One Country One Market One Tax.
Goods and Services Tax is finally here. GST is tad bit late. Say by a decade. Starting from Canada, Australia, Japan, Europe and even Malaysia has it. All had to face its share of woes in switching to new system of taxation. Historically the idea is as new as Internet. Taxation is prerogative of every sovereign authority. In democracy there are too many sovereign authority in practice than in theory. GST will replace, Excise, Counter-veiling duty, VAT (Sales Tax), Luxury Tax, Entertainment Tax, Entry Tax and Octroi among others. But let’s note the key benefits.
Eliminate tax on tax.
As mentioned above many taxes are imposed on the price inclusive of goods. For example excise is levied when goods leave factory and is included in the price realised by manufacturer. Sales tax or VAT is levied when goods are sold by retailer. Yet again luxury tax is levied if sale is made at an establishment treated as luxurious viz 5 star Hotel.
Ease of dealing.
It is always easy to deal with one office than multiples offices. Having said that, in practice, multiplicity of returns for each State, in which sales is made besides Union Territories, takes away the said advantage. And on this score we are back to square one. Is that really a problem in computer era? But read on.
Full marks on transparency. No doubt GST is most transparent method of taxation as every party will know as to what amount of tax was paid by predecessor and he will pass on the credit to subsequent buyer who in turn will realise the difference from the next buyer. In existing system, excise and customs, these being indirect tax, its component remain hidden in the price.
Consumption tax replacing production tax.
In fact GST will mark end of era of indirect taxes which are also called production taxes. GST is essentially a consumption tax. Now if the GST rates actually pass on the input credit and result in cheaper goods, the GST will not act as a dampener or as they called it in Japan as staflation which indicated that it increased inflation yet dampened the demand causing stagnation.
Transition to GST
Most traders use Tally as a software which has been updated to be GST compliant. Since a computer app will be generating invoices, it will also generate the returns to be submitted every month. All existing excise tax and VAT payees/assesses are automatically transferred to new GST Network. New one can join online which is like any other service e.g. opening an amazon account or purchasing IBSN or buying a domain online. BTW those who have turnover upto 2 million Rupees, are exempt. Those with turnover between 2 million to seven and half million can choose to pay nominal turnover tax and opt out.
BTW Zoho dot com too supports GST and offers software.
So why are some traders protesting GST?
Read unscrupulous traders in place of ‘some’. There is a big racket going on in the country at present in which theft of tax has been made foolproof. My guess is that 50% of tax which is collected by unscrupulous traders is not paid into Government. This is the reason that Government is confident that even on reduced rate of taxes in GSTN.
The tax evasion racket
India is a big country with 100’s of small/State/Union taxes. This is how evasion is done. It is only one of many fraud which go undetected due to sheer magnitude of authorities and vast terrain.
I am a transporter/logistics operator. I buy a truck, pay registration fee, pay Commercial taxes and place it onto road. After a month I report to police that I have lost its papers. It can be done through a mobile app. On the basis of these papers I get another set of papers. Now without paying any tax, I use the same vehicle no. on another truck. This method can be duplicated many times and ghost trucks will be created. Now an unscrupulous trader Mr. X. approaches me and asks me to transport goods say ‘Pipes’. He tels me that he wants to sell without tax. I say Ok. This is how it will be done:
Mr. X will give me 5 load-full of ‘Pipes’ and 5 identical invoices with same number but one change. Destination address is different in five different destinations. And transporter will use these invoices to send his ghost trucks around the country. If any truck is stopped by enforcement and invoice is tracked, that invoice will become original rest will be ghosts and buried.
I, the transporter and Mr. X will share the tax evaded.
Industry of tax evasion
As may be seen in above example, it is so easy to evade tax that it has become an industry. They profit from evasion of tax. We as consumer pay full tax but it is soaked by Fraudsters. Now with GST, every single invoice will be tracked by GST Network and perhaps it would be possible to track it online. Thus in one stroke an entire edifice of fraud on country is fallen to ground.
It is for this reason, GST will not adversely affect the India and may work as engine of growth. But we do not know the future. Lets wait for future to happen. A caveat: Do you remember Y2K problem? Which never happened.