Expert Speak

MAIT Advisor Answers GST FAQs

Advisor

The implementation of Goods and Services Tax (GST) is one of the priorities for the Union government for this year. While the passing of the GST Bill is delayed, there are several questions being raised about the tax itself. Here, Mahesh Jaising, Advisor to MAIT on GST, answers some frequently asked questions (FAQs), thereby simplifying its understanding.

What is GST?
GST is a “Goods and Services Tax” that shall tax every “supply” of goods and services in India. GST seeks to replace key transaction taxes imposed by the Central and State Governments including central excise duty, countervailing duties of customs, value added tax, service tax and entry tax. A dual GST regime is expected in India where both Central and State Governments shall concurrently tax every taxable supply of goods and services. Every intra state supply of goods and services shall attract Central GST as well as State GST with interstate supplies and imports attracting Integrated GST (a combination of Central GST and State GST).

Why is it necessary?
GST is necessary to (i) maintain uniformity in the taxation of goods and services (ii) remove the multitude of indirect taxes (such as VAT, sales tax central excise, service tax, entry tax) being levied on goods and services basis varied taxable events by the Central and State Governments (iii) eliminate cascading effect of tax on tax as well as non-creditability of taxes on goods against taxes on services (eg, VAT and service tax are not fungible with each other). GST is necessary to implement a simplified and unified indirect tax regime in the country with no or minimal differentiation in the taxation of goods and services.

Why is GST being opposed by states?
Key reasons for GST related opposition include (i) apprehension of loss of fiscal autonomy with respect to determining the list of items that are taxable as well as the rate of tax and (ii) apprehension, particularly among manufacturing-exporting states, of loss of revenue by virtue of the origin based CST levy being replaced by a destination based GST regime.


Which goods will come under GST?

The Government intends to bring in all goods within the ambit of GST with the exception of petroleum products (ie, crude, diesel, motor spirit, aviation turbine fuel and natural gas) and alcohol being outside the purview of GST regime, until such notified time. Essential commodities are likely to enjoy exemption. It is understood that a common list of essential goods (currently exempt under central excise as well as VAT laws) is being collated.


What are the benefits of GST for companies?

GST primarily seeks to consolidate all indirect tax levies and aims at eliminating multiplicity of taxes as well as cascading effects of such taxes. By way of illustration, under GST, a trader would be eligible to take credit pertaining to input services and a service provider that of goods. Further, with GST being an uniform levy of indirect taxes, it should lead to rationalization of tax structure and harmonization of Central and State tax administrations, tax reporting including electronic compliances. GST in its true from shall rid taxable businesses of all indirect tax costs. More importantly under GST, there should be no requirement for re-designing of supply chains for tax reasons (such as interstate sale vs stock transfer); the same would be driven by business or commercial reasons.

What is the best outcome customers can expect?
Customer can expect transparency as regards taxes levied. By way of illustration, today, a customer buying an IT hardware or consumer durable at a retail store is oblivious to the customs / excise duties built into the price. Further, given that GST seeks to eliminate cascading effect of taxes, in the medium to long run, GST should essentially result in price reduction with businesses opting to pass on tax efficiency to customers in the form of price reduction, subject of course to a reasonable GST rate being imposed on goods and services.

Even after GST, should people need to pay income tax?

GST being an indirect tax levy that seeks to replace transaction taxes, the same would not have an impact on income tax, which is a tax on income. Therefore, income tax would continue to apply on the income of individuals and businesses as is being applied presently.

Please explain how GST works for a thing priced at Rs 100. How much more or less will the price be?

Presently, on Rs 100 (assuming the same is the sale price at the hands of a manufacturer), there will be excise duty at 12.50% and VAT at 14.50% (charged on sale price + excise duty). While the distributor is eligible to take credit of VAT paid, excise duty shall form a part of the cost of the product at the hands of the distributor. However, under the GST regime, the cost of the product at the hands of the distributor would be Rs 100 in the given illustration. (please refer Annexure).

Leave a Response