The first country ever to implement Goods and Service Tax in 1954 was France. Since July 1, 2017, Goods and Service Tax (GST) came into effect across India, making it to the list of 160 countries in the world to have implemented GST so far. However, there are three models of GST, and they are CGST, SGST, and Dual GST model. In India, we have the Dual GST model. Many pundits have spoken against it while many believed it to be the beginning of a new economic system in the country that would mop away all the black money involved in it. Now that we are in the last quadrant of the financial year 2017-2018, the question that we are trying to figure out is GST a blessing or a curse?
15th August 2017 marked the 70th year of Indian Independence, and for the first time in Indian history, the Indian government implemented GST hoping to maintain the same tax rates throughout the nation. With the vision of a unified market in a federal system that guided the nationalist bourgeoisie in joining Mahatma Gandhi’s struggle to liberate India from the British but now with GST, the Indian federal system is fighting to liberate itself from all sorts of black money.
No need to remind the struggle faced by everyone because of this structural reform that came accompanied by pain for trade and industry caught off-guard by the rigors of new compliance procedures. Quoting the Finance Minister of India, Arun Jaitley on the implementation of GST, he said, “It is demanded by the people of the industry, to implement GST on the products. It was also known that implementing something for the first time will always have initial problems in implementing a reform of such scale appear; then you want to go back to the system we’ve had for 70 years?”
It’s true that something had to be done with the existing system and the earlier system was a myriad of central and state taxes where the flow of goods was slowed down by-products being taxed multiple times and at different rates.
State level taxes replaced by the pan-India GST include state cesses and surcharges, luxury tax, state VAT, purchase tax, central sales tax, taxes on advertisements, entertainment tax, various forms of entry tax, and taxes on lotteries and betting.
Central taxes replaced by the GST are service tax, special additional customs duties, additional excise duties on goods of central excise, special importance, additional customs duties, excise on medicinal and toilet preparations, additional excise duties on textiles and textile products, and cesses and surcharges.
The new indirect tax regime consolidating the Indian market has four tax slabs of 5, 12, 18 and 28 percent.
The model of GST that is followed in countries like Australia, Brazil, Canada, etc. is same for everything. In both Australia and Brazil, the GST slab is 10% on all products while Canada has a GST slab of 5%. Though the highest bracket of GST in India is 28% the average bracket is 18%. Given the earlier system, 18% is a moderate slab, but the problem lies with the various slabs like 0%, 5%, 12%, 18% and 28% for various commodities, which surely gave a chill spine to the buyers.
There are no taxes in buying fish, but there is a 5% tax on fish fillet if it is bought more than Rs. 1000. Fresh meat products have no tax but to buy frozen meat products, the buyer has to pay a tax of 12% if the price crosses Rs. 1000. At the moment of purchase, the buyer or consumer has to be very careful about all these additional clauses that are added to the basic clause. For soap, the tax is 5%, and for washing detergents, it is 28%. The list can go and on and for the citizens, it is one of the worst things to go through.
The country has gone through a radical reworking of the items within the four-slab tax structure by the supremely federal institution of the GST Council, whereby all but 50 of over 1,200 items remained in the highest 28 percent bracket. The things that fall under the luxury and sin items, the cess on which goes to fund the payment to states for the loss of revenue arising from implementing GST.
With the Council’s verdicts last month, GST has been cut on some consumer items such as chocolates, chewing gum, shampoos, deodorants, shoe polish, detergents, nutrition drinks, marble, and cosmetics. Luxury goods such as washing machines and air conditioners have been retained at 28 percent.
Eating out has become cheaper as all restaurants outside high-end hotels charging over Rs. 7,500 per room will uniformly levy GST of five percent. The facility of input tax credit for restaurants has, however, been withdrawn as they had not passed on this benefit to consumers.
Petroleum, including oil and gas, is a strategic sector that is still not under GST, while the industry has been pushing for its inclusion so as not to be deprived of the benefits of input credit.
The implementation of GST in India will always remain a tea time debate topic for intellectuals across the country, but if it is viewed from the perspective of a citizen, GST is nothing more than a political move by the federal government. It may bring the advantages of having all revenue books well documented so that no one can dodge taxes but that doesn’t mean since its implementation all those culprits are being addressed and tax charged on them. Those who deal in black money they would find a way out, anyhow but for the ordinary citizens it is as painful and pointless it can get.