India's indirect tax structure is exceedingly complicated. It has long been believed that the intricacy of the tax system and the broader legal environment discourage entrepreneurship and inhibit corporate growth. Despite being a single country, India confronts internal impediments to interstate trade, commerce, and enterprise due to the country's existing tax arrangements. While the adoption of VAT assisted in smoothing out substantial tax rate discrepancies, the demand for structural changes remained. VAT adoption also aided in laying the framework for the next stage of tax reforms, namely the Goods and Services Tax ("GST").
BACKGROUND
The Seventh Schedule of the Indian Constitution, which went into force on January 26, 1950, has three lists that served as the foundation for the indirect tax system in India up to June 30, 2017. These laws, which drew their inspiration from the Government of India Act, 1935, were based on the circumstances in effect in 1935. This system had grown obsolete since society's functioning had changed. Most nations have long since moved toward a similar tax framework. However, GST is the tax of the twenty-first century in India.
The country's GST has founded thanks to the then-finance minister's Budget Speech on February 28, 2006. Since then, there has been an ongoing effort to implement the GST throughout the country, culminating in the submission of the Constitution (122nd Amendment) Bill in December 2014.
WHY DID GST BECOME NECESSARY?
The most crucial question that emerges here is why GST is required. To comprehend this, we must first examine the former structure of indirect taxation that existed. The Central Government charged Central Excise duty on production, Service Tax on supply of services, CST on interstate sale of products but collected by the relevant State Government, while State Governments levied VAT on retail sales, Entry Tax on goods entering the State, Luxury Tax, Purchase Tax, and so on. The same supply chain was subject to what appeared to be an excessive number of levies.
As a result, there was a tax cascade. Additionally, there were some state taxes that could not be deducted from the payment of other taxes that the state governments were collecting. Furthermore, the presence of multiple VAT legislation resulted in disparities in tax rates and tax methods, dividing the country into several economic realms. The installation of tariff and non-tariff obstacles hampered the free flow of trade across the country. Furthermore, the vast number of taxes resulted in a high compliance cost for taxpayers in the form of the number of returns, payments, and so on.
GST HAS THE FOLLOWING KEY CHARACTERISTICS:
It is a consumption tax on goods and services that is dependent on the destination. This indicates that the tax would be paid to the taxation agency that is in charge of the location of consumption (also known as the "place of supply").
It is paid at all phases of production till consumption. It means that GST would be collected at all phases of trade, manufacture, storage, distribution, wholesale/retail, and ultimate consumption, although tax credits for prior stages would be accessible as setoff. Thus, the principle of charging just value additions is kept under GST, and there is no tax cascading effect. The final tax burden will be met by the end customer.
GST EXPECTED ADVANTAGES
A lot of Central and State taxes would be combined into one tax upon the introduction of GST, which would also provide a set-off of taxes from earlier stages. In addition to paving the way for a single national market, this would lessen the negative impacts of tax cascading. By lowering the overall tax rate on products, which is now projected to be approximately 25 to 30 per cent, consumers are also likely to benefit. Additionally, GST will boost Indian products' competitiveness in global markets. Additionally, it is anticipated that an expansion of the tax base, an increase in trade volume, simpler administration, and better tax compliance would result in a rise in overall revenue both for the Centre and states.
Finally, more openness is likely to promote entrepreneurial activity and foreign investment, resulting in increased employment and economic growth.
GOODS AND SERVICES CLASSIFICATION SYSTEM
The Harmonised System of Nomenclature code would be used to classify the item (HSN). The Services Accounting Code will be used to classify services (SAC).
GST COUNCIL
Article 279 A of the Indian Constitution provides for the formation of a GST Council. The GST Council, established by Notification No. SO 2957(E) on September 15, 2016, is the supreme constitutional authority for determining GST policy. It will make GST recommendations to the Union and States. The Union Finance Minister presides over the Council. The Council's members are as follows:
Union State Minister in charge of Revenue or Finance; and
Each state government appoints a minister in charge of finance or taxation, as well as any other ministry.
