While there has been considerable discussion around GST for the past few years, its introduction has been pushed back several times, making some quarters doubt the need for GST in India. The fact remains that many of the advanced economies across the globe including EU countries, Canada, Australia and Singapore have implemented GST many years back and have benefited from it. In this light, It is essential to understand the need for GST in India and the various benefits that it will bring in for all the stakeholders.
There are various indirect taxes levied on goods and services in India. Major indirect taxes include Customs duty, Excise duty, Service tax and Sales tax (VAT/Central Sales Tax). Some of these are of pre-independence vintage while others are over six decades old. This, by itself, should be the clincher as far as GST is concerned as the existing taxes have not kept pace with the evolution of business practices and new businesses.
Indirect taxes are usually built in the price of a commodity and a customer pays for it along with the price. Further, since it is included in the price, the ultimate customers do not realise the actual outflow towards indirect taxes. Also, in case of change in price of a commodity, the customers may not know whether the change is due to change in cost or indirect taxes. This makes it necessary for the tax to be uniform, simple and transparent.
Mechanics of implementation:
- As per the Constitution, while respective states have the power to levy taxes on sale of goods, only the Central Government has the power to levy taxes on services and on manufacture of goods.
- Under GST regime, taxes would be levied by both state and the central governments on supply of goods and services.
- Hence, there is a need to amend the Constitution for which 122nd Constitutional Amendment Bill was placed before Lok Sabha and cleared in May 2015. It has been awaiting the assent of the Rajya Sabha and was expected to be taken up in the Winter Session of Parliament in 2015 and again in the Budget Session of 2016.
- It is now expected to be taken up during the Monsoon Session commencing on today (18 July 2016).
It is clear that GST would be beneficial for all the stakeholders and would provide a much needed boost to the reform agenda of the Government. However, it would be preferable to keep it simple and uniform without many statewise variations. It is also preferable that anti-profiteering measures are built into the legislation in order to ensure that the benefits of tax reduction are passed on to the ultimate consumers.
(M.S.Mani and Ashutosh Nath are senior director and manager, respectively, with Deloitte Haskins and Sells LLP. Views expressed are personal)