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4Th Aug 2016
GST (The Total Investment & Insurance Solutions)
About 42 per cent of the Rs 22 lakh crore
($328 billion) revenue of the central government and 35 states and union
territories will now be subsumed under the goods and services tax (GST), passed
by parliament's upper house on August 3, 2016 and being touted by some as one
of independent India's “boldest reforms”.
Around Rs 9.20 lakh crore ($137 billion) of
Central and state revenue from 15 taxes --from Central Excise to levies on
gambling -- in 2014-15 ($1 = Rs 67) will be brought under the GST, scheduled to
be levied from April 1, 2017, although the government might be hard-pressed to
make this deadline.
Industries and commercial enterprises
currently pay various taxes at various stages of a product or service, such as
manufacture, transport, wholesale, logistics and retail. The administration of
these taxes is often tangled in paperwork, results in slow inter-state movement
of products and increases costs for consumers. The Total Investment & Insurance Solutions
Most of these taxes will be subsumed by the
GST, barring a few, such as those on vehicles, roads, property and electricity.
The law enabling the GST must now go back to
the the Lok Sabha, which must clear the new amendments brought in by the
government to get political consensus, after which it must be ratified by half
of all state legislatures.
Simultaneously, the information technology
backbone that the GST will require is getting ready, with software testing set
for October 2016, the Economic Times reported on August 3, 2016. The Total Investment & Insurance Solutions
Hard to implement, but basic design is ready
It isn't yet clear what the GST taxation rate
will be, but 17 per cent to 18 per cent is likely. Implementing the GST will
not be easy because many taxes and their administration must be disentangled
and brought online into a single, nationwide system. However, the basic
architecture of such a system has been created.
As that nationwide system is constructed and
brought online, tax administrators will also have to be retrained. The Total Investment & Insurance Solutions
“For effective implementation of GST, tax
administration staff -- both at the Central and state levels -- would require
to be trained properly in terms of concept, legislation and procedure,” Karthik
S and Satish Dedhia, tax experts at the PriceWaterhouseCoopers consultancy,
wrote in Forbes India in February 2016. “The tax administration staff would
also need to change their mindset, approach and attitude towards the tax
payers. And for this, they would have to 'learn, unlearn, and relearn' the GST
not only in letter but in spirit too.”
A GST Council will control the new tax regime
across the Centre and the states; it will fix tax rates, exemptions and other
issues. The Centre's representatives will control a third of the vote in the
council.
Two Central representatives (Finance Minister
and Minister of State for Finance) account for 33.3 per cent of the vote, while
29 finance ministers account for the remaining 66.7 per cent, according to the
122nd Constitutional Amendment Bill that will give effect to the GST regime.
Balancing act ahead, but calculations for UP,
Maharashtra show it can work
The key challenge for the central government
is to ensure both the Centre and the states benefit from the GST -- in other
words, get as much as or more money than they currently do. The Total Investment & Insurance Solutions
The Centre is likely to compensate states for
lost revenue on ‘goods' by increasing their share of taxes on services,
according to an analysis by the Institution of Chartered Accountants of India
(ICAI).
Indian states cannot afford to lose revenue
because they are already in debt, as IndiaSpend reported. The Total Investment & Insurance Solutions
Maharashtra, India's most industrialised
state, and Uttar Pradesh (UP), the most populous, expect to get at least Rs
60,000 crore and Rs 65,000 crore per year, as IndiaSpend‘s calculations
revealed in December 2015. We found that these figures, based on data from the
Reserve Bank of India's Study of State Finances, are almost equal to the
revenue Maharashtra and UP currently receive through a host of taxes, which the
GST will replace.
We chose Maharashtra for the analysis because
it is the state with highest revenue from its own taxes, as a share of total
revenue, at 66 per cent; and UP because it has the highest total revenue but no
more than 36 per cent from its own taxes.The
Total Investment & Insurance Solutions
