Economy of a country fully depends on
its revenue structure and a major source of public revenue in any country is
taxation. In India the tax is levied by the ancient time. It is written in a
Sanskrit mahakavya raguwansham by the Kalidas for the king Delip that
“It was only for the good of his subjects that he collected taxes
from them, just as the Sun draws moisture from the Earth to give it back a
In India, the system of taxation as it
is known today, has been in force in one form or another even from ancient
times. There are references both in Manu Smriti and Arthasastra to a variety of
tax measures. The detailed analysis given by Manu Smriti and Arthasastra on the
subject clearly shows the existence of a well-planned taxation system, will
develop a state. So if the tax structure of any country is simple and
understandable by its citizens then the country will grow and people will
willingly contribute in taxation and we will get the Progressive GDP and vice
As the time changes we need
improvements in the methods and structure of tax system so that we can increase
the tax collection and make it simple, transparent and understandable to the
citizens. So tax reform is the process of changing the way taxes are collected
or managed by the government and is usually undertaken to improve tax
administration or to provide economic or social benefits.
In India the tax structure opted after
the Independence was very critical and filled with numerous problems such as
tax evasion, irregular tax collection, dual taxation etc. Due to that people
started taking tax as a burden instead of contribution so government felt the
need for reforms and the first step taken by the government towards tax reforms
in the mid 1980, government issued first long term fiscal policy and as well as
prepared the new system for Indirect tax structure after that the reforms
accelerated in 1990s due the liberalisation after that government never look
back and the process to make taxation simple started but the process and
tax-rats was different in different stats so government felt the need of a
uniform tax structure and on the recommendation of Vijay Kelkar committee
government introduced Goods and services tax in 2006 and the GST come into
force from 1 July 2017 i.e. implementation 122nd amendment by the
India. After the implementation the multi indirect tax of central and state
converted into a single tax in india i.e. GST .
To find out the impact of GST in the behalf indirect
tax system in India.
Benefits of Study:
The study helps in understanding the impact of
Goods and service tax launched by government to resolve the challenges and
problems in current indirect tax structure in India.
Overview of major tax
reforms in indirect taxation:
The efforts to reform
India’s tax system began in mid 1980s when the government announced a Long Term
Fiscal Policy, 1985. This policy recognized that the fiscal position of the
country is going downhill and there was a need to make changes in the taxation
system. In that decade, a technical group to review and rationalize the central
excise duties was established and this led to introduction of Modified System
of Value-Added Tax (MODVAT) in 1986. To rationalize the custom duties, the
harmonized system (HS) of the classification of goods was introduced.
Government appointed a
Tax Reforms Committee under Prof Raja Chelliah to lay out agenda for reforming
India’s tax system. This TRC came up with three reports in 1991, 1992 and 1993
with several measures, which can be summarized in these points:
Reforming the personal taxation system by
reducing the marginal tax rates.
Reduction in the corporate tax rates.
Reducing the cost of imported inputs by
lowering the customs duties.
Reduction in the number of Customs tariff
rates and its rationalization.
Simplifying the excise duties and its
integration with a Value-Added Tax (VAT) system.
Bringing the services sector in the tax net
within a VAT system.
Broadening of the tax base.
Building a tax information and
Improving the quality of tax administration.
The tax reforms that
began with the Chelliah Committee recommendations are still going on. Later on,
government appointed the Vijay Kelkar Committee in 2002 which further provided
direction to the tax reforms in the country.
Vijay Kelkar Committee
The latest impetus to indirect
tax reforms in India came with the recommendations of the Task Force on Direct
& Indirect Taxes under the chairmanship of Vijay Kelkar in 2002.
First Indirect Tax Reform
occurred in India when the Modified Value Added Tax (MODVAT) was introduced for
selected commodities in 1986 to replace the Central Excise Duty. It was
gradually extended to all commodities through Central Value Added Tax (CENVAT).
The states also followed the suit and enacted the VAT acts to replace the sales
tax with Value Added Tax. Following are the key indirect tax reforms done.
Reduction In Custom
In 1990, the custom duty
on non-agricultural products was around 128%. It was brought down gradually.
Currently, the average custom duties are 11-12%, however, they range from 0 to
Central Excise duties
were first replaced with MODVAT and now CENVAT is applicable. The number of
different types of duties was cut down.
Service tax was first
introduced on some limited services in 1994-95 at 7%. The rate was gradually
increased and so was the number of taxable services. Currently, we pay up to
15% service tax on around 119 services.
