GST: Integration and Efficiency

THOUGHT FOR THE DAY:

GST is in the news a lot these days. Lets look at this new initiative in a little detail:

What is GST in India?

GST (Goods and Service Tax) is a comprehensive indirect tax that would be levied on manufacture, sale and consumption of goods and services at a national level. It will replace multiple taxes like CENVAT, central sales tax, state sales tax, octroi, etc. It would be levied whenever a consumer buys goods or services.

The government plans to roll out GST from April 1, 2016. Much depends on the legislative discussions and approvals. The delay in recent years in passing the GST bill has been in part due to political wrangling between the parties in power at the center, and the opposition.

efficiency

Benefits and impact of GST?

The tax sharing formula is such that big consumer states such as UP, West Bengal and Kerala will get a high share of the taxes, while the producer states such as Tamil Nadu, Maharashtra and Gujarat may lose out on revenues. To compensate, the bill provides for 1% extra tax on goods for at least two years. This extra revenue will go to the producer state. When introduced, GST will not only make the tax system simpler, but will also help increased compliance, boost tax revenues, reduce the tax levies on consumers and make exports competitive.

GST will boost the pan-India market by eliminating inter-state tax paperwork, delays in checks on state orders and stabilize prices across regions. Experts expect this to lift the country’s GDP by 1-2%.

What would be exempt from GST?

Petroleum products, potable alcohol and tobacco have been kept out of the purview of the GST. The center and the states have agreed to restrict number of exemptions to 100. All the goods and services not in this list would be taxed.

Sectors that will benefit:

  • We feel that FMCG, pharma, power sector, logistics and auto and auto ancillaries would be the sector gainers from GST implementation.
  • More than any specific sector, we feel that GST getting legislative approvals would be a confidence booster for the markets and a reforms related achievement for the central government.

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