We have started the series on detailed write ups on GD Topics which are possible this year on different trending Current Affairs Topics. You have the access of the entire list already if you are the part of WAT GD PI Training by Varun or WAT GD PI Training by Expert Mentors.
GD Topic : All About GST
- The GST (Goods and Services tax) is basically an indirect tax that brings most of the taxes imposed on most goods and services, on manufacture, sale and consumption of goods and services, under a single domain at the national level. The GST is a consolidated tax based on a uniform rate of tax fixed for both goods and services and it is payable at the final point of consumption. So, this GST bill is going to make life simpler as it has replaced 17 indirect tax levies and compliance costs will fall due to this bill.
- Separate taxes for goods and services, which is the taxation system earlier, requires division of transaction values into value of goods and services for taxation, leading to greater complications, administration, including compliances costs. In the GST system, when all the taxes are integrated, it would make possible the taxation burden to be split equitably between manufacturing and services.
- The GST reform is expected to bump up GDP by about a percentage point or even more. HSBC estimates an 80 basis point rise in GDP growth over 3-5 years. NCAER pegs this at 0.9-1.7% thanks to the elimination of tax cascading.
- Revenue will also get a boost due to GST bill. Evasion is all set to drop as input tax credit will encourage suppliers to pay taxes. States and Centre will have dual oversight. The number of tax-exempt goods will decline.
- GST will be levied only at the final destination of consumption based on VAT principle and not at various points (from manufacturing to retail outlets). This will help in removing economic distortions and bring about development of a common national market. Earlier, the tax was fragmented along state lines, pushing costs up 20-30%.
- Logistics, inventory costs will fall as a result of GST. Manufactured goods could become cheaper resulting in lower logistics and tax costs. There will be slow movement of trucks at checks at state borders. In India, they travel 280 km a day compared with 800 km in the US.
- GST bill will also result in investment boost in India. For many capital goods, input tax credit is not available. Full input tax credit under GST will mean a 12-14% drop in the cost of capital goods. Expected: A 6% rise in capital goods investment, 2% overall.
- GST bill is also going to promote “Make in India” policy. Manufacturing will get more competitive as GST addresses cascading of tax, inter-state tax, high logistics costs and fragmented market. It will also result in increased protection from imports as GST provides for appropriate countervailing duty.
- GST bill will be beneficial for less developed states of our country. The current 2% inter-state levy means production is kept within a state. Under the GST national market, this can be dispersed, creating opportunities for others.
- GST bill will result in freeing up online state restrictions and levies that has complicated the entire e-commerce. Some sellers do not even ship to particular states. All this will end with GST.
- GST bill will also help to build a transparent and corruption-free tax administration. Earlier, a tax was levied when a finished product moves out from a factory, which was paid by the manufacturer, and tax was again levied at the retail outlet when sold. GST bill is now going to solve this problem.
- GST is beneficial for centre as well as states. According to experts, by implementing the GST, India will gain $15 billion a year. This is because, it will promote more exports, create more employment opportunities and boost growth. It will divide the burden of tax between manufacturing and services.
- In the GST system, taxes for both Centre and State will be collected at the point of sale. Both will be charged on the manufacturing cost. Individuals will be benefited by this as prices are likely to come down and lower prices mean more consumption, and more consumption means more production, thereby helping in the growth of the companies.
- The Service Tax in India was 15% but the proposed GST is about 18-20%. So, all the services will become costlier due to introduction of GST bill.
- Our aviation industry is witnessing much awaited growth with increasing domestic traffic. GST might stagnate it’s growth since flying will become costly. Service Tax on fares currently range between 6% and 9% (depending on the class of travel). With GST, the rate will surpass 15%, if not 18%, effectively doubling the tax rate.
- Our country has the lowest insurance penetration in the world (less than 5% of Indian population & half of the global average). GST will make the insurance products dearer. Life, health & motor insurances will begin to cost more from April 2017 as taxes will go up by up to 300 basis points.
- Banking and financial sector might take a hit as currently, the effective tax rate in the sector is 14%, which is levied only on fee component (and not interest) of the transaction. Under GST, effective tax rate on fee-based transactions is expected to increase to 18-20%. With the implementation of GST, a moderate increase in the cost of financial services such as loan processing fees, debit/credit card charges, insurance premiums, etc. is expected.
- There are some retail products where the Tax rate is only 4 % like Garments and clothes but with GST, these items will become costlier. Moreover, If actual benefit is not passed to consumer and seller increases his profit margin, the prices of goods can also see a rising trend.
- GST bill is going to affect our inter-state relations. The GST system will change our taxation principle from ‘origin-based’ to ‘destination based’. This change will lead to a shift in revenues from the production-heavy States to the consumption-heavy States. For instance, Delhi has a huge consumer base that imports goods from different States including Haryana, a State which generates a high volume of industrial output. With the GST, the Haryana government may lose a large portion of its revenues to Delhi.
- Rates cannot be adjusted to the specific needs of a state due to GST bill. This can lead to various problems for a particular state. For instance, earlier, to foster regional equality, the Centre sometimes reduces the Excise chargeable in particular states (not just SEZs) like Sikkim and Himachal Pradesh, to give them a competitive advantage in attracting investments. These States, left to themselves, will be stuck in a vicious cycle of low development therefore low investment therefore low development due to implementation of uniform tax system.
- Earlier, some States used to enjoy an inelastic supply of investments. With the introduction of GST, these states will lose out the extra revenues they could have earned, if they were allowed to set rates for themselves.
- Earlier, some states used to exempt goods that are of local importance to that State examples- Uttar Pradesh does not tax Banarasi Saree as they are of cultural significance, and In Maharashtra, VAT is not levied on Solapuri Chaddars. This redemption in tax will not be possible after introduction of a uniform tax system.
- The GST will be non-applicable to the tax on petroleum products, electricity, alcoholic liquors, and stamp duty on immovable property. Instead, the current system of Excise and VAT/CST will remain applicable to these items. If these exemptions are not phased out timely, it can have cascading effects.
- Crude Products form a majority import value in the Indian ecosystem. However, key petroleum products like crude, natural gas, high-speed diesel and ATF have been kept out of GST, compliance costs are likely to rise because of dual indirect tax mechanism.
- Petroleum is an indispensable input that powers machinery in the manufacture of every commodity. If it is not under the GST system, the input tax paid on it (VAT/CST) will be ineligible to be set off against the output SGST/CGST/IGST receives from the consumer. Therefore, there will be cascading of tax that will form a part of the manufacturer’s cost.
- GST would impact negatively on the real estate market. It would add up to 8 percent to the cost of new homes and reduce demand by about 12 percent.