Goods And Services Tax
The GST is a biggest
change in the current tax system when it is introduced on 1 july 2017 in the
GST implementation in
country was a big impact on every sector .After the GST introduce a manufacture
sector should stand to benefit due to removable of complex tax system. GST has reduce the some of the tax rate from 25%
to 40% with certain categories being tax to low rates .GST rates can be
classified 0% to 28% there could be a reduction of tax rates in several item
features of the GST are as under:-
Dual Goods & Service Tax : CGST and SGST
Inter-State Transactions & the IGST : The Central Government levied IGST when goods sale one state to
another state or inter-state sale .IGST pay to Central government after adjusting of input tax which
already pay to the government on behalf of purchase goods
UTGST: The Unitary Government
leaved UGST when goods and services supply with in the UT .
Consumption Tax: GST
will be a consumptions tax.This means that all SGST which is collected by the
customer is merged in GST.
Computation of GST on the basis of output tax and input tax : The ouput tax collected by assesse when the goods sold to the
customer and input tax pay the assesse when Goods purchase to the dealer after the adjustment of ouput tax and input tax final amount pay to
Government. For eg: output tax is 1000 Rs and input tax is 300 Rs so final GST
pay to Government is 700 Rs.
Payment of GST when Goods and Services Supply in state: The Central and State GST paid each other respectively in his
GST IT System: GST
network are setup online that share sevices over network i.e. tax payer ,tax
return GST registration etc.
Procedure of INPUT TAX in GST Central
and state government allow to Input Tax Credit for CGST &
GST on Imports :
Import of goods will be subject to basic customs duty and IGST.
10. Keeps of Records: A Taxpayer maintain the separate books of accounts for the
utilization and refund of the input tax credit.
So we can say that GST is a destination based
indirect tax which has replaced several other
indirect taxes earlier levied in the country.
The tax has created a coalition between central and
state levels and reformed the taxation
regimes. It has provided a basic single and cooperative
linkup between the Indian markets which in
turn will boost the economy as a whole. Our nation has gained a lot from GST
but there have been some losses too
All GST system is online is called GSTN.
It is helpful to assesse to do everything in online like registrations,
returns, payments, etc which would make easy and transparent.
It is paperless system.
GST will be common for all the state and
UT such as tax rate of GST is equal to across the country and it is ease to
GST will reduce hidden cost of doing
business and the customer easy to know GST amount which is to be pay
Reducing the cost of tax return because
in old system business man pay different tax return like service tax , excise
duty sale tax etc but in new system only one return pay is GST return.
The FDI was facing problem to development in india because they don’t
understand the multi tax system in india. Now is easy to understand the tax
system after the implementation of GST
because it already implemented around 150 other countries.
GST was replaced multiple tax system which was
leived by Central and State Government. Backed with a robust end-to-end IT
GST is the better result of different
tax combine into a single. In the design of GST that would incentivize tax
compliance by traders.
GST is expected to decrease the cost of
collection of tax revenues of the Government, and will therefore, lead to
higher revenue efficiency. The cost of collection of tax revenues of the
Government is excepted to decrease by GST and government revenue is assumed
that increased after implementation of GST.
Because of efficiency gains and prevention of leakages, the overall tax
burden on most commodities will come down, which will benefit to all
Disadvantages of GST
According to the experts, terms such as GST which
includes CGST, SGST, and IGST is nothing but just a new name in accordance with
the existing tax system, kind of old wine in a new bottle.
The Service Tax which stood at 15% in
the previous regime has now been replaced with GST at 18%. As such many
services have become costlier with telecom, airline and banking affected
majorly. In fact, insurance and petroleum are also said to be majorly affected
by the enactment of GST Tax.
The GST Act has given the control of
businesses to Central and State Governments with businessmen binding
by-laws. This has given rise to complexity for many businessmen across the
Post GST implementation, the first few
instances of application have resulted in high tax outgo for businesses.
Businesses are trying to claim the credit of input tax but several cases
of mismatch of data are coming up. As a result, there is chaos among the tax
The opposition has called it as a
Disability Tax as many of the things related to disabled people which were
earlier tax-free are now included in GST taxation. Prior to implementation of
GST, brail paper, typewriter, hearing aid and motorised wheelchair were
tax-free whereas these things are being taxed now. The opposition has made
pleas to roll back the tax on such items.
On one end, the government is trying to
give a push to banking services and insurance in India and on the other end,
the government has decided to tax banking and insurance service at higher rates
when compared to the previous rates.
GST has also had an impact on discount
and reward programs as well. The product is being taxed on the rates
pre-discount whereas the products were earlier taxed at post discount prices.
Most of the companies have also suspended reward programs for temporary basis
because of complexities of GST.
The government has chosen a mid-year
launch for GST and this will lead to problems in taxation and reporting during
the end of the financial year. Ideally, the government should have launched GST
at end of financial year as this would have avoided a lot of confusion during
taxation and reporting.
As per GST, the seller requires
registering in all the states that it does business in and it has increased the
complexity for the seller. The government should have created a provision for
centralized registration of State GST as this would have helped many sellers
during the rollout.
