The Goods & Service Tax [GST] is the new Proposed Tax that will eliminate all other forms of Indirect Taxes [Excise, VAT, Entry Tax, etc] within India and Industries will either Pay Goods Tax if it is a commodity to be sold or Service tax if the end product is a Service at only one point [Place of Origin or Destination is bone of contention] and thus the Goods can move freely across India without any hassle.
What is the Finance minister doing with GST Bill in India ?
Narendra Modi did a big mistake by handing over Defence portfolio to Finance Minister Mr. Jaitley in the last 6 months as he could not concentrate on important issues within the finance ministry. Despite Finance Minister’s repeated claims that the Government is going to be in a position to implement GST by April 1, 2016, in a best-case scenario, GST in India will be implemented by April 1, 2017 is what we think is pragmatic. Why ?
Firstly, the IT infrastructure required to implement a nation-wide GST that subsumes all central and state-level taxes is nowhere near-ready and will require meticulous planning as well as sheer time to put together. Secondly, GST implementation can be truly expedited if the political lead on the matter possesses a great degree of tact and understanding of state level issues. Mr. Jaitley in our opinion cannot handle the non-BJP State Chief Ministers and also does not possess these skills and hence the process of convincing the states is likely to be long-drawn. Lastly, the Finance ministry / Government of India does not have the competitive officials to implement the Goods & Service Tax Act without motive of Corruption and Loopholes, as over decades they have only done so.
States Will Resist
States with a high tax to Gross State Domestic Product (GSDP) ratio (e.g. Karnataka) are likely to resist GST implementation as opposed to those who are characterized by a low tax to GSDP ratio (e.g. West Bengal) unless they are promised fair compensation. The Central Government at this point is only willing to compensate for revenue loss owing to GST implementation for three years whilst states are seeking support for a period of five years.
Whilst states want both petroleum and alcohol to be out of the purview of the GST (as the lion’s share of state revenues are accounted for by these two categories) the Centre is keen to mitigate the list of exclusions. Also the GST that is first implemented will be imperfect, it is almost impossible to accurately assess the impact of GST implementation on GDP.
How Will GST Implementation Help Plug Income Tax Evasions ?
GST will end-up bringing the unorganized sector under the ambit of taxation, thereby adding to the tax base of the country. Secondly, GST implementation is likely to result in lifting income tax collections as: (1) GST payments by tax-payers will be linked to their respective Permanent Account Number (PAN); and (2) the National Securities Depository Limited (NSDL) which maintains the Tax information System (TIN) will also look after the GST database. This integration of the indirect tax system with the income tax system will enable authorities to triangulate information thereby automatically leading to improved tax buoyancy.