Friday, January 30, 2015

8 things you need to know on new Indian GST

GST has been a buzzword offlate and even after good amount of reading, I was not able make much out of it. Few of us got a privilege to be at Le Meridian Bangalore for a one day conference on Goods and Services Tax (GST) organized by The Associated Chambers of Commerce and Industry of India (ASSOCHAM). I went with the clean slate (read blank sheet of paper) and blank mind. In this blog I am putting down my learnings of Indian GST and how I have started understanding it, finally!

Why GST? Multiple reasons- Value Added Tax (VAT) was introduced in 2005, though it took less time to stabilize, now has become bone of contention, especially in interstate trade. Today, CST, service tax, VAT, excise taxes are levied on multiple taxable events which leads to multiple indirect taxes by central and state govt. which is not recoverable against one another- there is cascading of taxes and at the end of the day, end user (we!) has to bear all of them. There is a necessity of uniform tax rate for same commodity in different states of India. Apart from shortcomings of previous tax regime, we are in a time period where every IP of electronic gadgets can be tracked and trade can be done on the basis of digital footprints, with amazing computational powers of our computers. Also, in trade, all goods have component of service in it and same with service as well- tough to separate both of them. Hence the need for GST which promises to be a fair system that is transparent and trade friendly- biggest bang in financial history of independent India.

Proposed GST is “Dual Control” one, means that both state and central govt. will levy central (CGST) and state GST (SGST) respectively on same transaction. In an intra-state transaction, all taxes get distributed either in CGST or SCGST and both of them will be added to cost. In an inter-state transaction, SGST will be of state where goods/service is supplied, CGST would remain same and IGST- integrated GST (CGST+IGST) is added to cost. Point to note- alcohol and petroleum is not in the scope of GST!

With GST, it is important for central and state governments to arrive at a consensus. GST article amendment, which is currently in parliament, gives legislative power to both. Hence it is put as separate item in constitution which will later become law. Hence, GST is not in either state or central or concurrent list. A GST council is set up to decide which taxes comes under SGST & CGST, for framing model rules to form the law and to decide flow rate to harmonize differences between govt. of union & state.

There are 4 major players in GST- manufacturer, trader, service provider and consumer. The later should ideally benefit since previous 3 players in the chain only have to recover their respective IGST & base price while selling to next person. First 3 players will have to register themselves in GST so that they get their adjusted money back after a transaction. There will be a day when we will have check for traders registered with GST for lesser prices! Note, they will fill only one form for returns and robust IT infrastructure of GST will take care of all computation.

The day at the conference was MODIrated by official from ASSOCHAM, Mr. Crasta. He virtually cracked every popular election one-liners of Modi, except for “Abki baar Modi sarkaar”! Conference ended on a lighter note by a bureaucrat from IT (you get a pat on back if you read IT as income tax) dept. who covered all major e (electronic) and m (mobile) schemes of Karnataka govt. and missed on telling how prepared they were towards GST! He kept saying- "You don't believe me" and "I have 4108 contacts in my phone and 2000 are on my whatsapp", was a laugh riot with his mannerisms and #selfthoos on his veterinary doctor background!
Getting back, these were the key takeaways from conference which all of us need to know {I request peers and seniors to add on them}:

  1. Get ready for Paradigm Shift with GST: taxation will happen on destination basis or place where goods or service is supplied. It is not just mere tax changes, it will impact how business run, especially in supply chain management- procurement policies, wearhouse location, raw materials consumed, stock transfer, everything in trade!
  2. Will come into force from April 2016. Skill, speed and scale key points in PM’s “Make in India”. GST is a step towards it. India needs to move up in !
  3. IGST will be recoverable and will save some money for end users whereas CST in prev. tax regime was not recoverable.
  4. Dual tax (intra-state) & single tax (inter-state) in GST whereas multiple taxes & cascading in prev. tax regime.
  5. Industries will evolve, like telecom did, hence brace up for new versions of GST in future. It will have to evolve!
  6. MRP will be way of past. Hence transparency will be required in invoice for fair price, else there is an opportunity for vendors to increase their margin since cost is bound to come down with lower IGST.
  7. Lack of Intellectual experts on GST during its enforcement might hurt businesses and result in a short economic slowdown. At least till it gets stabilized.
  8. Last but not the least; Finance Commission predicts that India’s GDP will increase by 1 with introduction of GST. Achhe din aane… You said it!