The decision to choose the Vice Chairperson of the GST Council must be supported by at least 75% of the weighted average vote. The Union Government will have 33.33 per cent of the vote, while the states will get 66.67 per cent of the vote.
METHOD OF GST PAYMENT
The following techniques can be used to make GST payments:
Through the debiting of the taxpayer's Common Portal Credit Ledger. It should be emphasised that only taxes and not interest, penalties, or other payments can be made via debit in the credit ledger. Taxpayers will be able to claim input tax credits and use them to pay output tax. However, neither SGST payments nor CGST input tax credits may be utilised to balance one another. The IGST credit would be allowed to be used to pay IGST, CGST, and SGST in that sequence.
Using a debit entry in the taxpayer's Common Portal Cash Ledger, in cash. There are several ways to deposit money into the Cash Ledger, including E-Payment (Internet Banking, Credit Card, Debit Card), Real Time Gross Settlement (RTGS)/National Electronic Fund Transfer (NEFT), and Over Counter Payment at Banks Authorized to Accept Deposit of GST. The average taxpayer must make their monthly tax payments by the 20th of the following month. Cash payments will be put in the Cash Ledger first, and the taxpayer will debit the ledger when making payments on monthly returns. The taxpayer will also need to provide the applicable debit entry number in his return. Payment can also be deducted from the Credit Ledger, as previously described. Taxes for the month of March must be paid by the 20th of April. Composition taxpayers will be required to pay tax quarterly. Payment will be made between the hours of 0000 and 2000. In the event of tax collected at the source, the tax deposited by the operator into the government account will be recorded in the cash ledger of the real registered supplier (on whose account the collection was performed) based on the statement provided by the operator. The same can be utilised to discharge tax liability in relation to supplies made by the real provider.
GST ADVANTAGES
BENEFITS FOR THE GOVERNMENT
It will aid in the creation of a single national market for India, hence boosting foreign investment and the "Make in India" initiative.
It will result in the harmonisation of laws, processes, and tax rates between the Centre and the states, as well as across states.
Improved compliance environment since all returns will be filed online, input credits will be validated online, and a paper trail of transactions will be encouraged at each level of the supply chain.
The elimination of pricing arbitrage between neighbouring States, as well as that between intra and inter-state sales, will lessen the motivation for evasion.
The taxation system will be more assured as a result of many common procedures for taxpayer registration, tax refunds, consistent tax return forms, a single tax base, and a common system of classification of products and services.
The use of information technology will aid in the reduction of corruption by reducing the amount of human interaction between the taxpayer and the tax administration.
It will improve exports and manufacturing activity, creating more jobs and so increasing GDP with meaningful employment, resulting in real economic growth.
It will contribute to the creation of greater financial resources and jobs, ultimately assisting in the abolition of poverty.
CONSUMER ADVANTAGES
Because of the seamless movement of input tax credit between the producer, merchant, and service provider, commodity prices will be transparent.
Commodity prices will fall in the long term as the cascade impact weakens.
Small merchants will be exempted or subjected to extremely low tax rates.
More work and financial resources will aid in the elimination of poverty.
CONCLUSION
By introducing a transparent and anti-corruption tax administration and addressing the present flaws in the indirect tax structure, the GST is expected to bring about a transformation in the indirect taxation system. GST will undoubtedly be beneficial to both businesses and consumers. It is expected to significantly strengthen the standing of all of these stakeholders in India. The old structure of indirect taxes needed to be improved owing to flaws such as the cascading impact of taxation. This necessity for change leads to the requirement for GST. India's ability to properly bargain its terms in foreign trade forums would be aided by the GST. It seeks to broaden the tax base by bringing small and medium-sized businesses and the unorganised sector into compliance. This will make Indian markets more stable, allowing them to compete in the worldwide market.
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