Goods and Service Tax (GST) is one of the most significant tax reforms introduced in the history of the Indian fiscal evolution. With a singular impact on the economic growth of the country and the way business is done in India, it is expected to achieve the following:

·         Convert India into one market by seamless flow of tax credits – today some taxes are not creditable when goods move outside an Indian State, service tax credit is not available to a trader or a services unit cannot claim credit of Value Added Tax (VAT) paid on goods

·         Multiple taxes to be replaced by singular tax making compliance easier

·         Number of tax rates to be reduced substantially making life easier and disputes lesser     

·         Compliance process to become uniform due to singular IT portal where business and government agencies interact – this can also reduce human interaction and bring transparency in operations       

·         Business decisions may not be driven by tax considerations as most of the taxes will be creditable, bringing in overall efficiency in business operations spurring economic growth        

·         Electronic filing and online credit matching would substantially reduce
non-compliance and tax frauds – this may provide significant boost to honest businesses.

Dual GST structure

The central and state governments will levy GST simultaneously, on a common taxable value, on the supply of goods and services.

IGST -  an Indian innovation

However, in the case of imports and inter- State supplies, an Integrated IGST (GST) shall be levied by the central government, proceeds of which will be shared by the central and the recipient state government. IGST is an Indian innovation which would help tax move along with goods/services, across states and therefore reduce refund situations at state borders.

Destination based tax

GST, is expected to bring a significant shift from origin-based taxation to a destination-based tax structure. This is likely to impact not only the operating business models but also the revenues of the centre/states. It has the potential to impact cash flow, pricing, working capital, supply chain and IT systems and hence provides an opportunity to transform your business.

Goods and services will be taxed by both the governments

Unlike today when services are taxed by the central government, sale of goods is taxed by the states while the manufacturer is taxed only by the central government, GST will allow equal opportunity to the centre and the state to tax all supplies of goods and services.  In this respect, it establishes the truly federal character of Indian fiscal system.