India became a fully integrated economy 67 years after its political integration as a Constitutional republic when the principle of one nation one tax finally became a reality on July 1, 2017. The overarching goal of Article 301 of the Constitution was always to ensure that trade, commerce and intercourse throughout the territory of India shall be free. To realize this, India adopted the policy of GST. France was the first country in the world to implement the GST law in the year 1954. Since then, around 159 countries have adopted the GST regime in some form or other. In India, taxes levied are of two kinds: direct and indirect.
Direct taxes are those in which liability cannot be passed onto anyone else. Indirect tax is where the burden can be passed onto someone else. Prior the one nation, one tax regime, the indirect tax was fragmented and composed of several taxes such as VAT, Service tax etc. However, after the introduction of one nation, one tax as per the 122nd Constitutional amendment Bill, 2014 passed by both the houses of Parliament from July 1, 2017, a single unifying indirect tax is now being imposed on all goods and services. All goods and services are taxed under one of four slabs- 5%, 12%, 18%, and 28% wherever they are purchased and additional ‘sin tax’ of 40% to be implemented on rare occasions.
This change in tax regime also imposes the same tax on goods and services, thereby ceasing distinguishing a good from a service. GST is a multi-stage and destination based tax that will be levied at the point of consumption. The GST regime in India can be best described as dualistic in nature with both center and state government imposing taxes in the form of Center GST (CGST) and State GST (SGST). There is also an integrated GST on the inter-state supply of goods and services.
The need to bring one nation, one tax arose from the very nature of indirect taxes. The burden of tax is easily transferable to the next stage of supply chain. A producer that pays VAT can transfer the amount paid to the retailer, who through the same process, will transfer the tax to the consumer. The consumer eventually ends up paying the price of the product and also the tax liability that has been transferred to him. GST is addressing this particular issue.
The very fundamental question in this regard is- whether GST is a magic or mirage?
Firstly, let us look into the benefits of GST.
In the words of our PM, the new tax regime will rid the country of tax terrorism. There are various advantages of this policy-
- It has reduced the multiplicity of taxes.
- It has helped in mitigation of cascading.
- It has promoted the development of common nation market.
It has proved to be a check on tax evasion.
- It has been of great help to the consumers as it is assumed to bring transparency of the levied tax which will be proportionate to the value added and there is a relief in overall tax burden.
There has been an increase in transparency and reduction in corruption because the retailers are not able to make sales without the bill and hence the cases of income tax evasion will reduce a lot.
Hence, one can say that the introduction of GST is called transformative because it is meant to benefit everybody and hurt none.
Let us now look into the shortcomings of this regime.
- The principle on which GST works i.e. one nation, one tax is not suitable for India. Previously we had 32 taxes which included 29 state VAT taxes, 1 sales tax, 1 excise duty and 1 service tax and after GST we have now 31 taxes including 29 SGST, 1 CGST and IGST which again gives complicated tax structure to the country and contradicts the principle of single tax in nation.
- The judgment which was delivered by 9 judges bench of SC on 11th November, 2016 regarding entry case which said that every state is as sovereign as Parliament in its power to levy taxes gives freehand to state by which they can levy their own GST.
- GST system is totally dependent on the online submission of taxes which in result overburdens the online system of the Ministry of Corporate Affairs and the online infrastructure existing is not very sound, so the problem of hanging and website crashes occurs repeatedly which makes tax filing more adverse than before.
- It increases the problem of tax evasion due to one of the provision which states that business entity with an annual turnover less than Rs.20 lakhs is given exemption under GST registration. This provision is being misused by businessmen by dividing their business into different forms, for example, a company with an annual turnover of 80 lakhs is divided into 4 firms of 20 lakh each, one of the director and the other of his wife, son and daughter.
- Tax on fertilizers, milk production, tea etc. have been increased which has greatly hampered Indian agricultural sector.
- India is amongst the most under-penetrated Insurance market and this was the only reason for launching the Pradhan Mantri Jeevan Beema Yojana. However, with GST insurance premiums have become expensive which is proving a roadblock in a price sensitive market like India.
- On one hand government is initiating Digital India and on the other hand telecom services is getting
Thus, the Bill which was brought to implement one tax in the country has resulted into one of the biggest drawback as it is not only a burden on Indian economy but it is a deadly weapon for poor and middlemen of the country.
Hence, one can say that optimists see the GST as a silver lining that can cure all of India’s economic problems but the pessismists say too many objectives are being loaded on GST and there will be less chance of accountability in the system. However, the truth lies somewhere in the middle. The real impact of GST will not be judged by the policy archer’s target practice but by actual data and empirical observations.