Amid the global economic slowdown, India has established an attractive position in the world ecosystem. India has been among the fastest growing economies in the recent years and according to IMF, India has lucrative growth path ahead. This has been supported by India's progressive growth targets and the plethora of strategic reforms undertaken by the government, such as Make in India, Digital India, Jan Dhan Yojana, Start-up India, Ayushman Bharat, 12 Mantra Package for MSMEs, among others. GST (Goods and Services Tax) is another such reform and could be called the biggest tax reform in the history of India, implemented with the unique ambition to bring the entire nation under the ambit of 'One Nation, One Tax' regime.
Implementation GST has made India attractive across the world and has created a common market for more than 133 crore people. GST was implemented on 1st July 2017, with tax slabs of 0%, 0.25%, 3%, 5%, 12%, 18% and 28%. Many indirect taxes on goods and services were merged into a single tax, right from manufacturer to consumer. Implementation of GST was a historic move and it complemented India's move towards the fastest growing economy in the world.
Implementation of GST rusted in increase in the government revenue vis-a-vis better tax compliance and reduced tax evasion, enabling greater control and facilitating efficient monitoring than the traditional taxation system. From the consumer point of view, the biggest advantages are in the terms of reduction in the overall tax burden on goods, free movement of goods from one state to another without stopping at state borders for hours for payment of state tax or entry tax and reduction in paperwork to a large extent.
At the time of implementation of GST, significant percentage of goods and services came under the ambit of highest tax slab of 28%. However, following the recommendations of GST Council, over the time span of two years, many goods were shifted under 18%, 12% and 5% tax slab from the highest tax slab.
Major Goods under Different GST Slabs
| S.No. |
Tax Slab |
Major Goods / Categories Included |
| 1. |
0% |
Live poultry; Fresh milk and pasteurised milk, Curd; Lassi; Butter milk; Chena or paneer, Live trees and other plants; Potatoes; Tomatoes; onions; category of fruits; wheat; turmeric; oats; rice; Cheques; newspapers; Passenger baggage; raw silk, among others. |
| 2. |
0.25% |
Semi-precious stones; unworked Precious stones (other than diamonds); ungraded precious stones (other than diamonds); Synthetic or reconstructed semi-precious stones, unworked or simply sawn or roughly shaped; Synthetic or reconstructed precious stones. |
| 3. |
3% |
Pearls, natural or cultured; Dust and powder of natural or synthetic precious or semi-precious stones;Gold (including gold plated with platinum) unwrought or in semi-manufactured forms; Waste and scrap of precious metal; Imitation jewellery;Coin; Silver filigree work, among others. |
| 4. |
5% |
Cream, yogurt, kephir; Natural honey; Fruit and nuts; Coconut; Pizza bread; Natural graphite; Tin ores and concentrates; Insulin; Silk yarn; Solar water heater and system; Aircraft seats; Hand embroidered articles; Bangles,among others |
| 5. |
12% |
Butter; Cheese; dates; citrus fruits; Jams, fruit jellies, marmalades; Soya milk drinks; Diabetic foods; Granite blocks; Iodine; Bio-diesel; Plastic beads; Bamboo flooring; Synthetic or artificial filament yarns; Textile wall coverings; Kerosene burners, kerosene stoves and wood burning stoves of iron or steel; Tableware and kitchenware of clay and terracotta, among others. |
| 6. |
18% |
Malt; Pastry, cakes, biscuits and other bakers' wares; Granite, other than blocks; Petroleum oils and oils obtained from bituminous minerals; Mineral or chemical fertilisers, potassic; Perfumes and toilet waters; Photographic paper, paperboard and textiles; Tubes, pipes and hoses; Wood sawn or chipped; Footwear with outer soles of rubber, plastics, leather, among others. |
| 7. |
28% |
|
Source: PHD Research Bureau, PHDCCI compiled from Central Board of Indirect Taxes and Customs (Note: Same product can be categorized into ambit of different slabs according to its specification)
Further, IGST is a component of GST, which is levied on all inter-state transactions of taxable goods and services with appropriate provisions for consignment or stock transfer of goods and services. Centre levies and collect IGST in lieu of GST and the same is shared between center and state. Inter-state dealer pays IGST after adjusting available input IGST, CGST and SGST on purchases. The IGST model was implemented to provide many benefits to the dealers in the form of uninterrupted ITC (Input Tax Credit) chain on inter-state transactions, absence of payment of tax or substantial blockage of funds for the interstate seller or buyer, reduction in inter-state transaction costs, competitive pricing, overall ease and efficiency in the system, among others.
