Finance Bureau

India will be moving into a new tax regime signified by a midnight session of parliament on June 30 for its official proclamation. It will herald the implementation of GST or the Goods and Services Tax from July 1 as the starting date.

The intent is to go ahead as announced earlier rejecting requests from trade and industry to defer the introduction of GST.

It is a fact that GST has not excited at the grass roots of trade and manufacturing sections as confusion reigns among producers, distributors, and consumers on several areas which the government hopes will be addressed in the process of adaptation.

Many traders and distributors see GST as a headache with less clarity on areas like unsold stocks, input credit claims etc.

Some people also air doubts whether the untested GST Network can survive an estimated 3.5 billion transactions a month.

GST-A Change Agent In Business  

Meanwhile, veteran taxation expert V S Krishnan said GST will certainly mark a transition of the Indian market as a revolutionary indirect tax that will integrate the $ 2 trillion Indian-economy and 1.3 billion consumers to a single big market.

According to him, GST will refine the value chain that starts from raw material to retail. The common market will gain traction with fractured value chain of the present moving towards greater integration in matters of taxation.

So far the manufacturing part had been taxed by the Centre, while the trading part was left for the states with the much-desired integration between the two missing. The GST will cure that problem by integrating the entire value chain for taxation purposes. This would mean states can tax manufacturing and services while the Centre can also tax the trading side.

In short, GST will see a dual VAT at work—one from Centre and the other by the state. That will concurrently charge duty on the entire value chain as Central GST and the State GST. One benefit of GST will be huge non-compliance by traders in the value chain because the transactions have to be declared for availing credits. That is the transformational aspect of GST.

Another gain of implementing GST will be the abolition of Entry tax. It is estimated that 16 percent of a truck’s time is lost in waiting at check posts. With entry tax scrapped, goods can freely move and a plethora of taxes like luxury tax, entertainment tax, purchase tax will also go out and will be subsumed into the GST.

Revenue Hike For Poor States

GST will also make many poor states prosperous as higher revenue growth will follow thanks to their nature as destination states or consumption states. That is why Bihar and UP are set to see a big revenue growth averaging 25 percent.

Richer states like Maharashtra with a vast manufacturing base have concerns that their revenue will be affected. But manufacturing states will also gain from the surge in service tax collections thanks to the presence of many production hubs such as Pune, Chennai, and Bangalore.

Whatever the richer states lose out on CST (central sales tax) as an origin-based tax will be compensated by the gain on services.

A study says Maharashtra used to collect an average Rs 15,000 crore annually as Octroi. When GST comes, service tax accruing to Maharashtra will be about Rs 20,000 crore to Rs 25,000 crore.