Monsoon in India is critical to the agricultural sector. This time the importance of “Monsoon Session” of the Parliament is huge considering the fate of Goods and Service (GST) in India.
The current indirect tax regime is marred by many issues. The time is ripe to sort them out in a holistic manner. The world is looking at us - we need to have an efficient tax regime to enable businesses to grow and also allow the revenue collection for the government who could then plan expenses for betterment of the country. The growth trajectory of Indian economy should get a boost from a good tax regime.
The global best practice in this area is based on the principles of tax policy which revolve around the following:
Neutrality: Taxation should be seen as neutral and equitable between different forms of commerce. Business decision should be motivated by economic rather than tax considerations.
Efficiency: Compliance cost for business and administrative cost for the tax authorities should be minimum.
Certainty and Simplicity: Tax rules should be clear and simple to understand to enable taxpayers to understand when, what and how to pay.
Effectiveness and fairness: Taxation should produce the right amount of tax at the right time. The potential for tax evasion and avoidance should be minimized.
Flexibilty: The systems for taxation should be flexible and dynamic to ensure that they keep pace with technological and commercial developments.
Bane of indirect taxes
The present landscape of Indirect Taxes is plagued with multiplicity of taxes (Central Excise, value-added tax (VAT), central sales tax (CST), Service Tax, etc.) at different rates and at different points. Further, the non- fungibiity of credits among goods and services results in cascading effect of these taxes.This is accentuated by a huge compliance cost that is incurred in respect of each of the taxes. Also there are situations of double taxation where both Centre and States argue to levy their respective taxes on the same transaction.
The proposed GST is a destination based consumption tax that will be levied on supply of goods and services. GST will subsume the various indirect taxes currently levied by the Centre and the states including excise duty, service tax, VAT, CST, purchase tax, octroi, entry tax etc. This would mean that business would not be required to grapple with numerous tax laws and its related compliances.
GST is expected to be a critical reform in spurring growth in the economy. When introduced, GST will iron out the wrinkles in the existing indirect tax system. It is a long pending indirect tax reform and this comprehensive tax policy is expected to be one of the most important reforms in contributing to the India growth story.
GST will make the tax system simpler. This will lead to greater tax compliance, thereby resulting in boosting tax revenues. A simpler tax regime is always an attractive proposition for foreign investment.
The dream policy initiatives of the current government such as ease of doing business in India, make in India etc, will get a boost with the introduction of GST. The initiative is particularly important because of the sluggish domestic manufacturing sector and the need to attract foreign investment. If implemented well, it will create employment / job opportunities for the burgeoning jobless youth of the country.
GST will convert India into one market place and thereby adopt the aspect of neutrality. Tax will not drive the business decision. GST will bring in certainty as tax rules will ideally be clear and simple.
The draft GST model Act 2016 which has been recently put in public domain has tried to follow the various features of a good tax regime such as neutrality, efficiency, certainty and simplicity. Huge efforts have been put in drafting of this law. Various transactions which are currently plagued with double taxation have been addressed by clearly stating them as supply of goods or services. The concept of effectiveness and fairness has also been kept in mind in as much as full payment of tax for a particular period needs to done before proceeding to the next period. Flexibility is clearly noticed as a full chapter on e-commerce has been incorporated in contrast to the current law which was based on the brick and mortar concept of trade. Technological advancements have also been kept in mind thereby ensuring that GST will be fully e-enabled.
It is also true that drafting a code is a herculean task. It needs constant improvement as it is by far impossible to think of all transactions, its treatment of taxability, the repercussion it may have etc. What is good to know is that base law is ready. Now the road to refinement is the way.
But to bring in GST, Constitution of India needs to be amended. The process is on – Lower house has passed the Constitutional Amendment Bill which now needs a nod from Upper House.
India’s GST proposal has consumed more than the required ink and paper. It is the high time, to have our indirect tax scheme stream lined for bigger objective of setting momentum to the economy.
GST is an apolitical issue and is much needed indirect tax reform. It is investor, business and consumer friendly. GST is the need of the hour and any hindrance to its enactment, whether political or otherwise, is clearly unwarranted and not in national interest.
(Rastogi is Partner, Indirect Tax at PwC and Singh, Associate, Indirect Tax, PwC. Views are personal)
Editor's Note: This article was originally published on 13 July. It is being republished in light of the Monsoon Session in Parliament that begins on Monday - 18, July.
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Updated Date: Jul 18, 2016 11:18:30 IST