Yojna Nov - 2016 - Eng PDF

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YOJANA
ISSN - 0971- 8400
I I - -
'
I
NOVEMBER 2016 A DEVELOPMENT MONTHLY ? 22
Tax Reforms
Tax Reforms: Past, Present and Future
T N Ashok
GST: Game Changer for Indian Economy?

Ranjeet Mehta
GST and the Constitutional Conundrum

Jayanta Roy Chowdhury
Indias Tax System: Increasing Progressivity

Malini Chakravarty
& m
5cfric J Sales
i M VAT
Service
V
. Tax
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Special Article
GST: The International Experience
Pravakar Sahoo, Ashwini Bishnoi
Focus
Black Money Menace: Government on War Footing
Dilasha Seth
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YOJANA
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Tax Reforms- Integral to Development
f -
m axes - the
^ the last dateword conjures up an image of a person rushing to pay his income tax before
. Or, an income tax raid on a businessman where wealth and money is
1 unearthed . However scary the term may sound but it is a fact that Taxes are essential for PS. YOJANA
WOVt W X 1* A OtVLLOPVOit MCNTMLV
development of any economy. It is these very taxes which the citizens of a country pay that go Tax Reforms
towards development activities like building roads and bridges, constructing dams, maintaining
MT. eM Charter tar
the railways network, offering health care services, etc. fill > nd mm CocrtUfloal d
SST
The rajas and maharajs of yorealso collected taxes. The more enlightened ones like Ashoka
and Akbar evolved a systematic taxation policy and also tax collection policy so as to earn revenue
to run the kingdom without creating much hardship for the common man . Some kings had an :
arbitrary tax collection system which they used to maintain their lavish lifestyles and wage wars. f M
Today, in the modem economies, taxes are regulated by various rules and regulations and are 't T
monitored by the peoples representatives. 0 r
< * Co* *'***** Vtar

'
Indian tax system is the most complicated one in the world with the Centre, the States and
the local bodies having powers to levy variety of taxes to earn revenue. Various kinds of taxes
are collected at different levels like the direct taxes which affect the common man directly like the income tax and wealth tax ,
indirect taxes which the common man pays for goods and services availed of like VAT and service tax, corporate tax, etc. Every
budget sees expectations on tax reforms by both the common man and the corporates. The common man wants the income tax
slab raised , while the corporates want tax relief in various sectors. Government handles these requests according to the economic
necessity. Over the years India has experienced unprecedented rates of economic growth. This growth required refonns in the
taxation system to make it simpler and attractive for the foreign as well as domestic investors. In an effort to keep in line with the
changes in global economy, Indian taxation system has undergone remarkable reforms during the last decade with rationalization
and simplification of tax laws.
The Goods and Services Tax which was passed recently is one of the most historic tax refonns in Indian taxation history. It
seeks to streamline the taxation system so that there is only a single tax paid for supply of goods and services. The bill will replace
nearly 15 state and federal taxes which is in line with the Governments focus on cooperative federalism . With 16 States ratifying
the GST bill so far, minimum requirement of 50 percent states ratifying the bill has been completed. The Government is all set
to usher in a new era on 1 st April, 2017 with the roll out of the Goods and Services Tax (GST) in the country. It is expected that
this landmark reform will go a long way in facilitating ease of doing business and enabling India to compete with world trade.
While the GST is a major step towards simplifying tax system in India, the complexity of the system so far has resulted in
evasion of taxes and creation of blackmoney in the country. The amount of this black money is so huge that it is said to run almost
like a parallel economy in the country. The Government has adopted a multipronged strategy to unearth and control black money
which includes policy-level initiatives, more effective enforcement action on the ground, putting in place robust legislative and
administrative frameworks, systems and processes with due focus on use of information technology. Voluntary disclosure of
income Schemes (VDIS), Constitution of the Special Investigation Team (SIT) on Black Money, Enactment of a comprehensive
new law - The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 to specifically deal with
the issue of black money stashed abroad, Introduction of the Benami Transactions ( Prohibition) Amendment Bill, are some of
the recent major initiatives of the Government in this regard.
Indian taxation system has come a long way from closed , complicated one to open, simple and futuristic. And the current
Government is committed to take it further to make India one of the most favorable investment and manufacturing destinations
in the world.
YOJANA November 2016 5

DYNAMICS OF TAXATION
RATIONALISATION
Tax Reforms: Past , Present and Future
TNAshok
ax reforms are an integral Realising this , two legislators
T part of the development

process of any country.
Even developed
countries such as the
United Kingdom and the
are trying to deliver a broad tax
reform . Max Baucus, the Democrat
who heads the Senates tax - writing
committee, and Dave Camp , his
Republican counterpart in the House
VHCOWE- TPO
pp
^
United States, which are often the role of Representatives , have been at
models for developing countries such the exercise for the last three years;
as India, too undertook reforms in the they have been talking to people and
last few years. floating ideas. Though any full plan
GST is .... a giant leap for is yet to fructify, their principles
Take the United Kingdom . The
the country in tax reforms are sound : lower tax rates for both
Conservative Liberal Democrat
to inspire confidence of coalition government undertook corporations and individuals , paid for
manufacturers and investors reforms between 2010 and 2015. In the by limiting or scrapping tax breaks.
to push the economy forward reforms initiated in 2013, two million Though they belong to different
and one can hope for a further people were virtually removed from parties, both Baucus and Camp have
slew of reforms in the 2016 - 17 paying income tax altogether when the felt that ideally, no tax break should
budgets to propel GDP growth Chancellor of the Exchequer presented be spared , even the popular ones for
the budget. The raft of reforms brought charity, housing, health insurance and
further. While the government about a rise in the personal allowance,
might take time on DTC or research and development. Though
which meant that no one paid any
desirable , they impose a cost , in
Corporate India s bucket list, tax until he or she earned more than
the form of higher taxes , on other
it is apparent that it will stay 9,440. The threshold for the higher
desirable things. As an Economist
focused on the main objective rate of tax - above which people pay
article points out, the political reality
of making tax laws simple tax at 40 per cent - dropped from
is that, some of these tax breaks will
34 ,370 to 32,010, excluding the
to make life easier for the survive, just as there is no hope for a
personal allowance .
individuals as also business carbon tax , one of the more sensible
besides bringing in larger At the same time the top rate of ways to raise money.
populations into the tax net income tax fell . in 2013- 14 from 50
per cent to 45 per cent for those whose
Yet Camp and Baucus found
and making every Indian taxable income exceeded 150 ,000. enough common ground to build a
conscious of his social more efficient tax system . They differ
obligation toward paying Take a country like the United on the crucial question of whether tax
taxes, making the country States . A symbol of free trade and reform should raise more revenue .
an advanced economy, it is a country While Camp , being a Republican ,
more tax compliant that needs tax reforms very badly. felt NO, Baucus, like the rest of his
The author was Economics Editor and Chief of Bureau ( Economic) of PTI specialising in infrastructure/finance/commerce sectors and
environment . He has covered the historic Earth Summit in 1992 at Rio De Janeiro as also the 1 st inaugural WTO Ministerial Summit
at Singapore in 1996. He provides strategic advice on public affairs/ media to leading MNCs and Indian transnationals.

