One Year of Goods and Services Tax

Overview - GST

GST is a tax based on destination and is levied at the point of final consumption. Under the GST regime, the chargeable tax is borne by the end user or consumer of the goods and/or services at the end of the supply chain. Refunds can be claimed by the manufacturers and dealers later. The result of the implementation of the Goods and Services Tax (GST) led to the elimination of a number of other indirect taxes such as Value Added Tax (VAT), excise duty, Service Tax, luxury tax, etc.

The businesses which have an annual turnover of Rs.20 lakh are exempted from the Goods and Services Tax (GST) ambit. However, for special category states, the exemption is applicable at a turnover of Rs.10 lakh.

It was decided that for the first 5 years, the states will be receiving a 100% compensation for the revenues that they will lose due to the new taxation system.

GST Bills

There are 4 bills which are related to the Goods and Services Tax (GST). These bills are listed below:

• CGST Bill: The Central Goods and Services Tax (CGST) Bill is related to the collection of GST which is levied on the supply of goods and/or services within the boundaries of a state.
• IGST Bill: The Integrated Goods and Services Tax (IGST) Bill is related to the collection of GST which is levied on the supply of goods and/or services within different states.
• The Compensation Bill: The Compensation Bill was constituted to provide compensations to the states for the losses that would arise as a result of the implementation of GST. This compensation will be extended for a period of 5 years.
• The UTGST Bill: The Union Territory Goods and Services Tax (UTGST) Bill is related to the supply of Goods and Services in the Union Territories (UT).

These bills were forwarded to the Parliament and out of them the Central GST Bill, the Compensation Bill, and the Union Territory GST Bill were passed in the Lok Sabha in the month of March. Later, in the month of April, the Upper House of the Parliament passed the bills.

The launch of the Goods and Services Tax (GST)

The new indirect tax system, Goods and Services Tax (GST), was launched on the midnight of 30 June 2017 at a function which was held at the Central Hall of the Parliament by Prime Minister Narendra Modi, former President Pranab Mukherjee, and the then Minister of Finance Arun Jaitley.

The launch was boycotted by the Congress, the Trinamool Congress (TMC), and Left parties as they claimed that this new tax structure will be unfair to the small-scale traders and businesses. Former Prime Minister Manmohan Singh had also declined the invitation to the launch function. However, the opposition parties such Janata Dal (United), the Nationalist Congress Party (NCP), the Biju Janata Dal (BJD), the Samajwadi Party, and the Janata Dal (Secular) were present at the launch of the Goods and Services Tax (GST).

Were all the states on board for the decision of implementing the Goods and Services Tax (GST)?

No, all the states were not ready to accept the implementation of the Goods and Services Tax (GST) regime. There were certain states which opposed the implementation of the tax. A number of textile traders and diamond traders had taken to the streets to voice their protests. In West Bengal, sweet shop owners had voiced their protests. Jammu and Kashmir became the last state which came under the Goods and Services Tax (GST) ambit. West Bengal and Kerala, in particular, had been very vocal while protesting against the new indirect tax structure.

Different Tax Slabs under the Goods and Services Tax

There are 4 different tax slabs that have been rolled out by the GST Council after the Goods and Services Tax (GST) was implemented last year. The slabs have been set up for goods and services of different categories. The tax slabs are as follows:

1. 5%
2. 12%
3. 18%
4. 28%

Excluded items under GST Regime

The GST Council did not include petroleum and alcohol under the Goods and Services Tax (GST) regime. All kinds of petroleum products including crude petroleum, high-speed diesel, natural gas, petroleum, and aviation turbine fuel (ATF) are still charged under the old tax structure. GST is not charged on electricity as well.

However, with the price of petroleum rising sky high, the government is now pondering over the idea of including petrol and petroleum products under the ambit of the Goods and Services Tax (GST).

The First GST Council Meeting

The body that was constituted with the main aim of making recommendations to the Union and State Governments pertaining to issues related to the Goods and Services Tax (GST) is known as the GST Council.

The first GST Council meet was held in the month of September in 2016. In the first meeting, the Centre and the states came to a decision of sticking to a timetable to decide the rates of tax and the accomplishment of judicial work. It was decided in this meeting that the businesses making an annual turnover of less than Rs.20 lakh will be exempted from the Goods and Services Tax (GST) regime. The primary objective of the meetings was to discuss the rates of tax, the limit of the threshold, and the division of power between the states and the Centre.

Revision of Goods and Services Tax (GST) slab

1. As many as 177 items were slashed off from the list of goods and/or services that came under the 28% tax slab and was charged under the 18% tax slab in the month of November last year. In this process, the Council successfully brought down the number of items in the 28% tax slab from 228 to just 50.
2. As opposed to the previous rate of 12%, GST was charged at just 5% for both Non-AC and AC restaurants after the revision and implementation of new rules. Nevertheless, 18% GST will be charged on the starred-hotels that charge Rs.7,500 or more per day.
3. In a recent Council meeting held on 21 July 2018, the GST Council has further cut down 15 items from the list of 50 items that came under the 28% GST slab. The highest slab of the Goods and Services Tax (GST) is now charged on just 35 items. Some of these items are automobiles, aircraft, cement, aerated drinks, digital cameras, washing machines, yachts, air conditioners, etc.

