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INDIA keeps its date with destiny

When the history of modern India is written, three events will stand out. The first of course is the 15th of August 1947; the day India awoke to life and freedom. The second happened in 1991 when India dusted the cobwebs of socialism to marry market economy. But the biggest breaking news of the 21st century, its most defining moment, is the GST, which when handled well, can dramatically alter the landscape of Indias taxation.

INDIA keeps its  date with destiny

Across the spectrum, the new legislation found a warm welcome. Captains of industry, opinion makers, lawyers, and chartered accountants gave their thumbs up.  There were, of course, other well-meaning voices, not voices of dissent, but voices of caution that suggested that many things needed ironing before GST can be rolled.

 

SLAYS TAXES

The GST Act kills a number of other taxes: at the least five at the Central level and five at the state level. 

At the Centre, the key taxes are the Central Value Added Tax (CENVAT or Excise Duty), the Service Tax, the Central Sales Tax (CST), the Countervailing Duties (CVD) and the Special Additional Duty of Customs (SAD). 

There are a few state taxes also that will become museum pieces.  The most significant taxes include the state Value Added Tax (VAT), the sales tax (in some states), the entry tax, the luxury tax and the entertainment tax.

But hold on. This does not mean that we are going to become a tax haven. Taxes will not disappear overnight. They will come with a different name: Goods and Services Tax, aka GST. On a transaction, both the centre and the state will levy a tax. The centre’s levy is called Central GST. The state’s tax is called State GST. In the case of interstate sale the tax is called Integrated GST and will be collected by the Centre. 

So what is the big deal in it? 

 

WHY DO WE NEED GST

There are at least three compelling reasons to have GST. 

One, it is psychologically far more appealing to pay one tax instead of ten taxes even if the rate of the one tax is higher than the cumulative rate on the ten taxes. With many taxes, you get the feeling of being taxed ad infinite.

Two, today an identical product is taxed at different rates in different states. This is a tad sad. GST shifts this and ensures that the tax on a single product is the same across the length and breadth of India. While the jury is out on whether this is the best way for making states competitive, this gives the feeling of oneness in the country as an identical product gets taxed at an equal rate, across India, leading to the chorus ‘one nation, one tax.’ 

And three, like internationally, GST will shift the collection of tax from the producing state to the consuming state.  Suppose, a laptop is produced in UP and sold in Maharashtra. Earlier, the excise duty went to UP and the sales tax to Maharashtra. Now, the entire GST will go to Maharashtra.  The producing state will get nothing. 

This is good for developing states who consume more than what they produce. In India, these consuming states have been historically backward. The view is that by shifting the collection points, these states will gain and could use that money for development. All economists are not agreed on this point. Their argument is that the best countries of the world are producing countries and a shift to rewarding consuming states with more cash, could make them consume rather than produce. There is a point there. 

 

TECHNOLOGY TRACKS

What makes the GST a revolution?  At the heart of the game-changing GST legislation is technology. This is how the platform works. 

When a seller company sells or renders services, it will have to uploads its transaction on the GSTN, and will have to give a laundry list of details about the buyer like his name, GSTN number, PAN, UID Number, quantity sold, the price at which sold, and the GST collected. Immediately, the GSTN will automatically populate the purchase register of the buyer. In a GST audit, armed with this information, the audit team could question the buying company as to how it disposed of its purchase.  

The portal will be accessible to the government, which will track down every transaction while the taxpayers will file their returns and taxes and maintain the details.  Mark it, close to 3.4 billion invoices will be uploaded every month. Yes, the government will be sitting on a pile of information.

The registered reseller can claim full credit for taxes paid on earlier stages, as long as it is for further sale or manufacturing of goods or provision of service. These GST tax credits can be used to pay the GST liability on further supply. 

If a vendor fails to upload his sales, it would be at the cost of the buyer losing the tax credit and hence, the customer will stop buying from a vendor who does not declare his sales. In a nutshell, the system drives the tax evader out of business, as no one will be willing to do business with him. The act of policing is now handed over to the citizens of India. 

Thus, GST strikes at the root of where black money gets generated. 

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