Democrats led by the President Barack tax. And this population is concentrated under the GST regime will be kept at
says YES. in the urban agglomerate. minimum workable rate so that no
state government ends up annoying
So, India is no exception to tax Even as the government brings its people with a higher tax rate. The
reforms. Ever since economic reforms more and more reforms to bring more final rate is to be decided by the GST
were unveiled in the early 90s, tax and more people into the net and raise Council. The bill will now have to be
reforms too became a crying need . the tax collection buoyancy, the single ratified by at least 16 of the 29 state
After much deliberation , the then most critical tax reform that stands assemblies , which the Prime Minister
government felt that any taxation out is the Goods and Services Tax hoped would be done at the earliest .
system should be reasonable, fair and ( GST ).. Virtually codifying all taxes
non -discriminatory so that , both the into one so that manufacturers did not The GST forges a single
individual tax payer under the direct face the burden of multiple taxation in economic zone for the country from
taxes category and the corporates and the country and movement of goods a thicket of overlapping federal
industry accounting for bulk of the becomes easier. and state taxes . The New York
indirect taxes, became not only tax Times described the legislation as
Let s see why the GST is a historic the biggest tax reform since 1991
compliant, but feel the social and civic
piece of legislation, given the twists when India opened its markets first .
obligation to pay taxes which are the
and turns and uncertainties it faced Potentially one of the most dynamic
core for any government to undertake
before it was finally adopted by both economies in the developing world ,
development projects.
Houses of Parliament . The GST is India is hampered by a bewildering
So, tax reforms have been one expected to make consumer the array of state- by-state tax codes that
dynamic process through successive king . The Constitution ( 122 nd discourage doing business across
governments until 2016. The principles Amendment ) Bill was first passed state borders.
have largely remained the same ,
...tax reforms have been one The GST is widely viewed as
a transparent , just , equitable and
fair taxation system that was easy a breakthrough that will allow the
dynamic process through successive authorities to confront the problem ,
to administer. Consistently , the governments until 2016 . The eventually creating a more unified
governments of the day have been
rationalising the direct tax structure in principles have largely remained economy that will allow businesses
the same , a transparent, just, to expand nationwide far more easily,
such a way that the individual tax payer
the NY Times observed. This is long
benefitted the most. equitable and fair taxation system overdue but hugely consequential for
Year after year, though marginally, that was easy to administer. the ease of doing business, and for
the ceiling on entry level taxation was Consistently, the governments of demonstrating to the outside world
lifted and the taxation slabs have now the day have been rationalising that India is dragging its economy into
been neatly and simply structured into the 21 st century, Milan Vaishnav. a
the direct tax structure in such a senior associate in the South Asia
three slabs. 10 per cent, 20 per cent and
30 per cent flat for incomes ranging way that the individual tax payer program at the Carnegie Endowment
between Rs 2.50 lakhs to Rs 5 lakhs to benefitted. for International Peace is quoted as
Rs 10 lakhs respectively. That is, those saying.
earning less than Rs 2.50 lakhs paid no by the Lok Sabha in May 2015, then The GST replaces 15 existing
tax, between Rs 2.50 to Rs 5 lakhs paid taken up again by the Lower House state and federal taxes and could help
at 10 per cent and Rs 5 lakhs to Rs 10 to approve the changes made in it by India increase its economic growth
lakhs at 20 per cent and those above the Rajya Sabha. Finally, both houses by 0.5 and two percentage points .
Rs 10 lakhs paid a flat 30 per cent tax accorded approval and it has got The GST is in keeping with the
on their incomes. the Presidential assent as well. The present governments line of thinking
government had moved six official of having cooperative federalism
The corporate taxes too have been
amendments, including scrapping of wherein the Centre and the States
rationalised . Besides a plethora of
excise and customs levies have been 1 per cent additional tax, to the bill work together for the nation 's benef.:
made easier. In all these , the main which was approved by the Upper and where the states also get their due
aim has been to encourage people to House. share. The government had revised
the tax revenue sharing formula im
become tax complaint and bring in The GST is expected to be a devolve more to the states to br - g
a larger population into the tax net. legislative measure that will help them in line with the Centre's line : f
While the tax to GDP ratio may be transform the economy ushering thinking of marching hand in harm
progressive, the tax to demographic in transparency and most of all ,
population is abysmal, it is said that bringing the concept of One Country It all began in 1991 w h e n
hardly 2 per cent of the population pays One Tax into fruition . The tax rate government embraced market ref m
8 YOJANA November 1
policies devolving more power to the IT and IT enabled services netting in archaic ( older and no longer useful )
states, including more taxes to them . valuable foreign exchange which now Income Tax Act . However, many
Successive governments had felt the stands at over US$ 370 billion . provisions in the Income Tax Act
need for a tax overhaul as it became will be a part of DTC as well . Mutual
increasingly clear that overlapping tax Tax reforms don t end with GST.
Funds / ULIP will be dropped from
codes blocked growth . We still have another major legislation
80C deductions : Income from equity-
to push through , the Direct Tax Code
oriented mutual funds or ULIP shall
Benefits of GST will be indeed ( DTC ) that will simplify the direct
be subject to tax @ 5 per cent, Fringe
slow to come, probably by 2019. taxes structure further benefitting a
benefits tax will be charged to the
It is also likely that the GST could large number of the population. The
employee rather than the employer.
eventually lead to an inflationary bump Finance Ministry has indicated in
Political contribution of up to 5 per
as the government s Chief Economic 2016- 17 budget that the direct tax code
was being scrapped . But the standing
cent of the gross total income will be
Advisor Arvind Subramanian points
eligible for deduction.
out. The GST is a single uniform tax committee on Finance of Parliament
pan India that will be fiendishly, mind - has told the Finance Minister that DTC The DTC seeks to have a Single
bogglingly complex to administer, provisions need to be brought forth as Code for direct taxes: All the direct
Subramanian is quoted as saying . the next major step towards reforming taxes are sought to be brought under
the tax reforms. a single Code and unify compliance
In the longer run , the GST is
What does DTC entail ? As procedures, eventually paving the way
expected to attract foreign investment
envisaged by the government , it for a single unified taxpayer reporting
reducing the cost of capital goods ;
seeks to replace the Indian Income system . The use of simple language in
raise manufacturing and exports ,
Tax Act of 1961 by amending all the DTC seeks to achieve voluntary
increase tax collections and most
laws relating to direct taxes, namely tax compliance from the people so the
importantly create jobs, the need of
income tax, dividend distribution tax, that tax laws have clarity. The Scope
the hour.
fringe benefit tax and wealth-tax with for litigation wherever possible is
The GST is being hailed as the a view to establishing an economically being reduced, avoiding ambiguity
mother of all economic reforms in so as to avoid rival interpretations.
India . Business leaders and Corporate The statute has been developed in a
India claims that the change would In the longer run , the GST is manner capable of accommodating the
have a profound effect on their daily expected to attract foreign changes in the structure of a growing
lives. It is expected that GST will put economy without resorting to frequent
investment reducing the
an end to Tax Terrorism because amendments.
industry says that under the plethora cost of capital goods; raise
As most taxpayers are in the small
of taxes in States and the Centre, it is manufacturing and exports,
and marginal category, the tax law is
currently harassed and victimized by increase tax collections and most what is reflected in the Form . So tax
multiple tax authorities. Most of the importantly create jobs, the need laws are being logically reproduced
time, we are busy in complying with
those taxation formalities , collecting of the hour. in a Form . The DTC seeks to provide
stability where all rates of taxes are
taxes, depositing taxes, submission of
proposed to be prescribed in the First
forms, our money stuck in the system , efficient, effective and equitable direct to the Fourth Schedule to the Code
and other issues, a spokesman of the tax system that can facilitate voluntary
itself, thereby obviating the need for
industry is quoted as saying. compliance and help increase the tax-
an annual Finance Bill. The changes in
GDP ratio. the rates, if any, will be done through
The vexatious issue between the
Centre and States on GST has been Another objective is to reduce appropriate amendments to the
tax rates. States want high rates the scope for disputes and minimize Schedule brought before Parliament
to maximize their revenue and the litigation . It seeks to provide stability in the form of an Amendment Bill .
Centre pushes for lower rates to in the tax regime as it is based on
Since a lot of thought has gone
prevent inflation from spiking. India s accepted principles of taxation and
into the DTC, it cannot be wished
economy is now growing at a robust best international practices. It will
away. While nomenclatures could
7.6 per cent enjoying the lowest eventually pave the way for a single
change, call DTC by another name,
inflation rate in decades. Job growth is unified taxpayer reporting system . The
Highlights of the Direct Taxes Code:
but certainly most of the provisions
still not there and the corporate sector
proposed measure has 319 sections are going to be retained for the benefit
is still starved of funds leading to a lull
and 22 schedules against 298 sections of the tax payer.
in the manufacturing sector. Much of
ine growth momentum is being pushed ancf C4 scffecfufes in tfie existing IT The Corporate sector has a huee

-
r
Abolition of the Minimum Alternate Tax ( MAT ), burying the
iP1
ghost of retrospective tax ( the Vodafone/IT department crisis
in realising arrears of tax ), phasing out tax holidays could
reduce investments in SEZs, and restoration of capital gains
tax treatment for buy-back of shares.
AAI AAI Academy Pvt . Ltd .
m
An Initiative of EXPERT BRAINS 2007 AMIT SINHA
GST is, thus, a giant leap for the country in tax reforms
to inspire confidence of manufacturers and investors to push
the economy forward and one can hope for a further slew MAIN
of reforms in the 2016- 17 budgets to propel GDP growth
further. While the government might take time on DTC or
Corporate India s bucket list, it is apparent that it will stay
focused on the main objective of making tax laws simple to
TEST SERIES AUI OCT.
make life easier for the individuals as also business besides
bringing in larger populations into the tax net and making
every Indian conscious of his social obligation toward paying
^ / English
Both Medium
Heavy Discount OH tec Oasis of first Com first Serve

Total 8 Test
taxes, making the country more tax compliant .

Online/ Offline/ Postal Test Series Available
Reference
Media Reports: New York Times, Guardian. Business
GS MODULES
Standard and Wikipedia.
(E-mail:ashoktnex@gmail.com)
WfiTiTim I Hi
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IN -nenTU
DEPTH
India's Tax System: Increasing Progressivity
Malini Chakravarty
e all pay taxes to the tax revenue and non-tax revenue. Tax
* government in some Revenue : Tax revenue refers to the
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form or the other in money collected by the government

our daily lives. These through payments imposed by law.
V
WZ A-
taxes we pay play Non-Tax Revenue: Non-Tax Revenue
an important role in refers to revenue of the government
i
" 'if *
financing different raised through instruments other
46 K functions that the government performs. than taxes such as fees/ user charges,
' There are many responsibilities that dividends and profit of public sector
enterprises, interest receipt, penalty or
the government is required to fulfil .
These include ensuring the rule of fine, etc. For most countries across the
law ; providing public goods and world, tax revenue forms a significant
services; building physical and social proportion of government revenues.
It is hoped that infrastructure; investing in education
of the population ; alleviating poverty, Direct and Indirect Taxes
introduction of GST etc. Clearly, the government needs Taxes can be broadly classified
would help to simplify to mobilise a significant amount into two kinds : Direct Taxes and
of financial resources in order to Indirect Taxes. Direct Taxes: Those
and rationalise the tax fulfil its many commitments . The taxes for which , the burden of the tax
government mobilises financial falls on the entity that is being taxed
system and increase resources for funding its different are known as direct taxes. In other
activities mainly through taxes, user
compliance. At the fees/ service charges and borrowings.
words , an entity that directly pays
this kind of a tax to the government
same time, it is also The sources of funds which neither bears the burden of that particular
create liabilities nor reduce assets tax and cannot shift the tax burden .
important that the are called Revenue Receipts . Other Direct taxes are levied on incomes,
sources of funds such as borrowings property and wealth. Indirect taxes
government take some which create liabilities or those that on the other hand , are those taxes
,
steps to increase direct reduce assets (e . g. disinvestment ) are for which the tax - burden can be
called Capital Receipts . Thus, taxes shifted or passed on to other persons
taxes that would help and user fees/service charges are some later through business transactions
examples of revenue receipts of the of goods / services. These taxes are
increase progressivity government while borrowings are indirect because the agent who bears
capital receipts. the burden of the tax is not the one on
of Indias tax structure whom it is normally levied . Indirec:
Tax Revenue and Non-Tax Revenue taxes include Customs Duties , Excise
Governments revenue receipts can Duties , Service Tax, and Sales Tax
be further divided into two categories : Value Added Tax ( VAT ).
The author is presently working with Centre for Budget and Governance Accountability ( CBGA ). Her research
interests include
issues related to macroeconomics, public finance, international trade and social protection . -