Tax experts have opined that the Council might consider reducing the rates of tax further on more products that fall under the 28% tax slab.

Status of the Goods and Services Tax (GST) in the rest of the world

1. New Zealand: New Zealand witnessed the implementation of the Goods and Services Tax (GST) in 1986. It was set at 10% which has been raised to 15% now. This rate is applicable to all kinds of goods and services. However, GST is not charged on financial services and renting of residential buildings.
2. Singapore: Goods and Services Tax (GST) was introduced in Singapore in 1994 at 3%. The present rate of GST is 7% there.
3. Indonesia: Imports in Indonesia are subject to Value Added Tax (VAT) as well as GST. The luxury tax imposed on imports stands between 10% to 50%. However, there are exemptions on most exports. The GST rate in Indonesia ranges between 10% and 35%.
4. China: China has 3 different applicable tax rates. These rates are 0%, 5%, and 19%. There are only a few items that can avail the input tax credit benefit.
5. Australia: Australia witnessed the implementation of GST back in the year 2000. The rate of tax is set at 10% in Australia. The entire proceedings from the Goods and Services Tax (GST) are collected by the Central Government and are later shared with the states in certain proportions.
6. Canada: A GST of 5% is levied on the supplies of goods and services in Canada. In certain provinces, harmonised sales tax is prevalent which is set at 15%.
7. Brazil: Brazil has 6 different tax slabs. They are 0%, 1.65%, 2%, 7%, 12%, and 17%.
8. United States of America (USA): In the United States, the federal rates of tax range between 10% and 39.6% of the taxable income. The State and local governments, on the other hand, charges tax in the 0% to 13.30% tax slab. This tax is also calculated in the total taxable income.
9. United Kingdom (UK): The United Kingdom has 3 tax rate slabs. They are 0%, 5%, and 20%. Most goods are covered under the 20% tax bracket.
10. France: France has 4 different tax slabs. The rate of taxes are 2.1%, 5.5%, 10%, and 20%.

Structure of the Goods and Services Tax (GST)

The structure of GST is broadly categorised under 3 different formations. Under the Goods and Services Tax (GST) regime, the Integrated Goods and Services Tax (IGST) deals with the sales that take place within the boundaries of a state. On the other hand, the SGST and CGST deal with the sales that take place within the different states. The revenues are collected by the state in case of SGST and the revenues are collected by the Centre in the case of CGST.

However, only a few items are included under the highest tax rate, i.e. 28%, and most of the items are sin products and luxury items.

Collections of the Goods and Services Tax (GST)

The e-way bill was introduced in the month of April 2018. The GST collection for the month of April (as calculated in the month of May 2018) was Rs.94,016 crore. This was much higher than the monthly average collections since the month of July 2017, when GST was rolled out. The monthly average collection has never gone below the mark of Rs.83,000 crore after the implementation of GST. The lowest collection since the inception of the Goods and Services Tax (GST) is Rs.83,716 crore in the month of November 2017 (paid for the month of October 2017) and the highest has been Rs.1,00,000 crore in the month of April 2018 (paid for the month of March 2018).

GST Network, GSTN

The GSTN software has been developed by IT giant Infosys Limited. The software will be subject to both functional and performance audit which will be done by a third-party auditor. Till date, the GSTN has handled more than 11.5 crore returns and has processed more than 376 crore invoices after the Goods and Services Tax (GST) was rolled out last year in the month of July. At present, the number of businesses enrolled under the Goods and Services Tax (GST) is more than 1.11 crore. Out of these businesses, 63.76 lakh businesses have shifted from the then Value Added Tax (VAT) and Service Tax regime. On the other hand, the remaining 47.72 lakh businesses are new businesses that have registered themselves only after the GST rollout. The approximate number of businesses that have opted for the composition scheme is estimated at around 17.61 lakh. The Council has sanctioned refunds of around Rs.30,000 crore.

Fuel taxes and Goods and Services Tax (GST)

The Goods and Services Tax was turned into reality in the 122nd Amendment of the Constitution. The amendment has the provision of adding petrol and diesel to the GST ambit when it is favourable. However, the central government is not yet ready to bring the fuels under the GST ambit as it would require the unanimous approval of the states. Moreover, the local taxes levied on petroleum and petroleum products are the major source of the state revenues. Thus, the inclusion of fuels under the GST regime is still being discussed.

Goods and Services Tax (GST) amendments

New changes are being explored to strengthen the Goods and Service Taxes (GST) further. These changes include a new single page modular return filing system instead of GSTR 1, GSTR 2, and GSTR 3, a change in the definition of supply under Section 7 of the CGST Act, single window auditing, merging the 18% and 12% rates, and implementing a single registration instead of multiple registrations across the nation to simplify the process of filing returns.

In short, the Goods and Services Tax (GST) has come well past the initial bit of agitation and now it is a work in progress. The GST Council has been having regular meetings to strengthen the tax system and make it more effective and more compliant.