Goods and Services Tax ( Fiscal Policy )

The Goods and Services Tax (GST) the biggest reform in Indirect taxation of India
has been rolled out from 01st July, 2017. It extends to whole of India. It is based on
the principle of destination-based consumption taxation.By the Constitution
amendments passed in parliament and ratified by various state, now the Central
and State governments will have simultaneous powers to levy the GST on Intra-
State supply. Though the Parliament alone shall have exclusive power to make laws
with respect to levy of Goods and Services Tax on Inter-State supply. GST to be
levied by the Centre would be called Central GST (CGST) and that to be levied by
the States would be called State GST (SGST). An Integrated GST (IGST) would be
levied an inter-state supply of goods or services.

As the government wants to have unified tax structure across the country the
cooperation is required from every state on various matter, so The Goods and
Service Tax Council (GSTC) was formed. GSTC comprises of the Union Finance
Minister, the Minister of State (Revenue) and the State Finance Ministers to
recommend on the GST rate, exemption and thresholds, taxes to be subsumed and
other matters. The whole GST system will be backed by a robust IT system. In this
regard, Goods and Services Tax Network (GSTN) has been set up by the
Government. It will provide front end services and will also develop back end IT
modules for States who opted for the same.
Major taxes subsumed in GST are:

• Central Excise Duty

• Duties of Excise (Medicinal and Toilet Preparations)

• Additional Duties of Customs (CVD)

• Special Additional Duty of Customs(SAD)

• Service Tax

• State Value Added Tax (VAT)

• Central Sales Tax (CST)

• Entry Tax

• Purchase Tax

• Luxury Tax

• Taxes on lotteries, betting and gambling

GST would apply on all goods and services except Alcohol for human consumption.
GST on five specified petroleum products (Crude, Petrol, Diesel, ATF & Natural
Gas) would by applicable from a date to be recommended by the GST Council.
Registration of business entity under the GST Law implies obtaining a unique
number from the tax authorities for the purpose of collecting tax on behalf of the
government and to avail Input Tax Credit for the taxes on his inward supplies.
Without registration, a person can neither collect tax from his customers nor claim
any Input Tax Credit of tax paid by him. Advantages of registration to a taxpayer:

• He is legally recognized as supplier of goods or services.

• He is legally authorized to collect taxes from his customers and pass on the credit
of the taxes.

• He can claim Input Tax Credit of taxes paid and can utilize the same for payment
of taxes due on supply of goods or services.

• Seamless flow of Input Tax Credit from suppliers to recipients at the national
level.

• Increases the credibility of the Business, thus helps in attracting more customers.

To give relief to the small businessmen a threshold limit of Rs 20 lakhs has been
announced. Small businesses having all India aggregate turnover below Rupees 20
lakh (10 lakh if business is in Assam, Arunachal Pradesh, J&K, Himachal Pradesh,
Uttarakhand, Manipur, Mizoram, Sikkim, Meghalaya, Nagaland or Tripura) need
not register. The small businesses having turnover below the threshold limit can
voluntarily opt to register. But then then the liability to pay GST shall arise
immediately even if the threshold limit is not reached. Further following persons
are not required to take the registration:

1.Persons dealing in goods or services or both that are not liable to tax or wholly
exempt from tax registration

2.An agriculturist, to the extent of supply of produce out of cultivation of land.

persons are not required to take the registration.
3.Persons dealing in goods or services or both that are not liable to tax or wholly
exempt from tax.

4.An agriculturist, to the extent of supply of produce out of cultivation of land.

5.Persons engaged in making supplies the tax on which is liable to be paid on

reverse charge basis by the recipient. More detail will be discussed in Reverse
charge topic.

The GST law also enlists certain categories of suppliers who are required to get
compulsory registration irrespective of their turnover, i.e. no threshold limit shall
apply. Those are listed below:

• Inter-state suppliers of goods i.e. out of State.

• A person receiving supplies on which tax is payable by recipient on reverse charge

basis

• Casual taxable person who is not having fixed place of business in the State or
Union Territory from where he wants to make supply.

• Non-resident taxable persons who are not having fixed place of business in India.

• A person who supplies on behalf of some other taxable person (i.e. an Agent of
some Principal)

• E-commerce operators, who provide platform to the suppliers to supply through it

like Flipkart, Amazon.

• Suppliers who supply through an e-commerce operator. Example – Person selling

goods through Flipkart, Amazon.

• Notified Ecommerce operators – Housekeeping, Taxi and Hotels Services.

