The Government of India recently proposed to bring all the taxes under one umbrella of ‘Goods and Services Tax’. Introduced by The Constitution Act 2016, it is being administered and governed by the GST council. Finance Minister Arun Jaitely is the chairman of the council. GST is a one combined, indirect tax of all the taxes levied by the central and state government on manufacturing, sales and transportation of goods and services in the entire nation. The proposal of GST in itself is a significant step taken in the reformation of tax policies in India. Country’s biggest tax reform will be rolled out on July 1 2017, but before that takes place Lok Sabha has passed four bills which will play a crucial role in the implementation of GST.
The implementation of GST will eradicate all the indirect taxes levied by the central and state government; including excise duties, entertainment tax, service tax and value added tax. Central GST, Integrated GST, Compensation to States, Union territory GST are the four bills passed by the Lok Sabha and clubbed under ’Money bill’. The GST council has also finalized the structure of tax and divided into 4 slabs of 5%, 12%, 18% and 28%. Lowest rates would be applied on the most essential items and highest rate would be applied on luxury goods and services. There is another category for luxury cars, pan masala, aerated drinks and tobacco products in which the tax rate 40%-65% will be applicable.
The rationale behind having a four slab system is to ensure that all the goods and commodities fall under the slabs to which they closely belonged on the basis of the previous tax levied on them. The ones which are currently taxed at 3% will be taxed at zero percent, the ones taxed between the range of 3%-9% will be taxed at 5%, the ones taxed between 9%-15% will b taxed at 12% with a standard rate for the ones taxed at 18%. Food grains have been exempted from tax to bring a little relief to the common man. There are certain items used by the affluent ones, taxed at 14.5% VAT, 12.5% excise duty and octroi, bringing the tax range between 27%-31%. Such items will be taxed at 28%. Items meant for or used by different sections of the society will have to be taxed at different rates to avoid any kind of discrepancies. The government will ensure a neutral approach, neither will it make losses nor will it look for massive gains.
Common man will be benefited a lot from GST as the tax on essentials will either fall under 0%-5% tax bracket or will be exempted from tax. Fast moving consumer goods (FMCG) sector will benefit more than any other sector from GST. The goods of the FMCG sector are probably going to be in tax bracket of 12%-18%, which will be a beneficial for the sector. FMCG sector is currently taxed higher than what we are expecting form GST. Auto industry on the other hand won’t benefit much from GST. Initially the auto industry expected to be taken to 18% tax slab from the range of 24%-25%. But the recent reports suggest that automobiles will be taxed at 28%. But overall the entire economy will benefit from GST as the transportation cost will come down, number of warehouses too will come down. The biggest beneficiary of GST will be the movement of unorganized industry to organized industry.
The Neutral Revenue Rate is GST will ensure that the newly implemented tax structure does not create any negative revenue implications. GST is being implemented to improve the current tax structure of India to maintain revenue neutrality. Many economists claim that it will protect the people at lower end. GST will boost the GDP of the nation but in the initial years will witness inflation.
