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GST: Govt panel for removing tax on inter-state trade

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New Delhi: To achieve a middle path on the long due Goods & Services Tax (GST) bill, a government panel headed by Chief Economic Adviser Arvind Subramanian suggested the one per cent additional origin tax for manufacturing states recommended to be levied on the GST, specifically on the inter-state trade of goods to help manufacturing states. This is one of the foremost demands of the Congress and the suggestion might help the BJP-led NDA Government to crack this gridlock in Parliament.

In a report submitted to Finance Minister Arun Jaitley on Friday by the authorised committee recommended changes on the main GST rate to be in the range of 16.9-18.9 percent. The rates endorsed a revenue-neutral rate (RNR) of 15-15.5 percent, with an average rate of 17-18 per cent, should be levied on majority goods and services.

The average rate will be implemented on majority goods and services in the new indirect tax regime. These tariffs were deliberate after eliminating real estate, electricity, alcohol and petroleum products.

The demands put forth by Congress’ comprise 18% GST rate to be legislative and doing away with 1% additional origin tax for manufacturing states- Gujarat, Maharashtra and Tamil Nadu. They had also demanded an independent dispute resolving body for GST.

“The idea of not putting rate caps (of 18% as suggested by Congress) in the Constitution is pragmatic, considering the dynamic business environment which may demand future changes in the GST rate. Recommendation towards wider coverage of sectors (including petroleum) within GST is much desirable in the interest of a cleaner indirect tax regime,” said Rajeev Dimri, leader, indirect tax, BMR & Associates LLP, to a newspaper.

The Constitution Amendment Bill, prevalently recognized as the GST bill, is pending approval in the Rajya Sabha due lack of the majority of the leading government. The government is nonetheless working towards negotiating and finalizing the work by March 31 next year to enable GST’s roll out from April 1, 2016.

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What Are the Benefits of Introducing GST in India?

GST has enabled small businesses to simplify their tax return by introducing the Composition Scheme under GST

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GST
The GST created a unified tax structure and provided businesses with certainty and transparency. 

The Goods and Services Tax is a consumption tax that has changed the way India does indirect taxation. The GST was under consideration for a very long time. The tax structure which India had before the advent of the GST was quite complicated and extremely convoluted.

There were many taxes which were administered by a myriad of governing bodies, some going down to the city level. This created a lot of problems for businesses and consumers alike. Not only did businesses have to employ people to figure out and compute the tax, but they also had to figure out who to pay it to.

GST
Simplification of small business was a priority which is why, for example, the Composition Scheme under GST was introduced. This scheme helps small businesses reduce red tape and file more straightforward tax returns.

This created a drag on the economy and took money out of productive uses. All of this changed with the introduction of the GST tax. The GST created a unified tax structure and provided businesses with certainty and transparency.

Simplification of small business was a priority which is why, for example, the Composition Scheme under GST was introduced. This scheme helps small businesses reduce red tape and file more straightforward tax returns.

Some of the main benefits of the Goods and Services Tax system are:

1. Simplification of the Tax Code:

The pre-GST era was characterized by a complex and murky tax structure in which companies had to navigate as best they could. There were many layers of taxes such as VAT, Cess, Central Excise Duty as well as local taxes at the city level, which needed to be paid when a product or service was delivered to the customer.

This has now been simplified with the introduction of the GST. Now companies need to keep track of one single tax. They can now file taxes with a single entity in a secure manner.

2. Ease of Doing Business:

The implementation of GST has brought India up the ease of doing business rankings. Having a convoluted and complex tax structure with the manual filing of taxes creates a massive volume of paperwork.

Not only was there a lot of paperwork, but offline tax filing also created scope for corruption. GST has changed all of that with the introduction of one single tax under a single tax authority. It is now a much more streamlined process which is easier for businesses to navigate.

It is also essential to have a streamlined tax process for attracting foreign investors, so that has helped with Foreign Direct Investment in India.

3. Double Taxation:

Pre-GST, there was a problem of cascading taxation, wherein taxes would be piled on top of each other, leading to double taxation. A lot of the time, businesses and consumers had to pay a tax on top of another tax.

This was because there was no way for businesses to claim an input tax credit for every step of the way. GST has changed that entirely by introducing a system where each every step of production of a product is recorded, so taxes are only added incrementally, and double taxation is avoided.

Also, small businesses faced a daunting task of navigating the complex tax system, and the GST has enabled small businesses to simplify their tax return by introducing the Composition Scheme under GST. This has been a significant benefit of GST.

4. Tax Compliance:

Tax compliance has always been an issue in India, under the older tax system where tax filing was mostly done manually, there was a lot of tax evasion and under-invoicing.

Since there was very little that the government could do to track the production of goods. With the advent of the GST, the way the system is designed, it is much easier to track the production of products through the various invoices uploaded by businesses.

The Input Tax Credit system also incentivizes companies to report the number of goods and services used so that they can claim Input Tax Credit. This has been a positive development for tax collection.

5. Increased Tax Collections:

With increasing tax compliance, there is a potential for increasing tax collections. With the increased tax collection, the government can spend more money on important public services like health, safety, etc.

This is also one of the most important benefits of having a tax system that allows higher rates of compliance.

GST
The Goods and Services Tax is a consumption tax that has changed the way India does indirect taxation. The GST was under consideration for a very long time. Pixabay

6. Foreign Investment:

In a globalized world, it is vital to attract capital from around the world. Top companies who want to invest in a country look for stable and transparent tax regimes so that they have regulatory certainty.

The older tax structure was haphazard and under the authority of multiple tax collecting bodies. This created a problem for foreign firms who wanted to invest in the country but had a tough time negotiating the tax landscape of the country.

The GST has completely changed that. The GST is under one central authority and uses the GSTN (Goods and Services Tax Network), which is the information technology service which underpins the whole system.

The GST system is also much more nimble and able to respond to the needs of the market because it is under one single tax authority, the GST Council. This is also an excellent benefit for the country as it doesn’t take a lot of consultation to change the rules in case of adverse market conditions.

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In conclusion, there are several benefits to the country as a whole with the implementation of the GST system. Small business is the driving force of the Indian economy, providing a lot of employment. Things like the Composition Scheme under GST has helped simplify the tax filing for small business while maintaining compliance.