Why GST May Be Good For Rest of India and Not J&K

In Canada, the goods and services tax (GST) levied on most goods and services are imposed to provide revenue for the federal government. The GST is paid by the consumers and remitted to the government.

In Australia the goods and services tax (GST) is a value added tax, having 10% on most goods and services. GST is levied on most transactions and is refunded to all parties, excpet the final consumer.

The Goods and Services Tax (GST) was proposed and launched in Hong Kong on 19^th July 2006 under severe controversy. The issue was debated and the plan to levy GST was dropped on 5^th December 2006 by the Hong Kong Government.

GST in India

The Goods and Services Tax (GST) is an upcoming system of taxation in India which will merge many individual, central and state applied taxes. The GST sweep “subsumes” many indirect taxes into a single label. Presently, the Central and State level taxes are as follows:-

Central Taxes: Central Excise Duty, Additonal Excise duty, Service Ta, Additional Customs duty known as countervailing duty,Special additional duty of customs.

State Taxes are: Subsuming of State Value added taxes / sales tax, Entertainment tax other levied by local bodies and central sales tax,Octroi and Entry tax, Purchase tax, Luxury tax, Taxes on Lottery, betting and gambling.

The Central Government has agreed to sweep excise duty and additional excise duty, service tax,  surcharge and cess and central sales tax into GST. Similarly, the states have agreed to give up VAT (sales tax), entertainment tax, luxury tax, taxes on gambling, octrio and entry taxes and purchase tax to GST. Hence, GST will replace the variety of indirect tax rates by applying four standard rates (brackets) viz,5%, 12%, 18% and last 28% which has been decided by the GST council meeting held on SKICC Srinagar on 18^thMay 2017 excluding Gold which remained undecided. The bracket detail is under:-

The most important benefit from GST is that it will reduce the time taken for goods to go across the country. If a truck ferrying produce from J&K to Azadpur Delhi passes through two different states, it is stopped at the different checkposts and subjected to entry tax before being flagged off from each state. It is estimated that by imposing GST, around 6 hours out of 24 hours daily travel time can be minimized. This means that poducts will arrive in better farm-fresh condition.  

Illustration on GST

J&K’s main concern is to levy GST is on Handicrafts, Handlooms and Tourist sectors. Countries like Australia having GST module is providing refunds to tourists. 

GST and Power Sector

As the coal will attract only 5% bracket of GST which means the rates will come down from 11.7% in the current tax regime, seems like a major breather in “Power Sector”. It would help to reduce the final tariff which passes on to the consumers. 

A Senior Executive of NTPC Ltd.(Nationaly Thermal Power Corporation Limited), the country’s largest power generating company said, “We were paying 6% excise duty and other cess and taxes over and above. The new five per cent rate does not have the coal royalty amount subsumed, hence it would still be lower than the current rate”

Also there is an absence of tax levied on Power generation, distribution and consumption as it is not possible to avail the input tax credit. Similarly, there is no benefit of input tax credit in respect of state VAT on inputs used in the process of power generation and distribution.

GST and constitution of J&K

The GST in India is governed by the Constitution in the 101st Amendment Act 2016, the 122n Amendment Bill. The Constitution of Jammu and Kashmir is a legal document which came into effect on 26th January 1957 (as of 2002). It has 29 amendments of whichPart VIII reads as Finance, Property and Contracts (114-123) and Part IX reads of Public Services (124-137). With the implementation of GST, the overall control would remain at the Central Level. The GST is considered  to be simple and easy because it is administered at only from the Centre. 

Keeping in mind the federal structure of India, there will be two components of GST – Central GST (CGST) and State GST (SGST). Both Centre and State will simultaneously levy GST across the value chain. Kashmir Traders and Manufacturers Federation (KTMF) flayed the government for not taking the business community to incorporate their suggestions on tax rates. KTMF said GoI can’t implement GST in the state keeping in view the State’s special status owing to the Article 370. Thus, KTMF claimes that unless GoI ensures that GST won’t tamper with the State’s special status and financial autonomy, it will not permit the implementation of the one nation, one tax.

Centralization of tax GST

Centre levies and collects Central Goods and Services Tax (CGST) and States levies and collects the State Goods and Services Tax (SGST) on all transactions within a State. The input tax credit of Central GST will for discharge the CGST liability on output at each stage. Similarly, the credit of State GST paid on inputs will allow for paying the SGST on output. No cross utilization of credit would be permitted.

Due to multiple indirect taxes being levied by the Centre and State, presently there are many hidden taxes. Under GST, there would be only one tax from the manufacturer to the consumer leading to transparency of taxes paid to the final consumer.

GST & IT 

IT is the most important sector to implement GST. By GST multiple indirect taxes at the Central and State levels are being replaced. With a robust end-to-end IT system the GST would be simpler and easier to administer than all other indirect taxes of the Centre and State. Along with an efficient IT system the fairly leak proof concept of GST will result in better tax compliance. 

Today, most IT service providers have a multi-locational presence with the preferred mode of service tax compliance being on a centralized basis from a single location. As opposed to paying service tax to a single jurisdictional service tax authority, the service provider may well be required to pay GST (State GST, Central GST, IGST, as the case may be) to GST authorities across multiple States.