Taxes: Different Types
Direct Taxes Indirect Taxes
There exist a number of taxes, Corporation Tax: This tax is levied on the
both direct as well as indirect, that
Excise Duties: It is a
incomes of registered companies/corporations type of tax levied on
are levied on incomes of various in the country ( whether national or multina-
kinds, production and sale of goods those goods, which
tional /foreign ). National companies in India are manufactured in
and services within the economy and
are taxed on the basis of their aggregate in-
others that are levied on cross- border the country and are
come, irrespective of its source and origin .
movement of goods. Examples of some meant for domestic
Whereas foreign companies are taxed only on
of the different types of taxes that exist consumption .
in India is given in the box.
income that arises from operations carried out
in India . Taxes on Personal Income : This is Sales Tax: It is gen-
Division of Taxation Powers a tax on the income of individuals, firms, etc. erally charged at
between Centre and States other than Companies, under the Income Tax the point of pur-
Act, 1961 .
The Constitution of India clearly chase or exchange of
demarcates the taxation powers at Direct taxes also include other Taxes such as certain taxable goods,
different levels of governance . Thus, the Securities Transaction Tax , which is charged as a percent-
the power to levy taxes and duties has levied on transaction in listed securities un- age of the total value
been divided among the governments at dertaken on stock exchanges and in units of of the product.
the three tiers i .e. Central Government, mutual funds.
State Governments , and Local Value Added Tax
Bodies. Capital Gains Tax: Profits generated from the
(VAT): VAT, is a mul-
sale of a capital asset ( physical and financial ),
The power to levy taxes on tistage tax , levied only
such as, any kind of property held by an asses-
corporations and personal income see, paintings, jewellery and ornaments, busi - on the value added at
( except for tax on agricultural income, ness stocks, mutual funds, etc., are taxable as each stage of a supply
which the State Governments can capital gains, either short-term or long-term . chain and not on the
levy ) lies mostly with the Central entire value of sales;
The capital gain or net profit which is taxable
government. in VAT, taxpayers re-
is basically the difference between the price at
In the arena of indirect taxes, the which the asset is sold and the price at which ceive credit for tax
Central government has the authority it was purchased . The tax is applicable in the already paid on the
to impose a broad spectrum of excise year in which the sale of the capital asset takes inputs in earlier stages
duties on production or manufacture place. of the supply chain .
and service tax on services provided,
while States are assigned the power to Wealth Tax : This is a tax levied on the sped- # Service Tax : It is a
levy tax on the sale of goods and some fied assets of certain persons including indi-
tax levied on services
other taxes. Some of the indirect taxes viduals and companies, under the Wealth Tax
provided by an entity
that the Centre levies are Customs Act, 1957. Wealth tax is not levied on produc-
tive assets. Therefore, investments in shares, and the responsibil-
Duties, Central Excise, Sales Tax and
debentures, UTI mutual funds etc. are not sub- ity of payment of the
Service Tax.
jected to wealth tax. Wealth tax was, however, tax lies on the service
State Governments have been provider.
abolished in 2015-16 and replaced by an addi-
vested with the power to levy: Sales
tional surcharge to be paid by the super-rich.
Tax, Stamp Duty (a duty on transfer # Customs Duties: It is
of property ), State Excise (a duty on Property Tax : As per the Income Tax Act of a type of tax levied on
manufacture of alcohol ), Land Revenue India, incomes from properties are regarded goods imported into
( a levy on land used for agricultural / as one of the heads of income. Therefore, tax the country as well
noil - agricultural purposes ), Duty on is levied on the income from property. These as on goods exported
Entertainment and Tax on Professions. usually include buildings, flats, shops and
The system of Sales Tax levied by from the country.
land etc.
State governments has been replaced
with Value Added Tax ( VAT ) since
for use/consumption within areas of Distribution of Revenue collected in
2005 when all States moved to the the Local Bodies), Tax on Markets and the Central Tax System
VAT system.
Tax/User Charges for utilities such as
Local Bodies have been empowered water supply, drainage, etc. In the last For various reasons, imbalances
few years, Octroi has been abolished arise between the taxation powers
to levy tax on properties ( buildings,
in a number of Local Bodies. and expenditure responsibilities of
etc.), Octroi (a tax on entry of goods
the Centre and the States respectively.

In order to address this, a Finance India s Tax- GDP Ratio (Centre and States combined ) (in per cent)
Commission is set up once every
Year Total Tax-GDP Direct Tax-GDP Indirect Tax -
five years to recommend sharing Ratio Ratio GDP Ratio
of financial resources between the
Centre and the States, a significant 2001-02 13.39 3.11 10.28
part of which pertains to the sharing 2002-03 14.08 3.45 10.63
of revenue collected in the Central 2003-04 14.59 3.86 10.73
government tax system . At present,
2004-05 15.25 4.23 11.02
revenue collected from all Central
taxes, barring those collected from 2005-06 15.91 4.54 11.37
Cesses, Surcharges and taxes of Union 2006-07 ' 17.15 5.39 11.77
Territories, and an amount equivalent 2007-08 17.45 . 6.39 11.06
to the cost of collection of central taxes
- is taken as the shareable / divisible
2008-09 16.26 5.83 10.43
pool of Central tax revenue . The 14 th 2009-10 15.5 5.8 9.6
Finance Commission ( beginning 2010-11 16.3 5.8 10.50
April 1 , 2015 ) , has recommended 2011-12 16.3 5.6 10.7
devolution of 42 per cent of the
shareable / divisible pool of Central 2012-13 16.9 5.6 11.3
tax revenue to States every year and 2013-14( RE ) 17.1 5.7 11.4
the Centre is to retain the remaining 2014-15 ( BE ) 17.4 5.8 11.6
amount for the Union Budget .
Note: RE - Revised Estimate, BE - Budget Estimate;
Tax-GDP Ratio and Progressivity of Source: Indian Public Finance Statistics 2014-15, Min. of Finance, Govt , of India.
Taxes in India: tax payer increases. In India , more them with one indirect tax : the GST.
A countrys tax -GDP ratio is an than 60 per cent of total tax collected It is similar to a VAT and hence , is
important indicator that helps to ( Centre and States) is accounted for expected to reduce the problem of
by indirect taxes, implying that the tax cascading effect of taxes. It is to be
understand how much tax revenue is
structure is extremely regressive. levied on most goods and services
being collected by the government
barring items such as petroleum ,
as compared to the overall size of the Reforms in Taxes: tobacco, alcohol, etc. The GST, though
economy. A higher tax-GDP ratio gives
a single tax, would comprise two
more room in a governments budget Over the years, a number of tax
components: a central GST and a State
so that it can spend more without reforms, especially in the indirect GST. As per the Committee headed by
borrowing. However, despite many tax system , have been initiated by
A. Subramanian, the number of rates
years of high growth, Indias tax-GDP the government to make India more is likely to be limited to: i ) a standard
ratio continues to remain low, so much tax-friendly as well as make the tax rate to be levied on majority of goods
so that it has the lowest tax-GDP ratio system less complicated . One major tax and services, ii ) a lower rate on merit
among the BRICS countries. There is reform being pursued currently refers goods and essential items, and iii )
therefore, an urgent need to raise this to the Goods and Services Tax (GST). a higher rate on non - merit goods
ratio. Although, the sales tax was replaced like luxury goods. With the GST,
by the VAT in all States by 2005, at the demarcation of taxation powers
Another aspect of Indias structure present, a number of other indirect
is the lack of progressivity in it. Taxes between the Centre and the States
taxes are levied in addition to the VAT. would get diluted considerably as
that impose a proportionately greater This leads to the problem of cascading
burden ( in relation to their consumption both the Centre and States can impose
effect of taxes, whereby an item is indirect taxes on production as well as
or income) on the lower income groups taxed several times from the production
than on the upper income groups are sale of goods and services.
to the final retail sales stage. That, in
described as being regressive taxes . turn , has the effect of raising the tax It is hoped that introduction of GST
Indirect taxes, therefore, are generally component of products and results would help to simplify and rationalise
considered to be regressive since the in higher tax-induced prices. Further, the tax system and increase compliance.
rich and the poor are subject to the multiple taxes imposed by different At the same time, it is also important
same tax rate for similar goods they States and the Central Government that the government take some steps to
consume. Direct taxes, on the other give enormous scope for tax evasion. increase direct taxes that would help
hand, are considered to be progressive increase progressivity of Indias tax
since they are linked to the tax-payees The GST is to put an end to the structure .
ability to pay and the average tax rate complex web of multifarious indirect
(E - mail: malini @cbgaindia. org)
increases as the taxable income of the taxes that exist at present and replace

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Project SAKSHAM
SAKSHAM is a New Indirect Tax Network
www.afeias.com
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Single Window Interface for Facilitating Trade ( SWIFT) Free guidance for IAS Exam by
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Digital India and Ease of Doing Business of Central Board
of Excise and Customs.
The aim of the project is to ensure readiness of
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SWIFT) initiative and integration with Government

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Dr. Vijay Agrawals
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TO
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s ervice delivery. Taxpayers have to be given a facility for
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ly ? fwJAS ;
io reduce the physical interface with tax authorities and J
ail IAS <

rvi
ww. ofrWuwrt !
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io increase the speed of clearance. l.
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.
Dr Vijay AgrawaJ
The total cost involved in the project is Rs.2256 crore, w

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( Compiled by Vatica Chandra, Sab Editor)
Available at all leading bookstores
2016
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YE-
166
1TMAN.A N ovember 2016 15

CLEAN TAX POLICY ENVIRONMENT

PATH BREAKING
Indirect Tax Reforms : Facilitative Tax Regime
Najib Shah
ax - Direct and Indirect Indirect Tax to GDP ratio for 2016-17

Tax play a very is 5.20 per cent. In 2015-16, CBEC
^
'
" jaa important role in nation achieved a figure of 7.09 lakh crore,
building. In the scheme representing a growth of 31 per cent
of Indirect taxes, the and has been tasked to collect Rs. 7.78
Central Board of Excise lakh crore in the current fiscal.
and Customs ( CBEC ), a statutory
body constituted under the Central Some of the path - breaking
Boards of Revenue Act , 1963 ( 54 initiatives undertaken by CBEC in
of 1963 ) has been tasked with the the last two and a half years are:
formulation and implementation i) Make in India:
of policy concerning the levy and
collection of customs, central excise To provide a level playing field to
Following the policy and service tax. The Government has, domestic private sector in defence
of RAPID ( Revenue , while appreciating the significant role manufacturing , customs and
of revenue collection in the growth central excise duty exemptions
A ccountability, and development of the country, also to defence supplies and central
Probity, Information, stressed that tax policy should be excise duty exemptions to defence
Digitisation), CBEC aimed towards creating a competitive, PSUs and Ordinance Factory
predictable, and clean tax policy Boards have been withdrawn.
has taken a lot of environment which is non-adversarial
ii) Preparatory steps towards
initiatives for improving in its approach. Following the policy
implementation of GST:
of RAPID (Revenue, Accountability,
the ecosystem for Probity, Information, Digitisation ), a) Excise duty of 1 per cent (without
doing business in CBEC has taken a lot of initiatives input tax credit ) imposed on
India by relaxing for improving the ecosystem for jewellery.
doing business in India by relaxing
the procedures and the procedures and addressing the b) To reduce multiplicity of taxes,
concerns of manufacturers/importers/ 13 cesses levied by other
addressing the concerns Ministries and administered by
exporters, which would go some
of manufacturers/ distance in fostering a non-adversarial Department of Revenue are being
importers/exporters, and facilitative tax regime. abolished. Education Cess and
Secondary and Higher Education
which would go some Indirect Tax collections have Cess on excisable goods & taxable
distance in fostering shown a turnaround during 2015-16. services abolished.
With growth in indirect tax collections,
a non-adversarial and the Indirect Tax to GDP ratio for 2015- c) Service Tax imposed on all
facilitative tax regime 16 is about 5.2 per cent, as compared services provided by the
to 4.4 per cent for 2014-15. Estimated Government or local authority to
The author is the Chairman, Central Board of Excise and Customs.