GST is the new regime of indirect tax in the nation which has
modified the existing indirect tax rules. It has scheduled a coalition between
central and state government amidst the cry for better taxation system which it
duly delivered. However, a coin holds two sides, and as such GST has both, some
advantages and some disadvantages.
Tax structure in
tax structure is classified in CGST ,SGST ,UTGST and IGST. GST
Tax Rate is 0%, 5%, 12%, 18% and 28% apply on goods in India and GST may go
up to 40 per cent after the GST Council proposed raising the peak rate. The
lowest rates will be applicable for essential items and the highest for
luxury and demerit goods.
tax was raised rapidly from 12% to 14% to 15 % which was harmful for the
service industries like airlines, telecom, restaurants ,hotels etc. Service industries is benifical after the
implementation of GST.FMCG raised upto 24 to 25 percent but after the GST
tax system it may reduce to 18 percent
but some of the tax are in 28% which is disappoint for the market . As the
telecome affected by GST system 18 to 15 %. Therefore, these goods do not come
under VAT and have no input tax credit.
taxes to be engaged under GST are Central Sales Tax, Central Excise Duty, Service
Tax, Countervailing Duty, Special Additional Duty of Customs, Central
Surcharges and Cess like cess on rubber, tea, coffee and national calamity
taxes to be absorbed under GST are Value Added Tax, Entertainment tax, Luxury
tax, Taxes on lotter, Betting and gambling, Tax on advertisements ,State Cess,
Octroi, entry tax and purchase tax
and service taxes convert to CGST, Value Added Tax and other state taxes convert
to SGST. Cental Sale Tax will be replaced with IGST.
four-tier tax structure
new tax structure was carefully crafted to keep both the burden of the common
man and inflation rates in mind, therefore four separate tax rates a zero rate,
a lower rate, a standard rate, and a higher rate introduced.
v Zero rate
The zero rate tax is a nil tax rate that is applied
on goods and services. This is equivalent to tax exemption and does not have
any effect on the price of the product. Items that are eligible for zero rate
tax are decided by the government.
As per the four-tier tax structure, the zero rate
tax will be applied on 50% of the items of the consumer price index (CPI)
basket – an index that constantly measures prices of commonly purchased
consumer goods and services to measure inflation. The zero rate items could
include items such as, food grains, milk, curd, and other food items like eggs,
cereal and meat. Also, metro travel, education and healthcare are exempted from
v Lower rate
lower rate of 5% will be applied on the rest of the items in the CPI basket and
other items of mass consumption. This includes food items like sugar, tea,
coffee, oil, and other essentials like PDS kerosene and LPG. Since the taxation
on coal is likely to reduce from 11.69% to 5% under the GST regime, electricity
generation is expected to be less expensive. The GST council has decided to
place transport services in the 5% sector, which is applicable to Ola and Uber
aggregators. Air-conditioned train tickets will be taxed at a rate of 5%, while
non-AC train tickets will be exempt from GST.
v Standard rate
are two standard rates that have been finalized by the GST Council: 12% and
18%. Imagine a product, which is currently taxed at 13%, charged a rate of 18%
GST. This would increase the price of the product by 5%, leading to inflation.
To avoid this, the GST council decided to tax all goods and services that are
currently taxed at 9-15% at a standard rate of 12%. Processed foods will also
be taxed at 12%. The rest of the goods and services will be taxed the second
standard rate of 18%. Toiletries like hair oil, soap, and toothpaste will be
taxed at 18%. Also, capital goods, industrial intermediaries, iron and steel,
financial and telecom services will be included under this sector.
v Higher rate
A higher rate of 28% will be levied on white goods
such as washing machines, air conditioners, refrigerators, small cars, etc.
Aerated drinks and cement are also included in this tier.
Previously, the tax on white goods was around 27%
(including an excise of 12.5% and VAT of 14.5%), but the cascading effect elevated
the tax as high as 30-31%. This will be minimized by the new higher rate of
GST may at first come across as a mere tax change, but
as we ponder further, one may observe that GST will have a multifaceted impact
on the business. Given the omnipresence of indirect taxes in almost every
business transaction, any change in indirect taxes would practically affect
every sphere of business.To understand the impact of GST is not a change in tax
system but it is a reform. GST will affect majorly on finance and accounts
system, taxation ,Pricing etc.
Every change in indirect taxes, (however small or big
it might be) always has a business repercussion. Then the real question that
begs attention is, as to ‘how is GST change different from other indirect tax
changes? And why is the GST transition touted to be a game changer? The answer
to this question lies in the very fact that GST will not just restructure
taxation but it will seminally influence the way Businesses will function in
India. This ability to influence a major business change makes it the ‘game
changer’ it is touted to be.