Goods and
Service Tax (GST) - 1st White Paper Released by Indian
Government for Discussion
Over the last 30 years, the Indian government has
implemented various taxes at all possible levels - sales tax, excise duty,
octroi, fringe benefit, countervailing duty - just to name a few! Earlier this
year, the government announced an ambitious plan to roll out a unified tax
system the Goods and Service tax - which was to combine all these taxes and
simplify the entire system for the state, centre, enterprise and end consumer.
Key points: In a white
paper released yesterday, the government outlined its
thoughts on how this tax would be structured. The key
highlight was the implementation of 2 GSTs - one by the
centre and one by individual states. Furthermore, new
legislation will be introduced with the intention to
harmonize various disparate laws to ensure effective
implementation and execution of the tax system. The
rates for goods will be different from that for services
while necessary goods will receive the benefit of lower
taxes. The Finance Minister has commented that he
believes the combined rate to be in the range of 14-16%.
This tax reform can be viewed as the single most
important legislation for India this century. Currently,
the cascading tax system makes it cumbersome for small &
medium enterprises to access capital and keep costs low.
In a country where the infrastructure is poor, logistic
costs, delays and debtors affect margins significantly -
working capital is absolutely essential to sustain
business. Excise duties imposed by various states made
access to working capital more expensive. The
implementation of GST will do away with this requirement
making it more profitable for SMEs and hence encouraging
entrepreneurship and promoting employment.
Impact on Sectors: One can see the smaller cars getting
cheaper. The current tax rate for small cars is 24%.
Luxury cars should remain expensive although the current
draft does not discuss this. It is unlikely India will
change its stance on luxury vehicles being taxed higher
as it is uncompetitive for the domestic manufacturing
industry.