a business entity, except services improved liquidity in hands of objections raised by CAG. The
that are specifically exempted or the businesses. Circular provides that demand
covered by any other entry in the notice in cases of agreement
( e ) 24X 7 customs clearance facilities
Negative List. on audit objections should be
extended to 19 sea ports and 17
issued and decided expeditiously.
iii ) Ease of Doing Business Air Cargo complexes.
However, where revenue does
( f ) Procedure for handling related not agree with the objections ,
( a) To address issues relating to
party transactions by Special no demand notice would be
Customs Clearance and
Valuation Branches and those issued. This is an effort to make
Infrastructure , impacting
involving special relationships the indirect tax administration
clearance of Exim goods, Customs
has been completely revamped . assessee friendly and non -
Clearance Facilitation Committee
( CCFC ) have been set up at ( g) E - payment of central excise adversarial by bringing the
every major Customs seaport and and service tax refunds and audit objections to closure in an
rebates through RTEGS /NEFT expeditious and fairer manner.
aii port.
*
implemented. ( m ) 80 per cent of the refund amount

( b ) Central Board of Excise and
Customs, has launched Customs ( h ) Number of central excise returns granted within 5 days for service
SWIFT (Single Window Interface filed by manufacturers reduced exporters.
for Facilitating Trade) clearances from 27 to 13.
iv ) D i s p u t e R e s o l u t i o n a n d
from 01.04.2016 onwards . This Litigation Management:
allows traders the facility to Central Board of Excise and
lodge their clearance documents Customs, has launched Customs a) Penalty provisions in Customs ,
electronically at a single point Central Excise and Service
SWIFT (Single Window Interface for
only with the Customs. Required Tax rationalised to encourage
permissions , if any , from Facilitating Trade ) clearances from compliance and early dispute
other regulatory agencies are 01.04.2016 onwards. This allows resolution .
obtained online by Customs, and traders the facility to lodge their ( b) Withdrawal of all cases in High
clearances are effected based clearance documents electronically Court and CESTAT where there
on the same without the trader
at a single point only with the is a precedent Supreme Court
having to approach each agency
Customs. Required permissions, if decision and against which , no
individually. This project has
review is contemplated by the
been launched in India from 1 st any, from other regulatory agencies department .
April , 2016 and has significantly are obtained online by Customs,
resulted in reduction in time (c ) The threshold limit below which
of clearances . So far, since and clearances are effected based appeals are not to be filed by the
1 st of April 2016, around one on the same without the trader department in CESTAT (Tribunal )
million import documents ( Bills having to approach each agency and High Courts has been raised
of Entry ) have been processed individually. This project has been to Rs 10 lakhs and Rs 15 lakhs
successfully on single window respectively. 2051 cases in High
launched in India from 1 st April,
platform . Court and 5261 cases in CESTAT
2016 have been identified for such
(c) To increase the coverage of
digitally signed documents withdrawal.
and subsequent phasing out of (i ) CENVAT Credit Rules amended
(d ) Prosecution proceedings in cases
physical/ manual submission of to improve credit flows and
older than fifteen years involving
documents , CBEC has enabled reduce litigation.
duty of less than Rs 5 lakh have
that all importers, exporters , ( j ) Facility of direct dispatch of been identified for withdrawal .
shipping lines and air lines shall goods by registered dealer from
file customs documents under seller to customer s premises ( e) Pre show cause notice consultation
digital signature with effect from provided . Similar facility allowed has been made mandatory at the
01.01.2016. in respect of job-workers. level of Principal Commissioner/
Commissioner in all the cases
(d ) Deferred duty payment for select ( k ) Time limit for taking CENVAT
where duty involved is above Rs
categories of importers and Credit of duty /tax paid on inputs 50 lakhs.
exporters : This provision will and input services increased from
enable release of cargo without six months to one year. It would also not be out of place
payment of duty, which shall ( l ) Circular issued to simplify to mention that CBEC has , for the
enable speedier clearance and procedure to deal with Audit second year running , conducted a

tax payer 's experience survey in
association with FICCI and KPMG .
with disparate tax rates and dissimilar
tax practices divides the country into
Will prevent cascading of taxes as
Input Tax Credit will be available
Several initiatives including the ones separate economic spheres. Creation across goods and services at every
outlined above have revealed that of tariff and non - tariff barriers such stage of supply.
72 per cent of the respondents have as Octroi , entry Tax , Check posts
felt a perceptible change in policies etc . hinder the free flow of trade Harmonization of laws, procedures
and rates of tax .
of the Tax Department by way of throughout the country. Besides that,
becoming liberal and friendly to the
tax payer. The number of reforms
the large number of taxes created high
compliance cost for the taxpayers
Will improve environment of
compliance as all returns to be
with regard to clearance procedures in the form of number of returns, filed online, input credits to be
pertaining to import and export of payments etc. In fact, it is said that verified online, encouraging more
goods have had a positive impact on our tax laws have created a situation paper trail of transactions.
time and cost . The impact is visible where business decisions are based on
in the improved scorecard of India in tax considerations rather than logical Uniform SGST and IGST rates
will reduce the incentive for
Logistics Performance Index ( LPI ), a economical factors. All these issues
survey done by World Bank Group on created a need for one tax that will evasion by eliminating rate
trade logistics. India has moved up 19 be able to mitigate number of these arbitrage between neighboring
positions ( from 54 to 35 ) in LPI rank problems to a large extent. States and that between intra and
and Indian Customs has moved up by inter-state sales.
27 positions ( from 65 to 38 ) in 2016 it is said that our tax laws
report as compared to 2014 report. have created a situation where
Electronic matching of input
tax credits all - across India
Goods and Services Tax business decisions are based thus making the process more
transparent and discourage mere
The phenomenon of GST
on tax considerations rather
invoice shopping .
has gripped the imagination of than logical economical factors.
the economists, industry and the All these issues created a need Common procedures for
registration of taxpayers, refund
government . In fact, it is the hottest for one tax that will be able
selling topic and a keen source of of taxes , uniform formats of
to mitigate number of these tax return , common tax base ,
discussion at many domestic and
international forums. The genesis problems to a large extent . common system of classification
of the introduction of GST in the of goods and services will lend
country was laid down in the Budget greater certainty to the taxation
All the taxes mentioned earlier are
Speech of 2006. Thereafter, there system .
proposed to be subsumed in a single
has been a constant endeavor for the
introduction of the GST in the country
tax called the Goods and Services
Tax ( GST ) which will be levied on
Greater use of IT will reduce
human interface between the
whose culmination has been the 122nd supply of goods or services or both taxpayer and the tax administration,
Constitution Amendment Bill . at each stage of supply chain starting which will go a long way in
from manufacture or import and till reducing corruption .
Why GST: Presently, the Central
the last retail level. GST is proposed
Government levies tax on manufacture
( Central Excise duty ), provision of
to be a dual levy where the Central
Government will levy and collect
Will provide a more transparent
basis for applying the WTO s
services ( Service Tax ) , interstate
Central GST ( CGST) and the State National Treatment Principle
sale of goods ( levied by the Centre
will levy and collect State GST on import of goods by charging
but collected and appropriated by ( SGST ) . The Centre will also levy
the States ) and states levy tax on additional duty of customs ( CVD)
and collect Integrated GST ( IGST ) as equivalent to IGST.
retail sales ( VAT ), entry of goods for inter-state supply of goods and
in the State ( Entry Tax ), Luxury
Tax. Purchase Tax , etc. It is clearly
services. It w i l l b o o s t e x p o r t a n d
m a n u f a c t u r i n g a c t i v i t y,
discernible that this fractured mandate Advantages of GST: generate m o r e e m p l o y m e n t
of taxation between the Central and
A ) Advantage to the a n d thus increase GDP w i t h
State Governments leaves a lot of gaps
Government: gainful employment leading to
in the supply chain. There is cascading
substantive economic growth.
of taxes as taxes levied by Central
Government are not available to set Will help to create a unified
off against the taxes being levied by

common national market for
India, giving a boost to Foreign
Ultimately, it will help in poverty
eradication by generating more
the State governments. Further, the investment and Make in India employment and more financial
variety of VAT tax laws in the country campaign . resources.

B) Advantages to Trade and investment of resources and less public interface between
Industry: manpower in maintaining the taxpayer and the tax
records. administration.
Simpler tax regime with fewer
exemptions.
More efficient neutralization Timelines to be provided for
important activities like obtaining
of taxes especially for exports
Reductions in the multiplicity of
taxes that are at present, governing thereby making our products more registration, refunds, etc.
competitive in the international
our indirect tax system leading to
simplification and uniformity. market and give boost to Indian Average tax burden on companies
is likely to come down which
exports. is expected to reduce prices
Will prevent cascading of taxes as
Input Tax Credit will be available Simplified and automated and lower prices mean more
procedures for various processes consumption, which in turn means
across goods and services at every more production thereby helping
stage of supply. such as registration , returns ,
refunds, tax payments, etc. in the growth of the industries.
Reduction in compliance costs This will create India as a
- No multiple record keeping All interaction to be through
the common GSTN portal - so
Manufacturing hub
for a variety of taxes - so lesser (E-mail:chmn-cbec@nic.in)
us YOJANA
Ei Forthcoming Issue
Science for Development
ERUDITION IAS Learning Simplified
ECONOMY by
VIVEK SINGH (IIT + MBA)
HIGHLIGHTS OF THE COURSE
> Covers Economic Development of GS Paper - III
> Complete coverage of all the topics including pre & mains
> Regular batches (morning & evening) commencing every month
> 30 Sessions of 2Yz hours each
> Weekly tests, discussions & feedback
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2016
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167
YE -
GAMUT OF REFORMS
oontziviEzo
.
Ushering in a New Era of Tax Reforms
D S Malik
he present Government menace of domestic black money. It
T
from its very inception has was announced by the Union Finance
shown its commitment Minister in his Budget Speech of
to tackle the menace 2016. Accordingly, the Government
of black money. The had formally launched the Income
very first decision of the Declaration Scheme (IDS) 2016 from
: :
IfV

present Government after taking over
in May 2014 was to set-up a Special
Investigation Team (SIT) headed by
the Hon ble Mr. Justice M . B. Shah,
1stJune, 2016 which was kept open for
four months i.e. till 30 th September,
2016. It provided an opportunity to
persons who had not paid full taxes in
former Judge of the Supreme Court the past to come forward and declare
as Chairman and Hon ble Mr. Justice their domestic undisclosed income and
Arijit Pasayat, former Judge as Vice assets. Declarations could have been
Chairman. The constitution of Special
...this overall Investigating Team (SIT) was approved
made online as well in printed copies of
the prescribed form up to the midnight
by the Union Cabinet in its First
gamut of large scale Meeting to implement the decision of
on 30th September, 2016.
the Hon ble Supreme Court on large Under IDS-2016, 64275 declarations
tax reforms both in amounts of money stashed abroad by were filed upto the midnight of 30 th
case of Direct and evading taxes or generated through September, 2016 with an aggregate
unlawful activities. of Rs.65,250 crore worth of hitherto
Indirect taxes will The SIT has since then given
undeclared incomes in the form of cash
and other assets being declared. With
its various reports to unearth black
go a long way in money and undisclosed assets beside
the final stock taking of declarations
being filed in physical printed forms all
suggesting / recommending various
making India one of other measures to that effect. Many SIT
over the country, this number is likely
to be further revised upwards.
the fastest growing recommendations have been already
accepted by the Government such as The response to the Scheme was
emerging economy in mandatory quoting of PAN for cash much higher than the expectations
transactions etc. of the tax experts and others. Under
the world with a tax Another major step undertaken by
IDS- 2016, the declarer had to pay
45 per cent tax on the declarations
the present Government to unearth
friendly base black money from domestic market
made which include a penalty of 15
per cent.
was the Income Declaration Scheme
(IDS)-2016 which was a huge success. Before that, the Government had
This Scheme was the latest initiative of brought a Scheme i .e. Undisclosed
the Government of India to tackle the Foreign Income and Assets and
The author is Addl Director General ( M &C ), Press Information Bureau, Ministry of Information and Broadcasting, Government of
India and Incharge of Media and Publicity for Ministries of Finance and Corporate Affairs.

