are mainly consumed by the rich. This also contributes to the tax revenue of the government. These taxes are transferred to the consumers and the consumer tends to consume less of those goods particularly tobacco which has health hazards. Tax acts as a means of directing consumption in the economy.
- 50% of the items which are under Consumer Price Index would come under the 0% to 5% tax rates. This takes care of the most basic requirements of people and their consumption.
Challenges in implementing GST
- Any reforms and particularly the GST which is the major initiative in the indirect taxes will have some challenges.
- Some of the challenges are building up the infrastructure, getting the GST bill approved at different state levels, assessing the assessee, which particular base to use for assessment, invoicing, whether central bureaucracy would be able to take care of the state bureaucracy in case of merging. People are not sure about how GST would be implemented. As and when the drafts are out, when people would know the procedure, and then things would be simpler for people to understand.
- The difficulty is when the inter-state transfer takes place, and there are problems with the logistics.
- There is lack of clarity on the service tax The services which were not taxed earlier like education and health care will not be taxed under GST. Other services would be taxed at different rates. People fear that the service tax would be increased, but this depends on which bracket the services would lie and whether they are essential or non-essential services.
Creating Awareness about GST
- Lot of education would also go into while implementing GST. There has been a continuous effort in bringing about the awareness in people about GST, benefits of GST, how to move from the origin based tax to destination based tax, how to improve Indian economy by creating a manufacturing base, creating more employment, increasing compliance so that there is more revenue for the government, how GST reduces the harassment to people by reducing the number of assessing officers and people will be sure about the amount of tax that they pay.
- Awareness has been created where the unity in the country will tend to create a better market for everyone, better employment opportunity, and the better price for goods and services.
States role in GST
- No state would like to give away their power of taxing an assessee. Through GST states would lose a certain part of their revenue and centre is likely to reimburse them in roughly 5 years. The state machinery would become less relevant than that of the central government. This is likely to unify the country and create a better framework for growth and development. Unification has been going on in the world as against division. European Union and Free Trade Agreements are an example.
- There will be one assessing officer for one assessee and the one assessing it (Centre or the State) would earn the revenues accordingly. The Idea behind this is, Instead of the centre transferring the revenue to the states, the states would also have their own revenue.
- Corporates have welcomed GST. Government is a very important player for the corporates because they tend to define the markets for the corporates.