Goods and Services Tax or GST: Starting on April Fools Day of 2017 in India

A 4-tier GST rate structure of 5%, 12%, 18%, 28% decided, 0-tax rate to apply to 50% of items in CPI basket, including food grains used by common man. Highest tax slab will be applicable to items which are currently taxed at 30-31%. Lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess, was decided by the India's GST Council on Thursday Nov 3, 2016.

GST claims to make tax base comprehensive, as virtually all goods and services will be taxable, with minimum exemptions. GST will be a game changing reform for the Indian economy by creating a common Indian market and reducing the cascading effect of tax on the cost of goods and services. It will impact the tax structure, tax incidence, tax computation, tax payment, compliance, credit utilization and reporting, leading to a complete overhaul of the current indirect tax system. GST will have a far-reaching impact on almost all the aspects of the business operations in the country, for instance, pricing of products and services, supply chain optimization, IT, accounting, and tax compliance systems.

GST is envisaged as neutral in its application and attractive. The advantages of GST are:

Wider tax base, necessary for lowering tax rates and eliminating classification disputes
Elimination of multiplicity of taxes and their cascading effects
Rationalization of tax structure and simplification of compliance procedures
Harmonization of center and state tax administrations, which would reduce duplication and compliance costs
Automation of compliance procedures to reduce errors and increase efficiency

Destination principle: The GST structure would follow the destination principle. Accordingly, imports would be subject to GST, while exports would be zero-rated. In the case of inter-state transactions within India, State tax would apply in the state of destination as opposed to that of origin.

GST would replace most indirect taxes currently in place such as:

Central Taxes
Central Excise Duty [including additional excise duties, excise duty under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955]
Service tax
Additional Customs Duty (CVD)
Special Additional Duty of Customs (SAD)
Central Sales Tax ( levied by the Centre and collected by the States)
Central surcharges and cesses ( relating to supply of goods and services)

State Taxes
Value-added tax
Octroi and Entry tax
Purchase tax
Luxury tax
Taxes on lottery, betting and gambling
State cesses and surcharges
Entertainment tax (other than the tax levied by the local bodies)
Central Sales tax ( levied by the Centre and collected by states)

The key imperatives are:
Understand key areas of impact in their business
Prepare different scenarios for the design and application of GST
Continually track policy development regarding GST and update prepared scenarios
Identify any areas of adverse impact and prepare contingency measures
Identify issues and concerns requiring representation to authorities and develop a strategy for effective advocacy

Tax payers need to be GST compliant to be able to test system changes in time. Depending on the operating geographies, size and sector, the changes would be substantial and may require proactive planning with a time-bound action plan. More info and registration at https://www.gst.gov.in

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