By ADITYA RAJ DAS
The introduction of the GST—considered to be the most radical reform in India’s Indirect Tax regime—will create an all India common market, which will act like a catalyst to woo the foreign investors to invest in wide range of economic activities.
The GST envisages a unified indirect tax regime replacing central levies like central excise and service tax and plethora of state levies in 29 states like Value Added Tax, entry tax and purchase tax on goods and services transforming the nation of near 1.3 billion people into a customs union.
The run-up to the introduction of GST has almost reached the final stage with the Union Cabinet headed by Prime Minister Narendra Modi approving four supporting Goods and Services Tax (GST) bills, which will now be introduced in Parliament during the ongoing Budget session.
The four supporting GST legislations include Central GST or C-GST, the Integrated GST (I-GST), and the Union Territory GST (UT-GST), and the Compensation to the States Law. The four bills were earlier approved by the GST Council– the highest body to formulate rules and regulations governing GST– after a thorough clause by clause discussion over 12 meetings held in the last six months.
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The C-GST Bill makes provisions for levy and collection of tax on intra-state supply of goods or services for both by the Central Government. On the other hand, the I-GST Bill makes provisions for levy and collection of tax on inter-state supply of goods or services or both by the Central Government.
The UT-GST Bill makes provisions for levy on collection on tax on intra-UT supply of goods and services in the Union Territories without legislature. The Union Territory GST is akin to States Goods and Services Tax (SGST) which shall be levied and collected by the States/Union Territories on intra-state supply of goods or services or both.
The Compensation Bill provides for compensation to the states for loss of revenue arising on account of implementation of the goods and services tax for a period of five years as per section 18 of the Constitution (One Hundred and First Amendment) Act, 2016.
These four legislations would be taken up for discussion together in the ongoing Budget Session of Parliament. Once approved by Parliament, the states would start taking their SGST bill for discussion and passage in the respective state assemblies.
These bills will help in the rollout of the much-awaited indirect tax regime, which the Modi government plans to do from July 1 this year.
Underscoring importance of GST On Saturday, Prime Minister Narendra Modi very recently said people should make efforts to discuss and understand the new indirect tax regime.
As he says In GST, the entire process has been reached by consensus; the states have taken ownership. It is an example of cooperative federalism”.
At this juncture when India is emerging as the fastest growing economy in the world, the introduction of GST will further spur the growth momentum of the economy thereby consolidating the prowess of Indian economy in the global arena.
It is also being overwhelmingly felt that India’s adoption of GST will benefit the global economy. At this point when the global economy is getting increasingly gripped with gloom with Britain’s decision to pull out of Europe’s common market India’s efforts to build up a unified common market across the length and breadth of the country is laudable as it will also contribute to the growth of global economy.
It is being projected introduction of GST could boost India’s economic growth by up to 2 percentage points.
Most economists overwhelmingly feel that the positive impact of GST on Indian economy is enormous.
The current tax regime is riddled with indirect taxes which the GST aims to subsume with a single comprehensive tax, bringing it all under a single umbrella. The GST aims to eliminate the cascading effect of taxes on production and distribution prices on goods and services.
Cascading effect of taxes is caused due to levy of different charges by state and union governments separately.
This existing multiple tax structure– both at Center and states– raises the tax-burden on Indian products, affecting their prices, and as a result, sales in the international market. Thus the new tax regime of GST with a single comprehensive tax will help boost exports.
As the GST will do away with Gordian knot of multiple tax-rates, which is a burden on the common man, will also help usher-in an era of a transparent and corruption-free tax administration. It is also set to weed out the current shortcomings of the supply chain owing to the complicated, multi-layered policies.
As economists say the GST will cut down large number of taxes imposed by the Center and states and will lead to the creation of a unified market which will facilitate seamless movement of goods across states and reduce the transaction costs of businesses.
Most importantly while the GST will be critical in spurring growth momentum it will further enhance India’s potential as an attractive destination of Foreign Direct Investment.
Most of the potential foreign investors are keen that India should introduce GST as soon as possible thereby sending distinct signal that Indian economy is committed to reforms and ready to integrate with global economy in tangible way.
Sooner India adopts GST tax regime it is better for its economy as well as global economy.