The Builder of Common Ground

Context: Goods and Services Tax (GST) implementation has ensured one market regime by mitigating interstate barriers, double taxation and cascading effect of taxes.

Significance of the Goods and Services Tax Regime:

• Removed the cascading effect of tax: by subsuming 17 different taxes and 13 cesses. 
• It ensured that there were no more queues of trucks and no more state barriers.
• Released the tax burden on consumers: 31% tax rate has been brought down to 18%, 12% or 5% category.
• Customer tax rate reduction has led to the loss of revenue to states. 
• Reduced Incidence of Taxation: from 14% to 11.6 % as per the Reserve bank of India, through several concessions such as
• Increased Taxation Threshold: for goods to Rs 40 lakhs.
• Increased Composition Limit: from Rs 75 lakh to Rs 1.5 crore. 

• While the composition scheme has been extended to the services sector, the composition tax has been reduced to 1% in the manufacturing sector.

• The composition scheme was extended to services as well, and the composition limit for manufacturers was reduced.
• Special lower rates without Input Tax Credit (ITC): were prescribed for construction and restaurants. 
• Widening of Tax Base: GST has resulted into the widening of the tax base.
• Today, there are 1.2 crore GST assesses compared to 65 lakh at the time of introduction of the tax regime.
• Compliance and Simplification:
• Small units kept out of GST: Businesses up to an annual turnover of Rs 40 lakh are GST exempt.

• Manufacturing units with a turnover up to Rs 1.5 crore can avail of the composition scheme and pay just 1% tax. 

• IT-enabled infrastructure: accounting and billing software is provided free to the small taxpayers s.

• Fully automated refund process and those with nil return to file can do so with an SMS.

• GST and Agriculture: 
• Rates reductions in agricultural inputs while other products relied on allied agricultural inputs are kept at the nil rate. 
• Exemptions: 

• Service inputs to agriculture and Agricultural, Minor forest and dairy produce are exempted from GST. 
• Silk cocoon, raw silk, wool, jute fibre are nil rated.
• Farm labour, renting and leasing of agricultural machinery, fumigation, pre-conditioning, ripening, waxing, retail packing and labelling are exempt from GST
• Storing and warehousing of agricultural produce are also exempt.

• GST and Micro, Medium and Small Enterprises (MSME): MSME product and services have consistently received sensitive treatment under the GST regime. 

• The slab for seven items has been brought down from 28% to 12% while that of six others has come down to 5% from 28%.

• The GST Council: Since the slow-down in compensation cess collection has resulted in delays in payments to the states, GST Council has taken the following measures:

• It has assured that the compensation to states shall be paid for five years 

• Compensation Cess to be levied only on luxury or sin goods.

Unintended Consequences of GST:

• Tax rate reductions have resulted in inversion in rates: Manufactured goods in lower slabs have suffered due to inversion in the duty structure and has led to a situation where imports are getting incentivised.
• The competitiveness of the domestic industry, Job works, as a category and MSMEs suffered from the inversion of tax rates. 

Conclusion: GST regime has actualised the idea of the cooperative fiscal federalism but with the concerns of revenue generation and robust technological support