Dr. Asangba Tzüdir
…And PM Calls it Good and Simple Tax
On July 1, 2017, the whole of India woke up to a new tax regime – the Goods and Services Tax (GST), envisioning a new India through One Nation, One Tax, One Market. While Modi preferred to call it “Good and Simple Tax,” some commentators have called GST as “General Shock Treatment” for the masses. With all the varying percentage of tax, there is anticipation, nervousness and confusion in equal measure on the impact it will have on the behaviour of the market and on the masses. But one thing for sure, people are once again made aware of the very nature of Modi’s ‘central’ rule.
It is touted and glorified as a simplified system of taxation by which economy will take an upward swing and further it will ease the trade and industry with respect to the indirect tax system of the country. A single unified system of tax is a global trend. However, the one big difference the Indian model of GST and similar taxes in other countries is the dual system of GST. Under GST “Only one” indirect tax has to be paid by the trade and industry and all the other indirect taxes will be subsumed in GST. But the dual nature of GST is such that there is Central GST which will be levied by Centre, and State GST which will be levied by the state and then an Integrated GST which will be levied by the Central Government on inter-State supply of goods and services. Further, For Intra State Transactions, the Seller will collect both Central GST and State GST from the buyer and CGST will be deposited with Central government while SGST with the State government. For Inter State Transactions, Integrated Goods and Service Tax (IGST) shall be levied on Inter State transactions of goods and services based on destination principle where the tax gets transferred to the Importing state. In short, both the state and centre will collect separate tax on a single transaction of sale and service. Further, majority of dealers are not covered with the central excise but are only paying VAT in the state. Now all the VAT dealers will be required to pay ‘Central Goods and service tax.’
Another difference under GST is that the tax will be payable at the final point of consumption which means that ‘taxable event’ will be the ‘supply of goods’ and ‘supply of services.’ Hence, the current ‘taxable events’ like the ‘manufacture of goods,’ ‘sale of goods’ and ‘rendition of services’ is not applicable under GST regime.
Beyond the intricacies involved, what the general public will be grappling with will be the different tax rate slabs of 5%, 12%, 18% and 28% and certain goods and services under tax free; where 81% of the items fall under or in 18% GST tax rate slab. Besides the logic and considerations behind the rates proposed, the question is how much balance and stability will it create for the rich and the poor. From past experiences and realities, a major concern is that, in a likely scenario of inflation, how the government will ‘protect’ the vast majority of poor population in India will be a major concern. On another level the GST is already questioned for ‘violation of rights’ of persons with disabilities.
On the whole, the question is how far will GST rationalise and simplify the indirect tax structure in their effort to do away with the cascading effect on tax. Though, more than 150 countries have implemented the GST, a concern is on the method of study employed which has led to the present GST. This will be observed with much anticipation. For now, even the preliminaries suggest contrary to Modi’s view that GST is a Good and Simple Tax.
(Dr. Asangba Tzüdir contributes a weekly guest editorial to The Morung Express. Comments can be mailed to email@example.com)