Goods and Services Tax

July 17, 2023

Introduction

13 years in the making, the Goods and Services Tax (GST) has made a long journey to come to fruition in the year 2017. The recommendation to replace several taxes imposed by state and central governments with GST was first tabled by Khelkar Task Force in the year 2004. The recommendation to implement the tax changes was first made in the parliament in 2007-08 and became a reality on the 12th of April, 2017 through an amendment to the constitution. This was followed by ratification of each state passing its own GST bill in their respective legislative assemblies. GST came into effect on the 1st of July, 2017.

What is GST?

As the name suggests, it is a tax imposed on goods and services. GST is an indirect tax i.e., it is paid by a third person. GST led to the elimination of several central and state government taxes. Below is the list of central and state government taxes it helped eliminate.

Central Government Levies

  • Excise Duty
  • Service Tax
  • Countervailing duty (CVD)
  • Special CVD
  • Central Sales Tax (CST)
  • Central Surcharge

State Government Levies

  • Value Added Tax (VAT)
  • Entertainment Tax
  • Octroi Duty
  • Taxes on Advertisement
  • Luxury Tax
  • Taxes on Lottery, Gambling, and Betting
  • State Surcharge

While most regular goods and services one uses in everyday life are included under the umbrella of GST there are certain products that have been left out for various reasons, which are out of the scope of this article. Below are such products and situations, if any, when GST may not be applicable.

  1. Alcoholic liquor meant for drinking is one of those products which is still not part of the GST as of the writing of this article. It still, however, does attract various taxes such as state excise duty and VAT

  2. Some energy related products such as Petrol, Diesel, Aviation Turbine Fuel (ATF), Natural Gas, and Crude oil, used in our daily life have also been left out of GST. These products are destined to eventually come under GST but currently, there is no certainty as to when that will happen

  3. The sale of land or a building is excluded from GST. There is one exception though to this. The sale of a building may attract GST if it is sold before its construction has been completed

  4. There is a unique situation with the sale of tobacco and its related products and that is all such products attract GST but in addition to that the transactions also attract excise duty

Why GST?

GST caused quite a lot of disruption when it went into effect. There were issues with the systems, a lot of people were confused with the tax rates for various products and services and there were all sorts of other issues taxpayers and authorities complained about. All these issues definitely made many wonder if it was prudent to move to GST, was the shift hastened and should have been pushed back, and even ask the question WHY GST?

The truth is, this shift was a radical move for our taxation system, and everyone touched by this change had a lot to deal with just because of the magnitude, breadth, and depth of the change. However, for all the pains that everyone experienced in the initial days the gains to be made in the long run far outweighed those teething issues. GST was introduced with the idea to deprecate various taxes and their related authorities and replace them with a single tax. It was conceived keeping the future in mind and built around new-age technology to make it easy for businesses new and old, big and small as well as individuals to integrate their business directly with the taxation.

As a result, this has led to several improvements in India's taxation with some of the major ones being

  1. As mentioned above, GST has unified India's taxation and led to the creation of a unified national market

  2. It also helped improve the situation pertaining to ease of doing business in India

  3. Since so many taxes were made obsolete and individuals/businesses now deal with a single tax authority meant it resulted in the reduction of compliance cost

  4. This has also resulted in the elimination of double taxation

  5. Since the technology was considered to be a significant part of this taxation system meant it came with features that allowed direct integration of the business with the tax system and allowed for automation of processes

All these improvements meant small businesses, which form the bedrock of any strong and vibrant economy, as well as entrepreneurs benefit tremendously from the ease of working with simplified tax rules. This has created a positive atmosphere in the country and led to a boost in investment. It has also, at least partly, led to growth in start-up activity in India giving young and ambitious entrepreneurs more reasons to go after their dreams and as a direct impact is giving the Make in India and Atmanirbhar Bharat initiatives a shot in the arm.

Conclusion

All the good intentions that formed the ground beneath the foundation of GST couldn't prevent the resentment that emanated from the teething issues that stakeholders experienced during the initial phases of the launch. That said with the passing of time will come solutions to the issues that surfaced and clarity to questions that weren't anticipated prior to the launch. Once these are resolved it will result in an even greater simplification of one of the major Indian tax systems. However, even before we reach that stage, GST today has brought India's tax system into the 21st Century and given its businesses a fighting chance on the global stage in investments and export of manufacturing and services.



Note: Above details are meant for generalized situations and shall not be used as a legal basis for any particular situation readers may have. We do provide tax consultations for specific scenarios and can be reached through our contact us form.



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