India Awakes to GST

India today awakes to the new indirect tax regime with introduction of General Goods and service Tax (GST). It is another disruption in independent India in recent month after demonetization and likewise, it is a good disruption for the economic growth of the country and making life easier for its people.

In management terms, disruption is usually considered as an effective strategy to bring a major change in the way things are done. The old ways are out and new ways in.

When a disruption occurs, we have to unlearn the old ways of life and learn new ways.

Humanity also constantly evolves and gives rise better ways to make life and society more purposeful, easy and enjoyable even at the cost of some pain during the change.

While evolving, the humanity has to take corrective actions during the journey whenever things go wrong. It is inevitable in any system.

The human nature always resists the change. With status quo people feel comfortable. But without change, there can’t be any refinement and progress too.

India's independence in the year 1947 was the biggest disruption in the history. The disruption on one hand resulted in freedom for India from the British rule and on the other hand the region was dissected in two, rather three parts, one part remained India while other two parts, separated by thousands of miles on the west and east of India were given the new identity as a new nation, Pakistan. The disruption caused, riots, killings and migration of people from one nation to other based on religious identity. The havoc resulted in killing of more than a million people and displacing millions and millions from their homeland. Indian nation still moved ahead and today it is a one of the biggest democracy and fastest growing economy. Those faulted post disruption in the journey are still trying to evolve as a democracy even after losing the eastern part in the process.

IT and automation was a major disruptor when technology started replacing man. It is still threatening the mankind but the humanity is moving ahead while reaping rich benefits of the change.

The recent demonetized of Rs. 500 & Rs 1000 notes and re-monetization was another disruption in India. The nation recovered and recovered well from it. The move is leading in big ways to wiping out majority of black money, digitization of transactions, transparency, widening the tax base and better tax compliance and many benefits are still under way.

Goods and Service Tax or GST is considered as one of the biggest fiscal reform in India after the independence which is being launched from midnight of 30^th June, 2017. It is again a major disruptor of the old ways in Independent India. All business, large or small will be impacted by GST. The GST law, a constitution amendment bill has been passed by the parliament and all state governments (except J&K) and the GST rates have been finalized by the GST council represented by all states. The launch of ONE NATION ONE TAX will certainly cause a disruption for some time but ultimately benefit the consumers as well as the economy. This has also helped in economic integration of  the centre and states by having a common tax base and sharing it.

Let us see what GST is and what are the advantages and disadvantages.

GST is a value added indirect tax on goods and services. It will replace all indirect state and central taxes by one uniform tax throughout the nation.

What are advantages of GST:

·       It reduces number of taxes to one tax. It will result in simpler tax environment.

·       India will emerge as a common market with One Nation One Tax philosophy.

·       GST is a transparent tax system.

·   It will help to build corruption free tax administration due to digitization and integration of entire process.

·       Due to lower burden of taxes on the manufacturing sector, the manufacturing costs will reduce; hence prices of consumer goods are likely to come down.

·       The increased production will lead to more job opportunities in the long run. But, this can happen only if consumers actually get cheaper goods.

·       It will have no cost to registered retailers and therefore, there will be no hidden taxes and the cost of doing business will be lower.

·       Cost of many essential items is expected to come down and this will increase the consumption.

·       Tax evasion is set to drop due to digitization.

·       Checks at state borders will stop freeing the man power involved and movement of goods will be faster eliminating wastage of fuel at the boarders and lesser pollution.

Benefits for common man:

·       Zero rated items : Food grains used by common people. This includes unpacked food grains, fresh vegetables and fruits, unbranded atta, maida, besan, gur, milk, eggs, curd, lassi, unpacked paneer, unbranded natural honey, palmyra jaggery, salt, fresh meat, fish, chicken, butter milk, cereal grains.

·       5% Rate : Items of mass consumption including essential commodities will have low tax incidence. This includes items like Sugar, tea, roasted coffee beans, edible oils, cream, skimmed milk powder, milk food for babies, packed paneer, frozen vegetables, cashew nuts, spices, pizza bread, rusk, sabudana, Raisin, fish fillet, packaged food items

·       12 per cent rates: Butter, ghee, almonds, fruit juice, packed coconut water, preparations of vegetables, fruits, nuts or other parts of plants including pickle, murabba, chutney, jam, jelly, bhujia, namkeen, fruit juices, frozen meat products, dry fruits in packaged form, animal fat and sausage.

·       18 per cent rates: Biscuits (all categories), flavoured refined sugar, pastries and cakes, preserved vegetables, soups, ice cream, instant food mixes, pasta, corn flakes, curry paste, mayonnaise and salad dressings, mixed condiments and mixed seasonings.

·      28% Rate : White goods like Air conditioners, washing machines, refrigerators,  soaps and shampoos etc. that were taxed at 30-31% shall be now taxed at 28%. Also includes chewing gum, molasses, chocolate not containing cocoa, waffles and wafers coated with chocolate.

What are the disadvantages of GST:

·       Experts believe that it will impact real estate business negatively

·       Prices of some item will go more as they have been clubbed with higher tax slabs than present. Items like garments, clothing, air fare and aviation industry

·       Adoption and migration to the new tax system will have some hick ups.

Shortcomings in GST:

·       Some items like petrol, diesel and liquor are presently excluded from the GST list. Therefore, these items will continue to be marketed at different prices all over the country at higher tax rates. The states and central will be free to levy taxes as per their convenience and real benefit of GST will not pass to consumers. The government should work towards bringing these items also in the purview of GST.

·       Further, any shortcoming and anomalies, if found in the present GST as India moves ahead with GST need to be rectified time to time.