Wednesday, May 31, 2017

Goods and Services Tax, a game changing tax reform of India

The biggest tax reform of India is just around the corner that is set to roll out from 1st July 2017 as per the government's plans.

But do you know how long time it took to reach on this stage. It was first discussed in the report of Kelkar Task Force, a committee which had been setup in 2002 by the government to recommend the measure for the simplification and rationalisation of the direct and indirect taxes.

A proposal to introduce a GST on national level by 1st April, 2010 was first mooted in the budget speech for the financial year 2006-07.

GST, Goods and Services Tax, a dream going to be true. The country is now all set to usher in the game changing tax reforms form July 1, 2017.

The GST (Goods and Services Tax), which will bring the country as one marketplace with the single uniform tax, will eliminate several layers of tax collection. It is also aiming to make the small and medium businesses more transparent.

Although the government is set to implement GST from 1st July, the industry people and the market analysts are optimistic on this massive tax revamp that will transform the country into the one single market but the average man on the street is seems to have confused whether the new tax structure would stoke inflation in the initial period of its implementation.

The history shows the country that implemented tax systems similar to GST in the past had experienced a ups and downs in inflation.

The country like Australia, Singapore, New Zealand, Malaysia witnessed a surge in inflation in the initial period of the implementation.

List of VAT/GST initial rate in some other countries :
1. Australia (2000) - 10%
2. Canada (1991) - 7.0%
3. France (1984) - 20.0%
4. Germany (1968) - 11.0%
5. Italy (1973) - 12.0%
6. Japan (1989) - 3.0%
7. Korea(South) (1977) - 10.0%
8. United Kingdom (1973) - 8.0%

Emerging Market Economies
9. China (1994) - 17.0
10. India (2017) - 15.0$
11. Mexico (1980) - 10.0
12. Russia (1991) - 28.0
13. Saudi Arabia (2018)* - 5.0
14. Turkey (1985) - 10.0
* to implement VAT from January1, 2018.
$ Average of standard rates - 12 and 18%
- The VAT/GST detail have been taken from search engine.

The GST council has recently finalised the tax slabs at a council's meeting in Srinagar, headed by Union Finance Minister Arun Jaitely. As per the GST slabs, 7% of the items fall under the exempt list while the 14 percent have been put in the lowest rate of 5%.

The another 17% items are in 12% tax bracket, 42% in 18% tax slab and only 19% of the goods fall in the top slabs of 28%. This means as many as 81% of the items will come under 18% or less GST.

— No GST Slab
The items eg, foodgrains, milm, eggs, gur, lassi, curd, natural honey, unpacked paneer, fruits, fresh vegetables, atta, besan, vegetable oil, maida, Prasad, contraceptive, common salt, bindi, bread, vermillion, printed books, judicial documents, stamp, handloom products and bangles, and other daily use articles have been exempted from the taxation under the GST regime.

— 5% GST Slab
In this slab the items that are used daily but are not considered as important articles of basic need, have been taxed at 5% under the GST regime.

The items are : tea, edible oil, sugar, skimmed milk powder, coal, coffee, packed paneer, milk food for babies, umbrella, condensed milk, LPG, broom, PDS kerosene, cream, fish fillet, juice, frozen vegetables, pizza bread, spices, medicines, sabudana, lifeboat and stent.

— 12% GST Slab
The items, that are not essential but used by large number of households and people, will come in 12% slab under GST regime.

The items are : ghee, butter, cashew, sausages, almonds, mobile phones, packed coconut water, fruit juices, frozen meat products, agarbatti, mixtures, animal fat, tooth powder, ayurvedic medicines, sewing machine and colour books.

— 18% GST Slab
The articles which are considered to be used by the middle class will come under this GST slab.

Items are : toothpaste, hair oil, soap, industrial intermediaries, capital goods, jams, corn flakes, ice-cream, soups, facial tissues, toilet paper, fountain pen, iron and steel, camera, mineral water, envelopes, speaker, pasta and instant food items.

— 28% GST Slab
The items that are considered as the luxury goods or health hazards will come under this slab and that is expected to be badly affected from 1st July, 2017.

Items are : cars, pan masala, consumer durables, cement, custard powder, chewing gum, shampoo, perfume, fireworks, make-up items, paint, motorcycles, shaving cream, deodorant, washing machine, hair dye, vaccum cleaner, vending machines, dish washer and hair clippers.

>> Read GST rate for goods
>> Read of GST rates for services

Though the GST is scheduled to be roll out from 1st July, 2017.

— Will the prices of items will change after that?
What will become cheaper?

The foodgrains, milk and cereals will cost less as expected from 1st July when the GST is roll out. Because the many states charged VAT currently on foodgrains that also includes wheat and rice and also on the milk products.

The common use products like the soaps, hair oil and toothpaste will come under 18% GST slabs, which is being presently taxed at 22-24%.

The sweets will come under 5% GST slab but it will still become cheaper at the places where currently VAT is being charged.

Some of the daily use items eg. tea, sugar, edible oil and coffee will come under the 5% GST slab. So, there won't be in the pricing of these items after GST roll out as presently these articles is also being taxed almost the same rate.

The ACs and refrigerators will come under 28% GST slab, after GST roll out these items are likely to be cheaper as presently these items are being taxed at 31-32%.

What will become costlier?
Cars and other automobiles parts will come under 28% GST Slabs, small cars as expected will be cheaper but the luxury cars will be costlier.

The pan masala, gutka, tobacco, khaini will be costlier as it will also come under 28% GST slab. The filter and non-filter cigarettes will be costlier after GST implementation.

The Beer, Whiskey and Wine will be costlier post GST roll out as the government has kept out of the goods and services tax.

The cost of wooden furniture will increase as the plywood is coming under 28% GST slab which is being currently taxted at VAT rate of 5-6% .

The taxt rate under GST on the wood, furniture, iron or steel is much higher than the current applicable VAT rates.

>> Benefits of Goods and Services Tax
1. Don't have to pay too many tax.
2. Revenue will get a boost
3. A single market
4. Goods could become cheaper
5. Investment will also get a boost.
6. Promotion of Make in India
7. Logistics and inventory costs will fall

>> Administration of GST : 
- Central GST (CGST) – to be administered by the Centre
‐  State GST (SGST) – to be administered by the State Governments
‐  Inter‐State GST (iGST)  ‐ to be levied on inter‐State trade and administered and collected by the Centre. The proceeds would be transferred accordingly.

he frontend services eg. registration, returns and payments to all the taxpayers will be provided by the Goods and Services Tax Network(GSTN) and it will be the main interface between the government and the taxpayers.

Irrespective of all facilities the business should continue without any disruption after the 1st July, following will be the main focus of GSTN for next 30 days for the better implementation.

>>GST Implementation a challenge for the government.
— The changes as per the business requirement should be completed.
— Complete the GST patches that has been given by the ERP vendors deployed in the sandbox server.
— Complete the configurations and do the testing.
— The master data for the vendors, customers, items, GSTIN codes must be completed and it should be ready for the changes in the IT systems.
— To have configured the production systems for the GST and do the user level testing.

In spite of the fact the government is going to rollout the GST from July, a lot of work has to be done before its implementation from all three sides, the government, ERP vendors and industries.

1. The government have to bring in all the remaining rules/rates.
2. ERP vendors have to come with full technological support.
3. The industries have to align its processes for the GST regime.

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