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Why GST is the biggest tax reform in India since independence

The GST aims to cut red tape for taxpayers by replacing an array of central excise and state levies such as sales tax and VAT which currently range from 25% to 30%.

SPS Pannu | November 28, 2015 | Updated 13:25 IST
Why GST is the biggest tax reform in India
The bill has been approved by the Lok Sabha and is pending approval of Rajya Sabha where the government lacks a majority. (Photo: Reuters)

The GST bill, which subsumes all indirect taxes to create one rate and integrate the country into a single market is the biggest tax reform that is being undertaken since Independence.

The bill has been approved by the Lok Sabha and is pending approval of Rajya Sabha where the government lacks a majority.

The GST aims to cut red tape for taxpayers by replacing an array of central excise and state levies such as sales tax and VAT which currently range from 25 per cent to 30 per cent by a single rate of 18 per cent that is currently under consideration.

It will also end the practice of imposing a levy on goods coming from outside a state which sees long queues of trucks stuck at state barriers which also slows the movement of goods across the country.

The services tax which currently works out to 14.5 per cent after including the Swachh cess will go up to 18 per cent to bring it at par with the goods tax so that there is a uniform tax for both goods and services in the new GST regime.

The GST is expected to bring about a qualitative change in the tax system by redistributing the burden of taxation equitably between manufacturing and services. The Finance Commission had commissioned a study by NCAER to assess its impact on GDP growth and exports. Preliminary results of the study indicate that the growth in GDP can be between 2-2.5 per cent with the implementation of a welldesigned GST. The increase in exports can be between 10-14 per cent.

It is because of this reason that the government is keen to push through economic reform. Finance ministry officials say introducing the new tax could increase the revenues of the Centre and state governments substantially as all consumers would pay taxes on most goods and services. However, many state governments fear revenue losses as a result of GST being introduced, and a parallel discussion is also under way about how to compensate them, complicating efforts to reach a workable compromise.

The Empowered Committee of State finance ministers which met last week failed to reach a consensus over the threshold for levying the proposed Goods and Services Tax (GST) which is expected to further delay the introduction of this key economic reform.

While the Centre is of the view that threshold for levying central GST and state GST be kept at an annual turnover of Rs 25 lakh, some small states want it to be at Rs 10 lakh.

While some states are adamant that it should be Rs 10 lakh, others are of the view the limit should be higher as bringing small traders under GST would lead to an 'inspector raj' and harassment of businessmen.

It has now been decided to collect data from all states. The state finance ministers have referred to a sub-committee the issue of threshold below which small businesses would be exempted from the new levy.

(In association with Mail Today)

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