42 Journal of Management and Science ISSN: 2249-1260 | e-ISSN: 2250-1819 | Special Issue. No.1 | Sep’17

UNDERSTANDING OF GST – THE BIGGEST REFORMS TO THE INDIAN ECONOMY

Dr.J.Vidhyajawahar, Assistant professor, Department of Commerce and Business Administration Government Arts and Science College for Women’s Pudukkottai

ABSTRACT: “ is changing fast into one of the most open economies in the world today,"- Modi In the present scenario, The Goods and Services Tax (GST) is one of the massively studying topics by the researchers and public. GST is a value added tax levied on the majority of goods and services sold for domestic consumption. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services. In effect, GST provides revenue for the government. It has been India’s biggest economic reform. Without doubt, it is a very major reform. In fact, it has been the most complex reform to achieve it called for the Constitution’s division of the tax base between the Centre and the states to be amended, calling for virtual political consensus across the federal divide and the political spectrum. The researcher tries to wrap the areas of history of India’s GST system, GST, impact of GST and how it’s become the biggest economic reforms.

Key words: GST, impact of GST, economic reform.

INTRODUCTION

HISTORY OF GOODS AND SERVICES TAX (GST):

The reform system of India's indirect tax rule was started in 1986 by Vishwanath Pratap Singh, Finance Minister in Rajiv Gandhi’s government, with the introduction of the MODVAT -Modified Value Added Tax. Subsequently, , then Finance Minister under of P V Narasimha Rao, initiated early discussions on a Value Added Tax at the state level. A single common "Goods and Services Tax" was proposed and given a go- ahead in 1999 during a meeting between then Prime MinisterAtal Bihari Vajpayee and his economic advisory panel, which included three former RBI governors IG Patel, BimalJalan and C Rangarajan. Vajpayee set up a committee headed by the finance minister of West Bengal, AsimDasgupta to design a GST model. The Ravi Dasgupta committee was also tasked with putting in place the backend technology and logistics later came to be known as the GST Network, or GSTN, in 2017 for rolling out a uniform taxation regime in the country. In 2002, the Vajpayee government created a task force under Vijay Kelkar to recommend tax reforms. In 2005, the Kelkar committee recommended rolling out GST as suggested by the 12th .

43 Journal of Management and Science ISSN: 2249-1260 | e-ISSN: 2250-1819 | Special Issue. No.1 | Sep’17

After the fall of the BJP-led NDA government in 2004, and the election of a Congress-led UPA government, the new Finance Minister P Chidambaram in February 2006 sustained work on the same and proposed a GST rollout by 1 April 2010. However in 2010, with the Trinamool Congress routing CPI out of power in West Bengal, Asim Dasgupta resigned as the head of the GST committee. Das gupta admitted in an interview that 80 percent of the task had been done.

In 2014, the NDA government was reelected into power, this time under the leadership of Narendra Modi. With the consequential dissolution of the 15th Lok Sabha, the GST Bill, approved by the standing committee for reintroduction was lapsed. Seven months after the formation of the Modi government, the new Finance Minister introduced the GST Bill in the Lok Sabha, where the BJP had a majority. In February 2015, Jaitley set another deadline of 1 April 2016 to implement GST. In May 2016, the Lok Sabha passed the Constitution Amendment Bill, paving way for GST. However, the Opposition, led by the Congress demanded that the GST Bill be again sent back to the Select Committee of the Rajya Sabha due to disagreements on several statements in the Bill relating to taxation. Finally in August 2016, the Amendment Bill was passed. Over the next 15 to 20 days, 18 states ratified the GST Bill and the President gave his assent to it. A 21- members select committee was formed to look into the proposed GST laws. State and Union Territory GST laws were passed by all the states and Union Territories of India except Jammu & Kashmir, paving the way for smooth rollout of the tax from 1 July 2017. There was to be no GST on the sale and purchase of securities. That continues to be governed by Securities Transaction Tax (STT).

Impact of Goods and Services Tax

Goods and Services Tax is an indirect federal sales tax that is applied to the cost of certain goods and services. The business adds the GST to the price of the product, a customer who buys the product pays the sales price plus GST, and the GST scrap is collected by the business or seller and forwarded to the government. India is proposed to have a dual GST set up in 2017, which will be the biggest reform in the country’s tax structure in decades. The main objective of incorporating the GST is to eradicate tax on tax i.e. double taxation which cascades from the manufacturing level to the consumption level. The Rajya Sabha has cleared a constitutional amendment to bring about a system of Goods and Services Tax in India. It is

44 Journal of Management and Science ISSN: 2249-1260 | e-ISSN: 2250-1819 | Special Issue. No.1 | Sep’17

perhaps the most important economic reform item on the Narendra Modi government’s agenda. This is one significant reform which affects all of us. It also happens to be a complicated reform as most taxation matters usually are. This blog attempts to present an overview on GST and explain why it is expected to make a difference to all of us.

