By Vinay Sethi, Head of Market Development for Global Tax, Thomson Reuters India
GST or VAT is prevalent in world over in almost 150 countries where no distinction is made between goods and services for levying tax. GST is a multi-layer tax where the consumer of the good or services bears the ultimate burden of the entire tax. In our own country, the current indirect taxes structure is complex and has multiplicity of taxes levied by the centre and by the states. The structure carries burden of cascading and double taxation with regular disputes and litigation. After a long wait, the Rajya Sabha now looks all set to pass the constitutional amendment bill which will enable the way for the Goods and Services Tax (GST).
GST is arguably the most ambitious and biggest reform our country has witnessed since Independence and this is on valid grounds. GST will subsume around 17 central and state indirect taxes thus streamlining and encouraging the compliances for tax payers while checking tax evasion simultaneously. A simpler tax structure with reduction in cascading effect of tax and seamless input tax credit has been the need of businesses for long. Turning the entire country to a level market with reduced costs of manufacturing, logistics, capital goods etc. while remaining competitive against imports makes GST almost a panacea. To add to these, are the opportunities that the less developed states of our country would have following the absence of the additional current 2% inter-state levy. Last but not the least, the boost that the GDP of the country is estimated to achieve is more than icing on the cake.
Watch: Simple Guide On Goods And Services Tax
What is however the real need of the hour and challenging is implementation of GST in its true spirit. With many contentious issues involved in negotiations, it will be a very difficult path to a true GST and transitioning to GST involves unparalleled work and overcoming big challenges. Higher tax rate, multiple exemptions, and exclusion of specified goods from GST can easily dent the true spirit of GST.
As highlighted by the honorable prime minister of our country, GST cannot be implement in a proper manner without robust infrastructure and IT systems, it is important that a robust administrative system, structure and platform is available to support the GST. The ideal scenario would be a unified administration. This is not likely to happen with each state interested in owning the administration of its GST. In this situation, harmonization of administrative processes, systems and procedures would be important. Educating the tax payers about the tax and its related processes is no less an important task.
The GST reform is a journey and not an occasion. Once the GST law is in place, it is more important to implement the law in the best manner and spirit.