24th July 2017
Rashi Sakaria, Chokshi Group
India has one of the most complex tax system in the world. For new businesses and startups, it can be extremely difficult to navigate through the multifaceted direct and indirect tax laws prevailing in the country. Constant changes to taxes are making things even worst. MSI's Indian accounting member Chokshi Group explains further.
To combat the same and boost economic growth in the country, India has brought into effect its biggest reform since the 1991’s opening of the economy, the implementation of GST with effect from 1st July, 2017.
GST is not a new phenomenon. It was first implemented by France in the year 1954, and since then many countries have implemented this unified taxation system. The very basis of the Goods and Services Tax law is the seamless flow of Input Tax Credit (ITC) along the entire value addition chain. GST converts the vicious cycle of “narrow base-high rate-low compliance-narrow base-higher rate” to the virtuous cycle of “wider base-lower rate-better compliance-wider base-lower rate”.
For the implementation of GST in the country, the Indian Parliament passed the 122nd Constitution Amended Bill in August 2016. A destination based tax, India shall implement Dual GST, a model of GST only implemented by Canada until now. A total of 17 different levies are to be subsumed into one single GST levy bringing about a paradigm shift in the age old practice of having a different levy for different category of businesses viz. manufacture, trade and service.
Goods and Services Tax (GST) shall be levied at multiple rates ranging from 0% to 28%. A four-tier tax structure has been finalised with 5%, 12%, 18% and 28% tax rates, with the lower rates for essential items and the highest rate for luxurious/ ultra-luxurious and de-merits goods, with a provision for additional cess up to 15%. Essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate.
GST shall have a far reaching impact as it will be not only the operations that shall be affected, but shall also alter the way businesses are planned. Though initially, implementing GST might be inflationary in nature, the impact is expected to be only transitory. GST has been modeled in such a way that it shall boost the ease of doing business in the country laying the platform for better economic growth.
The unassimilable transformation to a new tax regime, completely uncharacteristic of the previous tax structure, has left the common man feeling extraneous to the subject matter of Indirect Taxation. This has opened up a new facet and brought about a barrage of opportunities for professionals in the country. The extensive knowledge and the ability to understand the nuances of the Indirect taxes, has the accountancy profession in good stead to deal with this reform.
Overall, GST is expected to change the face of indirect tax structure in the county for good. Going forward, finance & administration, human resources, corporate plans, pricing strategies, sales & marketing strategies as also the information systems shall have to be visualised taking into consideration the possible impact of GST.
Let’s hope that the Government’s “one nation, one tax” motto for GST be a game changer and proves to be beneficial not only for the common man but to the country as a whole.
Part of the Chokshi Group, Adarsha Consulting is a professional services firm founded with the goal of providing start ups and mid-market firms with a superior alternative to building and maintaining an in-house accounting, compliance and consulting function.
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