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GST & Exports

      BACKGROUND


The Goods and Services Tax(GST) is the most revolutionary tax reforms in the annals of Indian Tax history. The subsuming of major Central and State taxes in GST, doing away of cascading effect of taxes complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services and give boost to Indian exports. The uniformity in tax rates and procedures across the country coupled with single common portal to meet the compliance requirement will go a long way in reducing the compliance cost and making India a single market. GST is also likely to reduce the logistics cost in India which is one of the highest in the world. The logistics cost in India is about 14% of GDP whereas in advance economies it is about 8to9% of the GDP. The E way bill, which will be introduced from 1st of February, 2018, on a pilot basis, on Inter State Movement will allow seamless movement of cargo across the country. The efficiency of road transport is expected to go up significantly. The multiple-point warehousing by manufacturers to save on CST will be eliminated. With IGST set off facility on inter-state movement, manufacturers can set up warehouses for distribution at select strategic location without looking at the tax planning options resulting in reduced cost of operations.

Any bold and radical  reform like GST has some flip side also .Most of the opposition to GST is not on the concept but on implementation flaws .The technical glitches in the GSTN portal has added to compliance burden particularly on small supplier. These are initial hiccups which will settle with the passage of time. This is new concept in which tax authorities are also going through a learning curve. To a large extent, the problem of small supplier has been temporarily resolved by withdrawing tax burden on RCM while taking supply from unregistered supplier (u/s 9(4) of GST) , shifting frequency from monthly returns to quarterly returns for all those with aggregate turnover upto Rs 1.5 Cr  and rationalizing the composition scheme for those with turnover upto Rs 1.5 Cr  with lax liability at a flat rate of 1%. We expect these concession to be extended further.

High and multiple rates of GST have also compounded the problem .At present (with few exceptions) we have four slabs: 5,12,18 and 28%. Slowly but surely we are withdrawing items from 28% category to make it redundant. 12% and 18% slabs may merge into 15% rate in months to come and finally we may have only 2 rates of 5% and15%. While it will be ideal to have a single GST of 10% or12%, we feel that it  will take few years to move to a single GST rate.

GST is an exceptional initiative in the context of a Centre State relations and federal structure envisaged in the Constitution. Both Central and States have to work together for its success. States with 2/3rd voting share, as against 1/3rdwith Centre, are in dominant position. However, every decision requires approval by ¾ th of members. Therefore, both have to be dependent on each other for taking through any proposal. It is extremely satisfying that despite having different political parties representing States, all decision of the GST Council have hitherto been through consensus . This augur very well for Indian democracy and shows that political parties are willing to work on a national agenda compromising on their political interest.

Once fully implemented, GST is expected to add to 1.5% to 2% to GDP which is already growing at over 7% on year on year basis. Thus it will take India to a double digit growth story besides a huge boost to transition from informal to formal economy. GST holds the key to Make in India, Ease of Doing Business and above all competitiveness to trade & Industry thereby reducing the prices of goods and services and ultimately benefitting the consumer.

 

 
 
GST & Exports