Tax system structured in India

The constitution divides taxation powers between center and states. Both levels of government have some exclusive areas where they can levy tax. Income tax, which includes tax on company profits, is the exclusive area of central government. These taxes are referred to as direct taxes. Indirect taxes are taxes levied on manufacture of goods, provision of services and consumption. In India, generally speaking, indirect taxes levied on manufacture of goods or provisions of services are the exclusive domain of central government. Taxes on consumption are the exclusive domain of state governments.

In case of Intra State transactions, Seller collects both CGST & SGST from the buyer and CGST need to be deposited with Central Govt. and SGST with State Govt. Integrated Goods and Service Tax (IGST) shall be levied on Inter State transactions of goods and services which are based on destination principle. Tax gets transferred to Importing state. More-over it is proposed to levy an additional tax on supply of goods, not exceeding one percent, in the course of inter-state trade or commerce, to be collected by the Central Government for a period of two years, and assign to the States where the supply originates. Exports and Supplies to SEZ units will be zero rated.

Advantages of GST

Goods and Services Tax (GST) is an indirect tax reform which aims to remove tax barriers between states and create a single market. For that to happen the constitution first needs to be amended to remove different layers of governments’ exclusive powers to levy taxes. Once this step is taken, the tax barriers between states, and center and states will disappear.

 GST is structured to simplify the current indirect system by removing multiple taxes. It creates India as a single market.

45 Journal of Management and Science ISSN: 2249-1260 | e-ISSN: 2250-1819 | Special Issue. No.1 | Sep’17

 It taxes goods and services at the same rates so many disputes are eliminated on tax matter.  GST will be levied only at the final destination of consumption based on VAT principle and not at various points from manufacturing to retail outlets. This will help in removing economic distortions and bring about development of a common national market.  The procedural cost is reduced due to uniform accounting namely, CGST, SGST, IGST have to be maintained for all types of taxes.  The reduced tax burden on companies will reduce production cost making exporters more competitive at national and international level.  More business entities including unorganized will come under the tax system thus widening the tax base. This may lead to better and more tax revenue collections.  Many businesses create depots and go downs in different states simply because there is a difference in tax rates. Now that GST will come, this difference between states will vanish. It would help to remove the tax difference as a bias, thereby helping businesses.

Disadvantages of GST Some good such as a shirt has to first be manufactured before it is consumed. The central govt. therefore, levies its indirect tax called central excise at the factory gate. Subsequently, a shirt reaches a retail outlet and is bought by a consumer. The state govt. at this stage, levies a tax on consumption dubbed value added tax (VAT). So, we have a tax at the factory gate which adds to the cost of the shirt and another tax on the final price. Since states have their exclusive domain on consumption tax within their borders, they treat goods coming from other states as “imports”. For example, if a shirt maker in Uttar Pradesh buys dye in Bihar, he would have paid central excise and Bihar’s state taxes on the product. On this cost, Uttar Pradesh government would levy its tax if the shirt is sold in the state. If the shirt is sent across Uttar Pradesh’s border and sold in Delhi, an “export” tax called central sales tax is collected by UP.As the example suggests, India is politically one country, but economically it is fragmented. There are multiple taxes when there is commerce across state borders. Consequently, it increases costs for everyone and makes economic activity within India for Indians complicated.

46 Journal of Management and Science ISSN: 2249-1260 | e-ISSN: 2250-1819 | Special Issue. No.1 | Sep’17

 There will be dual control on every business by Central and State Government. So compliance cost will go up.  All credit will be available on from online connectivity with GST Network. Hence, small businesses may find it difficult to use the system  VAT and service tax on some products may become higher than the current levels.  States may lose autonomy to change their tax rates.  Service sector may oppose because they have to register in every state with central and state government. So every business at all India level will have around 60 registrations while they are having just one today. Moreover their rates will also go up.  Manufacturing states would lose big revenue.  Retail business may oppose because their taxes will go up and they will also have to deal with Central Government now in addition to States.  GSTN may not work optimally for quite some time. Conclusion Some conjecture that the goods and services tax has been India’s biggest piece of economic reform. Without doubt, it is a very major reform. In fact, it has been the most complex reform to achieve; it called for the Constitution’s division of the tax base between the Centre and the states to be amended, calling for virtual political consensus across the federal divide and the political spectrum.

References 1) Garg, Girish (2014) “Basic concept and features of GST in India”. 2) Kelkar, Vijay, et al (2004), Report on implementation of the fiscal Responsibility and 3) Budget Management Act 2003, Ministry of finance, , New Delhi 4) Khan,M.A , and Shadab N, Goods and Service Tax (GST) in India: Prospect for states 5) Ministers, T.E., (2009) First discussion paper on good and service tax of India, New 6) Delhi. 7) Http://blogs.timesofindia.indiatimes.com/cash-flow/gst-demystified/ 8) Http://www.economicsdiscussion.net/india/government-revenue/2-main-sources-of- 9) government-revenue-in-india/12786Joshi, Suhasini (2013, Aug. 2013) goods and ser- 10) Http://www.ficci.com *****