Imposition of Tax Act , 2015 to
unearth the black stashed outside
the country. The Act provided for
one time compliance window to
declare assets held abroad and pay
due taxes and penalty on the value i
of assets declared. The Black Money
( Undisclosed Foreign Income and
T
Assets) and Imposition of Tax Act, A
2015 came into force with effect from
1 st July, 2015.
A total of 644 declarations S
/
were made under the compliance
window provided in the Black Money
( Undisclosed Foreign Income and
Assets ) and Imposition of Tax Act, '
2015.The amount involved in these

644 declarations was 4, 164 crores.
The declarants were liable to pay tax
at the rate of 30 per cent and a like Income Tax: Direct Tax for the Common Man
amount of 30 per cent by way of penalty
prosecution complaints in 175 HSBC years which is more than double as
on the value of assets declared, by 31 st
December, 2015. The amount received
cases; detection of Rs. 5, 000 crores compared to previous two years.
by way of tax and penalty upto 31st of undisclosed deposits in foreign
accounts made out of ICIJ cases, 55 Other major tax initiatives in
December, 2015 is Rs 2,428.4 crore. case of Direct Taxes undertaken by
The shortfall was primarily on account prosecution cases filed in those cases ;
big investigation in Panama cases the Government include reversal of
of certain declarations, in respect of retrospective tax laws, increase in
which , there was prior information has led to 250 references being made
to other countries asking for details the threshold limit for filing appeals
under the provisions of Double
about tax evaders and bank accounts by the Income Tax Department and
Taxation Avoidance Agreements
( DTAAs )/Tax Information among others The quantum jump in making the tax laws simpler and
Exchange
Agreements ( TIEAs ) or receipt of the searches and survey has resulted transparent so that more and more
payment after 31st December, 2015. people become tax compliant. The
Other major steps taken by the The effort of the Government is efforts of the Government is to widen
Government to tackle black money the tax base by including maximum
to widen the tax base by including people who are liable to pay the taxes
include making tax crimes predicate
offence under PMLA; amendment of maximum people who are liable under its tax net and make the people
FEMA to provide for confiscation of to pay the taxes under its tax net tax compliant by making payment of
domestic assets in place of foreign and make the people tax compliant due taxes in time. This will not only
assets; enactment of Black Money increase the revenue collections of
Law and Amendment to Benami Act
by making payment of due taxes the Government, but would also help
among others. in time. This will not only increase in bringing down the tax rates to a
the revenue collections of the reasonable level . The Government
Besides above, various international focuses to provide maximum tax
treaties were signed for exchange of Government, but would also help
based services online so that there
information about tax evasion and in bringing down the tax rates to a is minimum human interaction i .e .,
undisclosed assets including signing reasonable level. Minimum Government, Maximum
|r of FATCA with USA ; amendment Governance. This will bring down not
of Mauritius Treaty; Initiative for
in seizure of Rs.1986 crores as well only corruption, but would also bring
signing of Automatic Exchange of
as undisclosed income of Rs.56, 378 more transparency and efficiency
Information Treaty with all major
crore in the last two and half years. The in the tax system . Accordingly, to
countries including Switzerland ,
initiatives under BEPS ( Based Erosion upgradation of IT capabilities has led prevent undue harassment, the Income
and Profit Sharing ) such as country to non-intrusive methods of detection Tax Department is also focusing on
b\ country reporting, PoEM ( Place of of tax evasion . Rs . 16 , 000 crores electronic based communication with
Effective Management ) etc. received as tax out of one such system the tax payers at large. Providing a
of Non-filers of Monitoring System fair environment to not only corporate
An assessment of Rs .8000 crore in (NMS). 3626 cases of prosecution and but individual taxpayers seems to be
- SBC cases as well as filing of 164 compounding in the last two and half the key focus of the Government. The
'
r I 'JAN A November 2016 23
Prime Minister in various PRAGATI grandfathering period till April next Government s strenuous efforts to
Meetings had also asked the tax officials year gave investors the opportunity to carry every political party on board and
to take care of pending grievances and transition smoothly into the new tax get the 122nd Constitution Amendment
resolve them at the earliest. environment. Bill passed by both the Houses of
Parliament unanimously in the first
Similarly, in a bid to settle pending Another area of tax reforms week of August this year during the last
tax disputes with companies, the Union includes the field of Corporate Tax . Monsoon Session . This Constitution
Budget 2016-17 also announced a one- India , companies are also looking Amendment Bill was stuck for the last
time settlement window for resolution forward to Budget 2017-18 when the more than ten years I.e. since 2006,
of tax disputes. Terming litigation as Finance Minister is expected to throw in the Parliament for one reason or
a scourge for a tax friendly regime more light on his roadmap to lower the other.
which also creates an environment corporate taxes.
of distrust, the Finance Minister in The GST, which is seen as the
the Budget had announced a Dispute In Budget 2015- 16, the Finance most ambitious and most significant
Resolution Scheme ( DRS). Minister had announced a plan to lower tax reform in the history of indirect
the corporate tax rate from the existing tax laws, would subsume not only the
A taxpayer who has an appeal Union Levies including the Central
pending as of today before the The GST, which is seen as the most Excise Duty, Service Tax etc, but also
Commissioner ( Appeals ) can settle the State Level levies such as Value
his case by paying the disputed tax and
ambitious and most significant tax
Added Tax, Octroi, Entry Tax , Purchase
interest up to the date of assessment, reform in the history of indirect Tax and Entertainment Tax among
the Finance Minister had announced. tax laws, would subsume not others. It is the culmination of efforts of
The Scheme, which is currently open , only the Union Levies including over 13 years by the successive Central
allows for no penalty in respect of and State Governments to reach the
Income-tax cases with disputed tax up the Central Excise Duty, Service
present level .
to Rs 10 lakh will be levied . A penalty Tax etc, but also the State Level
of up to 25 per cent of the minimum levies such as Value Added Tax, The Union Finance Minister who
imposable penalty on cases with chairs the GST Council that includes
Octroi, Entry Tax, Purchase Tax and State Finance Ministers as its members,
disputed tax exceeding Rs 10 lakh will
be imposed for both direct and indirect Entertainment Tax among others. has set a target date of 22ndNovember
tax cases. Any pending appeal against It is the culmination of efforts of 2016 to finalise all the modalities of the
a penalty order can also be settled by tax, including the model legislation and
over 13 years by the successive
paying 25 per cent of the minimum of the crucial rates for the tax.
Central and State Governments to
the impossible penalty. In the last two meetings held on
reach the present level.
22nd, 23rd and 30 th September, 2016,
Domestic and foreign investors
the GST Council has already decided
are also gaining comfort from the
30 per cent to 25 per cent over a four on issues including the threshold for
Government s attempt to have year period, which would be in line businesses on which GST would be
transparent tax policies and its efforts with the rates of other Asian countries levied, the Draft Business Rules, the
to reach out and discuss all policy and enhance Indias competitiveness as future of Area Based Exemptions as
changes. well as control over small businesses
an investment destination . This would,
A case in point, for instance, was in turn , be done with an elimination of among others.
the plugging of the tax loophole incentives to companies.
Businesses with an annual turnover
with Mauritius. India and Mauritius of up to Rs 10 lakh in North Eastern
As far as tax reforms in the field
amended the double Tax Avoidance States and upto Rs 20 lakh in other
of Indirect Taxes are concerned, the
Agreement in May this year, which States will be exempted from GST.
historical tax reform being undertaken
allowed India to levy capital gains tax On the issue of administrative control,
by the present Government as a
from the sale of shares of an Indian States will have the sole control over
challenge is the Goods and Services
company from April 1 , 2017 onwards. manufacturing businesses with an
Tax (GST), which is at present under
Soon after the announcement , the annual turnover of up to Rs.1.5 crore.
the process of implementation . The
Finance Ministry swung into action and For those above the threshold, there
met with foreign institutional investors
Government has decided to implement
this law with effect from 1 st April, will be an element of dual control and
as well as domestic companies to either the State or Centre will have
clarify their doubts. 2017. The Economic Survey 2015-
lb had termed GST as a reforms control over the businesses based on
It also announced its intent to measure perhaps unprecedented in the risk assessment.
plug similar tax loopholes with other the modern global tax history. In Some analysts have however,
countries such as Singapore and the fact, this is the result of the present pointed out certain concerns with

regard to the implementation of GST is almost complete. Working of GST are needed to widen the revenue base
from April next year. One such concern Network will be tested in January and and expand the fiscal envelope to
is that certain number of items are February next year. support investment in infrastructure,
exempt from the tax, e.g., petroleum education and healthcare.
and petroleum products and electricity The GST Law is being keenly
will not be under GST. States and the awaited by domestic and foreign The Union Finance Minister said
Centre will continue to levy taxes on investors as well as global rating during his recent visit to Washington
them. agencies have, as it would promote in October 2016 that structural reforms
Ease of Doing Business and cut down like GST can only add to Indias growth
However, a pragmatic approach on internal tariff barriers put-up by each prospects. The IMF and the World
will allow the Centre and States to State Government. The Government Bank have pegged Indias growth rate
reach a consensus on issues easily, and expects that it would give a boost to the to 7.6 per cent in the next two years.
allow for the timely roll-out of GST. countrys ranking in the Ease of Doing As per various estimates, GST will
Notwithstanding these concerns, Business Report, where it is currently boost revenue collections by plugging
the Centre is hopeful that the model placed at 130 out of 189 countries. The leakages and evasion and will have
Bills for Central GST, State GST and Prime Minister hopes to bring India the potential to boost the countrys
Integrated GST will be finalized by amongst the top 50 countries on the gross domestic product by as much as
next month i.e. November, 2016 and rankings. 2 per cent.
can be passed by the Parliament and The International Monetary Fund
respective State Assemblies during Thus, this overall gamut of large
(IMF) in its recent World Economic scale tax reforms both in case of Direct
their respective Winter Sessions before Outlook had said that the advent of
the end of December, 2016. and Indirect taxes will go a long way in
GST would boost India s medium making India one of the fastest growing
Simultaneously, the work on IT term growth prospects. Noting that it emerging economy in the world with a
infrastructure for GST - GST Network is positive for trade and investment, the tax friendly base.
(GSTN ) that will provide a common IMF report said, This tax reform and the
system to States, Centre and taxpayers, elimination of poorly targeted subsidies ( E-mail:dprfinance@gtnail.com)
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- YE -

