States agree to roll out GST
India's decade-long wait for a national sales tax that will create one of the world's biggest single markets could be almost over by July 1. As per economic affairs secretary Shaktikanta Das the Goods and Services Tax (GST) will be implemented by July 1 and not later as feared earlier on.
"GST implementation is a huge one and that is going to be implemented by July 1. Both central and state governments are working on this," Das said. After the last GST meet, however, it was told that GST cannot be implemented by July 1. Many state governments earlier opposed various proposals under GST due to both economic and political reasons. The GST will replace a plethora of cascading central, state, interstate and local taxes with a single, nationwide, value-added tax on goods and services.
- The GST will replace at least 17 state and federal levies, making the movement of goods cheaper and seamless across a market holding 1.3 billion consumers, about four times the U.S. population. It would be far simpler than the current system, where a good is taxed multiple times at different rates. The underlying principle is to tax goods at the point of consumption rather than production.
- It can boost economic growth by as much as 2 percentage points, according to Finance Minister Arun Jaitley. Greater tax compliance has the potential to boost revenues for the government, helping narrow Asia's widest budget deficit and allowing more funds to be allocated to schools and highways.
- The GST Council has finalised a four-tier GST tax structure of 5 per cent, 12 per cent, 18 per cent and 28 per cent, with lower rates for essential items and the highest for luxury and de-merits goods, including luxury cars, SUVs and tobacco products, that would also attract an additional cess. Moreover, with a view to keeping inflation under check, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate. The cess is expected to provide additional resources to the central government to compensate states for losses incurred. This will be based on the compensation formula.
- The constitution laid out the method of taxation in 1950, soon after several so-called princely states -- territories ruled by a native monarch under the British Emperor -- agreed to join the Dominion of India. Different levels of economic development and local sensitivities necessitated a two-tier system at the time.
- Some state have been pushing to exempt chief revenue-generating products such as alcohol, petroleum and real estate. Tax on certain luxuries -- such as a flat-screen TV, for example -- may see a far higher rate than food staples.
- Companies will have to overhaul their accounting systems, which may involve one-time investment costs. There may also be chaos in the short term as the government gets the computer software up and running.
- Logistics companies stand to gain as it becomes easier to ferry goods across India. Other sectors largely depend on the fine print of the GST, including exemptions.