GST Council was formed as an empowered and constitutional committee for making recommendations to the Union and State Government on issues related to Goods and Services Tax. The committee, as per Article 279A of the amended Constitution, is a joint forum of the Centre and the States and is chaired by the Union Finance Minister and other members are the Union State Minister of Revenue or Finance and Ministers in-charge of Finance or Taxation of all the States. Till date, 36 GST Council meetings have taken place to make GST a Good and Simple Tax. Some of the key announcements made during the GST Council Meetings are:
To boost the residential segment of the real estate sector, it has been decided that:
GST to be levied at effective GST rate of 5% without ITC on residential properties outside affordable segment; and GST to be levied at effective GST of 1% without ITC on affordable housing properties.
Major decisions to give relief to MSME (including Small Traders) include:
Increase in Turnover Limit for the existing Composition Scheme: The limit of Annual Turnover in the preceding Financial Year for availing Composition Scheme for Goods shall be increased to Rs 1.5 crore.
Higher Exemption Threshold Limit for Supplier of Goods: There would be two Threshold Limits for exemption from Registration and Payment of GST for the suppliers of Goods i.e. Rs 40 lakhs and Rs 20 lakhs.
Composition Scheme for Services: A Composition Scheme shall be made available for Suppliers of Services (or Mixed Suppliers) with a Tax Rate of 6% (3% CGST +3% SGST) having an Annual Turnover in the preceding Financial Year up to Rs 50 lakhs.
Decisions taken related to the changes in GST rates: To give a boost to electric vehicles, it has been decided to reduce GST rate on all electric vehicles from 12% to 5%.The GST rate on charger or charging stations for Electric vehicles be reduced from 18% to 5%. Hiring of electric buses by local authorities be exempted from GST.
28% to 18%
- Pulleys, transmission shafts and cranks, gear boxes etc., falling under HS Code 8483:
- Monitors and TVs of upto screen size of 32 inches.
- Re-treaded or used pneumatictyres of rubber;
- Power banks of lithium ion batteries. Lithium ion batteries are already at 18%. This will bring parity in Gst rate of power bank and lithium ion battery.
- Digital cameras and video camera recorders
- Video game consles and other games and sports requisites falling under HS code 9504.
28% to 5%
- Parts and accessories for the carriages for disabled persons.
18% to 12%
- Cork roughly squared or debagged
- Articles of natural cork
- Agglomerated cork
18% to 5%
12% to 5%
- Natural cork
- Walking Stick
- Fly ash Blocks
5% to Nil
- Vegetables, (uncooked or cooked by steaming or boiling in water), frozen, branded and put in a unit container.
- Vegetable provisionally preserved, but unsuitable in that state for immediate consumption.
In order to give ample opportunity to taxpayers as well as the system to adapt, the GST Council in its 35th meeting announced that the new return system will be introduced in a phased manner and it also provided extensions of due dates of filings.
In addition, in the Union Budget 2019-20, the government proposed to move to an Electronic Invoice System for GST, wherein invoice details will be captured in a central system at the time of issuance. This will eventually be used to prefill the taxpayer's returns and hence, no need for a separate e-way bill. Its roll out would begin from January, 2020. This will significantly reduce the compliance burden on the tax payers.
Impact of Changes in Composition of GST
Goods under GST are categorized according to the GST tax slabs. At the time of implementation of GST, i.e. July 2017, maximum goods (453) were put under the slab of 18%. The scenario remains the same, as now also, the maximum numbers of goods (608) lie under the slab of 18%. However, the drastic change can be seen in the category of highest tax slab of 28%. The number of goods in this tax slab decreased from 228 at the time of implementation to only 36, giving a big relief to the consumers. The other tax slabs of 0%, 5% and 12% recorded an increase in the number of goods under their ambit from 149, 263 and 242 in July 2017 to 164, 321 and 285 in March 2019, respectively.