JANA November 2016 25

TAXATION POLICIES
APPROACH
Road Map for Taxation
Timsy Jaipuria
fter having faced The Scheme was effective from

m \ criticism globally over 1 June 2016 for a period of 4 months
%'
y uncertain tax policies, ( i.e. till 30 September 2016) and saw an
* *
India in the past 2 years overwhelming response with Indians
* V
has been on a tax overhaul declaring over Rs 65 , 000 crore of
= which has shored up the
* unaccounted income. Any disclosure
/ government ' s reform made under the Scheme was immuned
credentials. from high taxes and penalty with no
Be it the announcement of a scrutiny or inquiry shall be undertaken
road map for phasing out deductions in respect of such declarations.
Be it the announcement under the Income - tax ; indicating To encourage entrepreneurship
that the rate of corporate tax will be through incentives for start -ups, the
of a road map for phasing reduced from 30 per cent to 25 per
government had announced that income
out deductions under the cent over the next four years along
of such start-ups subject to specified
Income-tax; indicating that with corresponding phase - out of
conditions would not be chargeable to
exemptions and deductions to simplify
the rate of corporate tax income-tax and that they could receive
the tax laws, making them clearer
capital at a value which may not be
will be reduced from 30 per and more transparent; or the policies
equivalent to the fair market value.
cent to 25 per cent over the encouraging entrepreneurship through
incentives for startups, an array of Additionally, the government also
next four years along with reforms are what now India is being decided to abolish Wealth -tax , which
corresponding phase-out credited for. was introduced in 1957 and was levied
of exemptions and With the recent success of the @1 per cent on Individuals, HUFs and
Income Declaration Scheme for Companies if the Net Wealth of such
deductions to simplify the person/entity exceeds Rs. 30 lakhs.
unearthing domestic black money, India
tax laws, making them with these reforms is also increasing its To r e d u c e l i t i g a t i o n s , t h e
clearer and more revenues and is also getting acclaimed government w e n t for Direct Tax
transparent ; or the globally. Dispute Resolution Scheme, providing
policies encouraging The Finance Minister , in his an opportunity to taxpayers to settle
budget speech , proposed a limited their past cases by making payment of
entrepreneurship through period c o m p l i a n c e w i n d o w for the prescribed tax, interest or penalty
incentives for start-ups, an domestic taxpayers to declare their in respect of any tax arrear or specified
array of reforms are what undisclosed income whether in the tax. The key objective of the Scheme
form of investment in assets in India is to reduce the pending direct tax
now India is being or otherwise, and clear up their past tax litigation, involving various corporate
credited for transgressions by paying a total of 45 and personal tax cases or disputes
per cent of the undisclosed income. which can be settled in one go.
The author is currently Special Correspondent with CNBC TV 18, has been a business journalist since last more than eight years
working with Hindustan Times, Financial Express and The Pioneer. She specializes in writing on economic, socio-economic and
politico-economic issues ranging from taxes, international trade relations, infrastructure, social schemes and many more.

Besides, another scheme for APA
or Advance Pricing Agreements was
introduced in the Income-tax Act in
2012 and the Rollback provisions were
introduced in 2014. The scheme is seen
as one of the most robust endeavors to
provide certainty to taxpayers in the
r
domain of transfer pricing by specifying
the methods of pricing and determining
the arms length price of international *
transactions in advance for a maximum - MS

period of five future years. Further, the
taxpayer has the option to roll-back the v
KT
- --
APA for four preceding years. More

* -
than 700 applications (both unilateral
.
1
as* V j
and bilateral ) have been filed in just

ra .*** \ \i
" J
- s
four years. *
.
North Block, which has not been

i 1
seen in such a revolutionary mode ever
before, took another decision to build Taxing Wealth
upon and overcome various legacy
issues. The Central Board of Direct Taxes to generate the EVC for electronic
( CBDT) has issued a consolidated verification and filing of their paperless
A series of recommendations of the instruction to its officers on November Income Tax Return.
first report of the Tax Administration 7, 2014 to achieve a non-adversarial
It has also cut down on the face
Reform committee (TARC) relating to tax regime. The CBDT has directed its
to face meeting with the tax officers
dispute management were also being officers of the Income-tax Department
to reduce complaints of harassment
taken forward. to adhere to the specified guidelines
by bringing in e-hearing for paperless
issued time to time. Besides, various
The CBDT has issued specific assessments.
procedural reforms also took place
guidance notes , circulars and to bring in greater ease in doing This concept uses email - based
instructions for uniformity in approach business. communication for paperless scrutiny
on interpretation of taxation provisions proceedings on a pilot basis and
from time to time. This process is being This is being done by department it is now being carried in various
further strengthened with the issue of using Sevottam platform that connects divisions.
Circulars on the recommendations of all income tax offices in the country to
the High level Committee set up by address the queries and grievances Additionally, the CBDT has
the Finance Minister to identify issues in real time , or making PAN and recently notified the procedures and
requiring clarification . CBDT has also TAN application process faster and the standards to be followed to ensure
clarified various provisions of the paperless. secured transmission of electronic
Income-tax Act for reducing litigation communication.
To ease the burden of taxpayers
and easing burden of compliance. like you and me , the Income Tax The M i n i s t r y o f F i n a n c e ,
Amendments/ clarifications have Department introduced usage of Government of India, had announced,
either digital signature or Electronic through a Press Release issued on
been issued for e.g. in respect of indirect
Verification Code ( EVC ) to file a 10 December 2015 , a new facility
transfer, foreign tax credit rules. This
paperless income tax return in India . for pre-filling of the withholding tax
has not just reduced litigation by the
The EVC can be generated by using [called Tax Deducted at Source (TDS)]
department, but has also increased the schedule while submitting online
Aadhaar Number, Net Banking ,
limits of disputed tax , thereby bringing rectification request on the e- filing
ATM or registered e-mail and mobile
more and much needed clarity. number of a taxpayer. In order to portal of Income-tax department.
Meanwhile, a major transition include more taxpayers under the EVC With such series of work , the
seen in the last few years is the fact process, the Central Board of Direct transition , transformation and up
that PM himself is issuing instruction Taxes (CBDT) has recently issued a gradation in direct taxes is still going
to Income-tax officers - an attempt notification to include two additional on to get India at par with best global
towards a non - adversarial tax modes of generating the EVC. Now,
practices and biggies.
regime, to correct the image of the taxpayers can also use their Bank
department. account or Demat account details ( E-mail:timsy.jaipuria@gmail.com)
28 YOJAN A November 2016

MULTI-PRONGED STRATEGY
FOCUS
Black Money Menace:

Government on War-footing
Dilasha Seth
ven at two hours Of the over 120 crore population
E
to midnight on in the country, less than 5 per cent
September 30 th, or 5.43 crore individuals pay taxes.
1
TAX people were seen Honest taxpayers face a steep tax
burden on account of non-compliance
REFORMS streaming into various
tax offices across the by a significant chunk of individuals
country while many others were who do not declare income. Although,
glued to their computer screens to it is difficult to ascertain the quantum
declare all the unaccounted wealth of black money flow in the economy,
and assets they owned and come various estimates and reports peg
clean. They were amongst the 64275 it at anywhere between 20 per cent
individuals who availed the one- and 70 per cent of the size of Indias
The Indian government 2 trillion-dollar economy. According
time opportunity offered by the
has significantly stepped government and made black money the Swiss government, till the end
up efforts to unearth disclosures under the four- month of 2010, there were deposits worth
window that opened on J u n e 1. Rs 9500 crore in all Swiss banks by
black money from the Indian citizens. Of about Rs 8 lakh
The midnight hustle guaranteed the
system, which is only set declarants a comfortable sleep in
crore worth direct tax revenue, the
to expand going forward collections are significantly skewed
future amid governments war-like
in favour of corporation tax, which
with the help of technology approach to fight the black money
had a 60 per cent share and personal
menace. The declarants will escape income tax a 40 per cent share. This
such as Project Insight. prosecution under the Income Tax
highlights the potential of widening
While the efforts using Act , Wealth Act and Benami Act.
of the tax base. Of the 25 crore PAN
technology are in the Although the government will get card holders in the economy, only
close to Rs 30,000 crore in taxes by 5.43 crore pay taxes. Governments
right direction, the focus September next year from the Income toughened stance against black money,
must be on discouraging Declaration Scheme (IDS), which is in line with its electoral promise is
cash transactions and 45 per cent of the Rs 65250 crore set to make the going difficult for
worth of declarations that came in, it tax evaders within the economy and
encouraging card payment may well be just a tip of the iceberg. those with unaccounted wealth stashed
in the economy. This will be Incidentally, the Prime Minister has overseas.
the key to curb black money taken up the task of unearthing black
money on a mission mode. It could The government is working on a
circulation be made out from his statement last multipronged strategy to tackle the
month warning evaders of tough black money menace. Besides IDS,
decisions after September 30. a slew of other measures includes
The author is a Special Correspondent with Business Standard newspaper and covers Ministry of Finance. With over five years
experience in field, she has written on a range of economy and policy related issues such as macroeconomic data, international
trade, WTO, GST, taxation and FDI among others. Earlier she was with The Economic Times and covered the Ministry of
Commerce and Industry.

Foreign Assets Disclosure window,

constitution of Special Investigative
Team (SIT) for black money, reworking
bilateral tax treaties, making PAN card 7
mandatory for transactions over Rs

K f 1 '
I
2 lakh, Project Insight and signing V
information exchange treaties with
various countries. The introduction of
i i
-
one of the biggest taxation reforms-
!r
I I
goods and services tax (GST )- from >

L
next financial year will also make .
-u
it tough to evade indirect taxes ,
which is likely to improve the overall
compliance rate . The GST will
I V
u
subsume various indirect levies of

"*
' - *S '
%
die
W
Centre and states like Service Tax ,
Excise Duty, Octroi, Value Added tax,
among others and create an input tax
i
.. .
Unearthing Black Money
-
\
'
/
.*
V
credit chain for refunds.