• TDS Deductor and Input Service Distributor.

• Those supplying online information and data base access or retrieval services
from outside India to a non-registered person in India. In Reverse Charge
mechanism the liability to pay tax rest with the recipient of supply of goods or
services instead of the supplier. The chargeability gets reversed that is why it is
called reverse charge.

UPA vs NDA

In 2011, the Congress-led UPA government introduced the Bill in the Lok Sabha
and had set the rollout date for the new indirect tax regime as April 2012.
Incidentally, BJP-ruled states, including PM Modi’s Gujarat had red flagged the
reform. In the last two years, the opposition has never failed to mention this during
GST negotiations.

As Congress claims credit over the country’s single biggest tax reform, let us have a
look at the difference between the 2011 GST Bill and the current (2014) Bill.

GST coverage
The 2011 Bill defined GST as any tax on the supply of good and services, apart from
taxes on the supply of petroleum crude, high-speed diesel, motor spirit (petrol),
natural gas, aviation turbine fuel, and alcoholic liquor for human consumption.

The 2014 Bill has the same definition for GST, however, it excludes the tax on
supply of alcoholic liquor for human consumption. Further, the Centre will impose
an additional levy on tobacco.

Provisions in the 2011 Bill that have been deleted from the 2014 Bill
Good and Services Tax Dispute Settlement Authority: The 2011 Bill provided for
the creation of a Good and Services Tax Dispute Settlement Authority to arbitrate
disputes between the central and state governments. But it was believed that this
will negatively impact the tax system by affecting its harmonised structure and also
cause loss of revenue. The 2014 Bill has deleted the provision for the creation of
such a dispute settlement authority.
Restrictions on states in the taxation of special goods: In the previous Bill, the
Constitution had imposed restrictions on states in the taxation of goods that were
declared under law by the Parliament – of special importance in inter-state trade or
commerce. This provision has been deleted from the current Bill.
Article 366: The 2011 Bill had removed the goods listed under Article 366 (related to
the sale or purchase of goods) from its ambit. It further specified that this provision
was not to apply to a state law which has already imposed GST. Both these
provisions have been removed from the 2014 Bill.

Entry tax of goods into a local area for use or sale only to the extent levied by a
Panchayat or Municipality: This was allowed in the 2011 Bill, but has been deleted
from the current Bill. The GST Committee justified this move by saying that states
must be empowered to collect entry tax for distribution to local bodies instead of
leaving the collection power in the hands of different local bodies.

GST Council: Functions under the 2011 Bill – recommendations on taxes to be

subsumed, exempted goods, threshold limits, rates. Decisions to be taken by
consensus. Contrastingly, the functions of the 2014 GST Council, in addition to this,
also includes model GST laws, principles of levy and place of supply, and
apportionment of IGST. For decisions, Standing Committee recommendations will
be incorporated.

Additions made to the current GST Bill

Additional Tax (in interstate trade): Tax (up to 1%) on the supply of goods in
interstate trade will be given to supply states, for two years or more. However, the
Congress demands withdrawal of the 1% tax on manufacturing and providing for an
independent dispute redress mechanism.
Compensation to states: Parliament may provide for compensation to states for a
maximum of five years.
GST rate: The BJP government has raised the cap on GST tax from UPA’s
recommendation of 18% to 28%, dividing the tax payable into four – 5%, 12%, 18%
and 28%.
Four different GST bills: The Lok Sabha on April had approved the four bills —
Cental GST Bill, Integrated GST Bill, Union Territories GST bill, and
Compensation law.

After the Congress government had introduced the Constitution (115th Amendment
) Bill, 2011 or GST Bill, the Standing Committee had made various
recommendations to it. However, in the end, the party was unable to convert it into
a law even though it tried to extend the session by a few days to push the Bill
through the opposition.
What I learnt in Economics:

The use of various limited resources in order to ensure the satisfaction of the needs
of the man and the people in general, as well as the relationship between the
parties to economic activities. Also, the economy itself, as a combination of means of
production, which people use to satisfy their needs.

What I did not learn in Economics:

Economic history behind Macroeconomics. Why we do things the way we do them?

Why do we consider GDP as our Index? While economics is an intriguing and an
essential subject, I was unable to come up with my own opinions regarding the
topics. Unable to develop a strong framework for the subject, as an engineer.
Behavioural economics would be an interesting addition to the curriculum. Also,
analysis of the crashes that happened in the past for eg. 2008 financial crisis, the
great depression.