GST tax slab of 18% accounts for around 41% of goods under its ambit as of now as compared to around 33% at the time of implementation of GST. The second highest share of goods falls under the category of 5% tax slab, whose share has increased from around 19% in July 2017 to 22% in March 2019. Category of 12% and 0% recorded a slight change in their share of goods over the same period and reached to 19.3% and 0.3% respectively, as on March 2019. The maximum change has been made in the tax slab of 28%. The share of goods under this slab has come down to only 2% as in March 2019 from around 18% at the time of implementation. The following graph of 'GST reform curve' reflects the change in the GST tax structure over the time span of more than one year.
Incidence of GST has reduced from around 14% at the time of implementation (July 2017) to less than 12% as on March 2019. The incidence of GST has decreased due to shifting of goods in lower tax slabs following the recommendations of GST Council meetings.
Impact of GST on Inter-State Movement of Goods
All over India, traders and manufacturers have been benefitted from the implementation of GST as the inter-state movement of goods has become significantly smooth. The GST has removed the cascading effect of taxes, which has sufficiently reduced raw material costs and the production costs. GST has given traders and manufacturers freedom to choose the vendors, suppliers, among others with the best prices irrespective of the location as the GST rate is same everywhere in the country and requires very minimal paperwork. This has resulted in the increase in efficiency and sales.
Further, more than 50% of logistics efforts and time is saved as GST has ensured removal of multiple checkpoints and permits at state border checkpoints. This has resulted into more road hours and faster delivery; thus increasing labour efficiency. Additionally, relatively easier procedures and low costing due to GST have resulted into competitive pricing and economies of scale. This has made the manufacturers and traders more competitive and increased their profitability.
Impact of GST on the Revenue of the Government
The tax revenue collection of the government through GST has been increasing year on year. The monthly average collection in the FY2017-18 was recorded at Rs. 89,825 crore, which increased to Rs. 98,114 crore in FY2018-19 and to Rs. 1,04,044 in 2019-20. The total gross GST revenue collected in the month of May, June and July 2019 stands around Rs. 1 lakh crore each, while in April, 2019, revenue collection stood at Rs. 1.13 lakh crore, which was the highest recorded collection since GST implementation. GST has resulted in increase in tax base and rise in collections, as the indirect tax payers base has increased by more than 50% since the enactment of GST, specifically due to large increase in voluntary registrations.
Impact of GST on Ease of Doing Business
GST has also led to ease of doing business, as the returns are now fully online and e-way system is in place, which has reduced the interface between the tax payers and government for day-to-day operations and assessments. The introduction of e-way bills has also led to decrease in transportation cost and logistic costs. GST has brought in improvement in the whole ecosystem comprising of IT setup, procurement, supply chain, exports, billing patterns, paying taxes, among others, thus being an enabler of ease of doing business.
World Bank’s Ease of Doing Business Rankings of India
Conclusions and Recommendations
GST has impacted and brought about improvement in all sections of society and all sectors of the economy and has helped India to achieve the position of world's fastest growing economy. The implementation of GST is highly appreciable as it has reduced the barriers between states and made India a common market. Increased tax revenues and reduced transaction costs for businesses would go a long way to increase efficiency of the economy and competitiveness of businesses. As the teething problems of GST are over, the economy is expected to scale higher growth trajectory in the coming times.
Going ahead, petroleum products must be brought under the ambit of GST to remove the cascading of taxes such as excise duty, central sales tax including value added tax. There is a need to remove 18% and 28% slab rates and categorize only two main rates under GST i.e. 5% and 12% instead of four. Further, address the complexities in GST Form by making it simpler and rational. In addition, there must be improvement in logistics and infrastructure scenario to further reduce the transaction costs. The government's efforts towards further liberalization of the GST norms, ease in procedures, shift of goods into lower tax slabs, among others are expected to result in promotion of ease of doing business, boost in manufacturing of goods, increase in price-cost margins of manufacturers and generation of employment opportunities.
- Dr. S.P. Sharma & Ms. Kritika Bhasin
Employment News
14-09-2020
