Is GST really a One nation, One tax system?

Is GST really a One nation, One tax system?

GST is considered the biggest indirect tax reform of Independent India. Being projected as “one nation, one tax,” GST has created optimism for businesses. The main objective of this Goods and Services Tax is to replace multiple taxes with a uniform tax on supply chain of goods and services. The aim is to remove the cascading impact of tax on tax and create a national market for goods and services. The framework of the GST, however, appears to be drifting away from this. Let's see if the GST is indeed “one nation, one tax.”

No

1. Multiple tax slabs

We have ended up with 31 GST legislations, 29 VAT legislations and a union legislation on Central Excise instead of one single tax for the entire nation. The Constitution has concurrently empowered centre and states to levy GST on goods and services supply within the state. There is a CGST and around 29 state laws on GST as each state has its own SGST. The Centre has further been empowered to levy the tax on supply of goods and services during trade between entire sates or commerce (IGST). The net result? A whopping 31 legislations of GST, each different from the other namely CGST, IGST and SGSTs.

Value Added Tax and Central Excise Duty on specified products like petrol, diesel, aviation fuel and alcohol continue. Apart from these indirect taxes, tobacco and tobacco products have been subjected to central excise duty tax besides GST.

2. Too Many Tax Rates

Most of the countries with GST have a single tax rate. Some have two. But India has four different tax rates for GST. Service tax which earlier had one rate is now divided into 4.

3. Tough to Comply

Number of returns to be filed under GST will rise enormously as a result of this. Small businesses with poor power supply and low internet connectivity will either struggle to file their returns or go out of business.

4. Scope for Evading

Many businesses are eyeing the scope for evasion. According to the law, businesses with less than INR 20 lakhs yearly turnover can be exempt from GST. Small shell companies may grow to evade the tax system as a result.

5. Inadequate Coverage

Close to one-third of products and services are not under GST. This includes petrol and liquor industry and parts of realty. This will create a major issue for companies that take services or products from those outside the GST ambit, for example, restaurants looking to purchase alcohol for their menu.

6. No Limitations on GST Laws

Article 246A empowers the Parliament and state legislatures to make laws for GST. It places no limitations on laws on GST. So, n number of permutations and combinations are possible. Nothing in the constitution prevents the centre and state from enacting CGST and SGST in ways that deviate from the GST Council. GST Council can only make recommendations, not binding statutory laws. If the regulatory body does not have the power to make changes for the benefit of uniformity, what good is GST?

Yes

1. Hurts none, benefits everyone

The introduction of the GST is transformative as it benefits everyone and hurts none. Lower prices of most products and services benefit the consumer. This is because post tax rate on most products and services is lower than pre GST.

2. Ensures Tax Compliance Across the Nation

Businesses will benefit because there will be easier tax compliance on account of lower tax rate and simpler interstate movement.

3. Digital GST For Uniformity across states

As GST online is digital and online, taxes need to be subsumed across the state, varying far less. More tax papers means more revenue and easier administration across states.

4. Digital Trail

As there will be less evasion, and more taxpayers, there will be a broad digital trail of taxes and businesses. More investments, more jobs, and higher growth will result. Tax ushered in will boost the economy through one tax for one nation.

The biggest problem is that the GST introduced is far from ideal. A lot of compromise has been the consequence of letting states have the power to make changes. There are closer to 6 different rates rather than 1 or 2 at latest count. States have been given power to levy taxes on services, but allocation of taxation limits and jurisdiction remains a critical issue. Businesses are concerned about assessment hurdles in getting input credit and compliance. No other country has implemented GST where 60% tax is in services, less than 20 percent in manufacturing and agriculture which is untaxed. Are the states trained to handle the disparities? While sincere attempts have been made to resolve issues, it remains to be seen if this philosophy of any GST is better than no GST will be successful. Forming the cornerstone of cooperative federalism, a single GST would have been glorious. But just how bright can India's future be, with “one nation, one tax” reforms that are questionable? A lot depends on the economy, and resolution of compliance issues with respect to this.