The government has also made 30 lakh and the RBI for issue of bonds
-
Non Intrusive Target Evaders it mandatory to furnish PAN for all exceeding Rs 5 lakh.
transactions over Rs 2 lakh through
According to the Ministry of all payment modes from January 1, I-T Lens Widens
Finance, Rs 16, 000 crore have been 2016. It has also revised monetary
collected by using non - intrusive A quantum jump in the searches and
limits for furnishing of PAN for gold survey has resulted in the seizure of
measures using third party information jewellery to above Rs.2 lakh from the
and quoting of PAN on account of Rs 1 ,986 crore as well as undisclosed
earlier limit of Rs 5 lakh . All fixed income of Rs 56,378 crore in the last
upgraded IT database .
deposits with post offices, cooperative two and half years. Most seizures by
At present, about 92 per cent of the banks, Nidhis, Non-Banking Finance the income tax department were in the
tax department s revenue comes from Companies will also need PAN . medical and education sector.
tax deducted at source (TDS), advance
tax and self-assessment tax, while A quantum jump in the searches In what underlines the department
the remaining 8 per cent comes after effectiveness in using third party
and survey has resulted in the information , the CBDT issued 7
scrutiny. This looks set to change.
seizure of Rs 1 ,986 crore as well as lakh letters to individuals to come
Stepping up tech support to nab undisclosed income of Rs 56,378 clean under IDS. This was based
evaders, the big ticket Project Insight on information of 90 lakh pieces of
with the help of L&T Infotech will crore in the last two and half years.
information of transactions without
allow the government to collate Most seizures by the income tax PAN.
all information available with the department were in the medical
Income Tax Department from various It has scrutinized the Annual
sources and systematically profile and education sector. Information Returns ( AIR) for high
people using permanent account value transactions which have divulged
number ( PAN ) details . Through Currently, seven third-party sources cash deposits of over Rs 10 lakh in a
profiling, all transactions by a person have to mandatorily report transactions savings bank account, sale/purchase
including purchase of immovable and file an Annual Information Return of immovable property valued at Rs
property, jewellery and vehicles will ( AIR ). These include banks that 30 lakh or more, and many of these
be available with the tax department accept cash deposit of Rs 10 lakh transactions do not have PAN.
in a systematized manner, making or more in a year from any person;
The Prime Minister, in his address
identification of tax evaders simpler. bank or a company issuing credit
The project is also expected to rank to tax officers a few months ago, had
cards where payment against bills
tax evaders based on the amount of
pointed out that if 42,000 officials of
exceeds Rs 2 lakh in a year for any
tax that could be recovered , so that CBDT are engaged for ensuring direct
person ; mutual funds collecting Rs
the authorities could go after the tax revenue, then the tax net should
2 lakh or more for sale of units by increase further.
highest value targets first. Several any person; company receiving Rs 5
government departments like Central lakh or more against issue of shares, The Central Board of Direct Taxes
Board of Direct Taxes, Intelligence bonds/debentures and registrar/sub- (CBDT ) has also instructed officers
Bureau and others are working closely registrars in respect of sale/purchase to scrutinize production details and
on the project. of immovable property exceeding Rs tax returns filed by the companies
V OJANA November 2016 31

engaged in mining activities and action against those companies which Similarly, investigation in the
take appropriate action in case of had claimed duty drawback without Panama Papers has led to 250
discrepancy found. bringing earnings from exports to India. references being made to other
In such cases, the country loses on two countries asking for details about tax
In case of indirect taxes, the counts first by not getting export evaders, bank accounts, etc.
enhanced enforcement measures proceeds and then by wrongful claim
have helped unearth tax evasion of of duty drawback. In the compliance window in 2015
Rs 50,000 crore of indirect taxes and for undisclosed assets stashed abroad,
undisclosed income of Rs 21,000 Unaccounted Money Stashed the government received disclosures
crore. *
Abroad: worth Rs 4147 crore, and the 60 per
SIT for Capping Cash cent tax translated to Rs 2428 crore
The information exchange pacts
Transactions: in revenue.
with other countries will make it
further challenging to stash black The Panama Papers leak revealing
The special investigative team
on black money constituted in 2014 money in overseas accounts. The over 11 million documents figured
and chaired by former Supreme Indo - US Foreign Account Tax names of at least 500 Indians who
Court Judge MB Shah has called for Compliance Act ( FATCA ), which flouted rules and regulations. These
a complete ban on cash transactions came into effect last year is aimed documents pertain to 214,000 offshore
over Rs 3 lakh to curtail black money to ensure that tax is paid on income entities and span almost 40 years.
circulation in the economy and a generated from wealth abroad . The papers originated from Mossack
limit of Rs 15 lakh on cash holdings India has already started receiving Fonseca, a Panama-based law firm with
in its recent report. The suggestions under Automatic Exchange of offices in more than 35 countries.
if accepted, made after examining Information ( AEOI) under FATCA.
provisions in various countries, may The government will start receiving In the light of the Panama leak,
make transacting or holding cash over the SIT has suggested amendment
the said amount illegal and punishable The government is on a spree of the Black Money ( Undisclosed
under law. Foreign Income and Assets ) and
to revise the double taxation Imposition of Tax Act, 2015 where
It was felt that the limit of cash avoidance agreement with these an assesee must inform the concerned
transaction could only succeed if countries and gain taxation rights jurisdictional commissioner of Income
there was a limitation on cash holding. Tax Department of the state before
It suggested that if any person of over capital gains, which currently
investing any amount or purchasing
industry required holding more cash, rests with these low or no tax
any property overseas, even if the
they may obtain necessary permission jurisdictions. India has revised permission of the Reserve Bank of
from the Commissioner of Income tax DTAA with Mauritius and Cyprus India was not required.
of the area.
and is close to amending the pact
The SIT has suggested that an Act Revising DTAAs :
with Singapore.
be framed to declare such transactions Tax evaders have often exploited
as illegal and punishable under law. It loopholes in the existing tax treaties
is being deliberated by the Ministry information from other countries under
AEOI route from 2017 onwards. with low or zero tax jurisdictions like
of Finance.
Mauritius, Singapore and Cyprus,
The panel has asked the Reserve Although , it will provide ensuring complete tax avoidance.
Bank of India ( RBI) to develop an information prospectively from the This ensures that unaccounted
institutional mechanism, in consultation time of coming into effect, it may help money kept overseas is routed back
with the revenue department, to share the tax department to detect audit trail to India disguised as foreign capital.
export-import and foreign exchange for an entitys past transactions. While Double Taxation Avoidance
(forex) transaction information with Agreements (DTAA ) are aimed to
The government has filed 164
investigative agencies, to curb illicit ensure that taxpayers do face the
prosecution cases of the 175 cases
financial flows out of the country. It burden of double taxation in both
of black money stashed overseas in
called for a mechanism to allow sharing countries, evaders have managed
a HSBC bank 's accounts worth Rs
of information of RBI databases to avoid taxes in both countries.
with enforcement authorities - the 8,000 crore. Based on investigation
by International Consortium of The government is on a spree to
Department of Revenue Intelligence revise the Double Taxation Avoidance
(DRI) and Enforcement Directorate Investigative Journalists ( ICIJ ) ,
undisclosed deposits in foreign Agreement with these countries and
(ED) - for verification.
accounts worth Rs 5000 crore have gain taxation rights over capital gains,
It has also asked the Directorate been detected by the government and which currently rests with these low or
of Revenue Intelligence (DRI) to take 55 prosecution cases have been filed. no tax jurisdictions. India has revised
IIHIIIE
DTAA with Mauritius and Cyprus and Cyprus has also agreed to give benami transaction has been widened
is close to amending the pact with India taxation rights over shares in to include a transaction made in a
Singapore. return for removal from the blacklist. fictitious name; where the owner is
Companies based in Europe and the not aware of or denies knowledge of
Mauritius and Singapore are US routed investments into India , the ownership of the property; or the
the top two FDI sources in India , deriving complete tax avoidance as person providing the consideration for
making up for about half of total the tax treaty provided for zero capital the property is not traceable .
direct investments into the country. gains tax and a low withholding
Total FDI from Mauritius over the tax rate of 10 per cent on interest Investment in property or real
last decade and a half stands at payments made to entities based estate is used commonly to park
US$95.9bn , while that from Singapore in Cyprus. India has agreed to take unaccounted money. A significant
is about US$45.8bn. Cyprus is eighth Cyprus off the blacklist. Cyprus number of transactions in real estate are
on the list with investments worth was declared a non - cooperative not reported or are under-reported.
US$8.5bn. jurisdiction by India in 2013 over not The Bill has made the penalty and
sharing information related to Indian prosecution provisions more stringent.
Ahead of General Anti Avoidance
account holders. It was the first tax The penalty under the amended Act
Rule ( GAAR ) being rolled out
jurisdiction to be labeled that by India, will be rigorous imprisonment of one
from April 1 , 2017, these low tax
leading to a 30 per cent withholding year up to seven years, and a fine
jurisdictional economies have, in
tax on all payments made to Cyprus which may extend to 25 per cent of
fact voluntarily come forward to
and greater scrutiny of Indian entities the fair market value of the benami
revise treaties to plug these loopholes.
receiving funds from there requiring property as against imprisonment up
GAAR is a set of rules designed to
additional disclosures, including the to three years or fine or both in the
give Indian authorities the right to
source of the money. Indian entities current legislation.
scrutinize and tax transactions which
with investments from Cyprus also
they believe are structured solely to
have to forego deductions on account The penalty for providing
avoid taxes. of expenditure and allowances. false information will be rigorous
India amended the DTAA with imprisonment of six months up to five
Mauritius in April, allowing New With all major economies of the years, and a fine which may extend to
Delhi to impose capital gains tax on 10 per cent of the fair market value of
world uniting against the cause
shares. Companies routing funds the benami property.
into India through Mauritius from of eradication of black money,
the next fiscal will have to pay short- seen from Base Erosion and Profit Way Forward:
term capital gains tax at 50 per cent Sharing ( BEPS) agreement and With all major economies of the
prevailing rate during a two- year multilateral information exchange world uniting against the cause of
transition period beginning April eradication of black money, seen
2017. The short term capital gains tax
pacts, it will become very difficult
from Base Erosion and Profit Sharing
rate is 15 per cent at the moment . The to carry out tax evasion. The free ( BEPS) agreement and multilateral
full rate will be imposed from 2019 exchange of information between information exchange pacts, it will
onwards. The concessional rate of 50 countries will now provide more become very difficult to carry out
per cent would be subject to fulfilment tax evasion . The free exchange
leads to tax officers to pin down
of conditions in newly - inserted
I Limitation of Benefit ( LOB) which is

an expenditure of at least Rs 27 lakh
in Mauritius in the previous fiscal.
The Singapore treaty amendments are
being negotiated by the two sides. It
offenders.
Benami Transactions Act:

The Benami Transactions
of information between countries
will now provide more leads to tax
officers to pin down offenders. The
Indian government has significantly
stepped up efforts to unearth black
( Prohibition ) Amendment Act
money from the system, which is only
will automatically be amended from set to expand going forward with the
April 1, 2017 as it is under the same approved by the Parliament in August
saw widening of definition and help of technology such as Project
protocol as Mauritius. Insight . While the efforts using
increase in penalty and punishment
India has Double Tax Avoidance for those who hold assets in the name technology are in the right direction ,
Agreements with 82 nations, including of other person or in fictitious name the focus must be on discouraging
all popular tax haven countries. Of to avoid taxation . The legislation cash transactions and encouraging
these, India has expanded agreements is intended to effectively prohibit card payment in the economy. This
with 30 countries which requires benami transactions and thereby will be the key to curb black money
mutual effort to collect taxes on behalf prevent circumvention of law through circulation.
of each other. unfair practices. The definition of a ( E-mail:dilashaseth@gmail.com)

MOST SIGNIFICANT TAX REFORM

PERSPECTIVE
GST: Game Changer for Indian Economy ?
Ranjeet Mehta
/ t t h e o u t s e t, t h e level it includes VAT or Sales Tax,
A
Government of India Octroi, State Excise, Property Tax ,
must be complimented Entry Tax and Agriculture Tax. These
on the tremendous efforts taxes lead to increased tax burden
being made on the GST on the Indian products affecting the
front . The passage of prices and sales in the domestic as well
the Constitutional Amendment Bill as international markets.
as well as release of the Model GST
laws indicates the determination of To address this, the Constitution
the Government to implement GST Amendment Bill for Goods and
The GST subsumes at the earliest . One of the thrust Services Tax (GST) has been approved
by the President of India post its
Indias messy plethora policy initiatives of the government
passage in the Parliament (Rajya Sabha
is the Make in India project that
of indirect taxes, would enable India to become a on 3 August 2016 and Lok Sabha on 8
duties, surcharges and manufacturing hub as it will create August 2016) and ratification by more
employment / job opportunities for the than 50 per cent of state legislatures.
cesses into a single burgeoning youth of the country. In The Government of India is committed
tax. It is expected to order to make India a manufacturing to replace all the indirect taxes levied
hub, it is imperative that the foreign on goods and services by the Centre
ease a cumbersome investors/companies find it conducive and States and implement GST by
tax system, help goods to do business here. One of the major April 2017.
move seamlessly across impediments to a smooth business, To have achieved this, in a large
especially in the manufacturing sector, and complex federal system of
state borders, curb is the uncertain and unpredictable multiparty democracy, with a Centre,
tax evasion, improve indirect tax regime. 29 States and 2 Union Territories
compliance, raise The current multi - staged tax of widely divergent interests via a
structure has charges from the State constitutional amendment requiring
revenues, spur growth, and Union governments separately, broad political consensus, affecting
stimulate investment and leading to cascading effect of taxes. potentially 7.5 million tax entities, and
There are taxes at different rates and at marshalling the latest technology to
make investing and doing use and improve tax implementation
multiple points. The Centre has taxes
business in India easier like Income Tax, Service Tax, Central capability, is perhaps breathtakingly
Sales Tax, Excise Duty and Security unprecedented in modem global tax
Transaction Tax while at the State history.
The author is Director at PHD Chamber of Commerce and Industry, New Delhi, addressing various policy related issues in Infrastructure,
Power Sector, Renewable Energy, Oil and Gas, Housing sector, Real Estate Regulatory Bill, Land Acquisition Bill, Master Plan of Delhi,
National Water Policy and Logistic Sector. He has written extensively on various subjects. His publications include six books, more than
45 research papers and articles in many journals of repute, leading national and international magazines.

Sometimes, we are insufficiently

appreciative of how much the country
'
v_ I
has achieved in coming to this

4
point with the GST. Credit should
go to all stakeholders at the Centre
and the States for having worked
towards the GST. The time is ripe
to collectively seize this historic
opportunity because the GST will
decisively alter the Indian economy
for the better.
GST is also the most significant
tax reform since independence for
India which is now Asia s third
t i
largest economy. The GST subsumes

India s messy plethora of indirect GST: Facilitating inter- state trade in goods
taxes, duties, surcharges and cesses
into a single tax . It is expected to
will have a comprehensive tax base
the poorest States for example,
ease a cumbersome tax system, help
with minimum exemptions will Uttar Pradesh, Bihar, and Madhya
goods move seamlessly across state
help industry, which will be able to
reap benefits of common procedures
Pradesh who happen to be
large consumers will increase
borders, curb tax evasion , improve and claim credit for taxes paid. This substantially.
compliance , raise revenues , spur is expected to reduce the cost for
growth , stimulate investment and consumers. GST will increase Indias The Indian GST will be a leap
make investing and doing business GDP by around 2 per cent as per the forward in creating a much
in India easier. Finance Ministry. cleaner dual VAT which would
minimise the disadvantages of
With GST, it is anticipated that completely independent and
the tax base will be comprehensive as GST will have a far-reaching completely centralised systems. A
virtually all goods and services will common base and common rates
impact on almost all the aspects
be taxable with minimum exemptions. (across goods and services) and
GST will be a game changing reform of the business operations in
very similar rates (across States
for the Indian economy by creating a the country, for instance, pricing and between Centre and States)
common Indian market and reducing of products and services, supply will facilitate administration
the cascading effect of tax on the cost chain optimization, IT, accounting, and improve compliance while
of goods and services. It will impact also rendering manageable the
the tax structure , tax incidence , and tax compliance systems. That
collection of taxes on inter -
tax computation , tax payment , is the reason GST Bill has been state sales . At the same time,
compliance , credit utilization and
reporting , leading to a complete
described as a reform measure the exceptions in the form of
permissible additional excise taxes
of unparalleled importance in
overhaul of the current indirect tax on special goods ( petroleum and
system.
independent India.
tobacco for the Centre, petroleum
GST will have a far - reaching Major Benefits of GST:
and alcohol for the States )
will provide the requisite fiscal

impact on almost all the aspects of autonomy to the States. Indeed,
the business operations in the country, The GST will decisively take
even if they are brought within
for instance, pricing of products and the Indian economy to the next
the scope of the GST, the States
services, supply chain optimization , level for the better. As the Prime
will retain autonomy in being
IT, accounting, and tax compliance Minister outlined in an interview,
the GST will increase the resources
able to levy top- up taxes on these
systems. That is the reason why GST goods.
Bill has been described as a reform available for poverty alleviation
measure of unparalleled importance and development of the country. The GST will facilitate Make
in independent India. This will happen indirectly as the in India by bringing India on a
tax base becomes more buoyant single tax platform . The current
Currently, tax rates differ from state and as the overall resources of the tax structure is fragmenting Indian
to state. GST will bring uniformity, Central and State governments markets along State lines. These
reduce the cascading effect of these increase. But it will also happen distortions are caused by three
taxes by giving input tax credit , directly because the resources of features of the current system: the

Central Sales Tax (CST) on inter- have a federal structure. GST ability to support ease of doing
state sales of goods; numerous will basically have three kinds business.
intra-State taxes; and the extensive of taxes namely Central, State
nature of countervailing duty and one called integrated GST GST will reduce tax burden on
exemptions that favours imports that will help to tackle inter-state producers and foster growth
over domestic production . In one transactions. Under the current through more production .
fell dive, the GST would rectify GST tax reform , all forms of This double taxation prevents
all these distortions : the CST supply of goods and services like manufacturers from producing
would be eliminated; most of the transfer, sale, barter, exchange to their optimum capacity and
other taxes would be subsumed and rental will have a CGST and retards growth. GST would take
into the GST; and because the SGST. care of this problem by providing
GST would be applied on imports, tax credit to the manufacturer.
the negative protection favouring Amalgamating several Central
imports and disfavouring and State taxes into a single Various tax barriers such as
tax would help mitigate the check posts and toll plazas lead
domestic manufacturing would to a lot of wastage for perishable
be eliminated . items being transported , a loss
The proposed GST regime law
that translates into major costs
Another significant benefit is, aims to simplify and harmonize
through higher need of buffer
the GST would improve tax the indirect tax regime in the
governance in two ways. The stocks and warehousing costs as
first relates to the self- policing country. GST shall be levied on both well . A single taxation system
incentive inherent to a value- goods and services which would could eliminate this roadblock for
added tax . To claim input tax them.
subsume most of the indirect tax
credit, each dealer has an incentive
to request documentation from
laws (except few taxes such as A single taxation on producers
stamp duty ) and hence is touted would also translate into a
the dealer behind him in the lower final selling price for the
value-added/ tax chain. Provided as a major tax reform . Transfer consumer, therefore less burden
the chain is not broken through of ( completed ) properties may on the common man. Also, there
wide - ranging exemptions ,
continue to be outside the purview will be more transparency in the
especially on intermediate goods,
of GST and be liable only to system as the customers would
this self - policing feature can know exactly how much taxes
work very powerfully in the applicable stamp duties.
they are being charged and on
GST. The second relates to the
what base.
dual monitoring structure of the double taxation , leading to a
GST one by the States and common national market. From GST provides credits for the
one by the Centre. Critics and the consumer s point of view, taxes paid by producers earlier
taxpayers have viewed the dual the advantage would be in terms in the goods/services chain. This
structure with some anxiety, of a reduction in the overall would encourage these producers
fearing two sources of interface tax burden on goods, which is to buy raw material from different
with the tax department and currently estimated at 25 per cent registered dealers and would
hence two potential sources of to 30 per cent. bring in more and more vendors
harassment. But dual monitoring and suppliers under the purview
should also be viewed as creating Reduction in Prices: Manufacturers of taxation . GST also removes
desirable tax competition and or traders would not have to the custom duties applicable on
cooperation between State and include taxes as a part of their exports. Our competitiveness in
Central authorities. Even if one cost of production, which would foreign markets would increase
set of tax authorities overlooks lead to reduction in prices. on account of lower cost of
and / or fails to detect evasion, transaction.
there is the possibility that the Lower compliance and procedural
other overseeing authority may cost: There would be reduction in Sectorial Impact
not. the load to maintain compliance.
Also keeping record of CGST, Real Estate Sector:
The scenario of multiple taxes SGST and IGST separately would
and its cascading effect which not be required. The real estate sector has strong
is a burden on common man economic multiplier effects through
has been addressed by GST. GSTs successful implementation backward and forward linkages .
The framework of proposal has would give a strong signal to the Construction is the second largest
dual GST which means it will foreign investors about India s employment generator in the country

after agriculture and accounts for a At present, developers pay various can alone add 2 per cent to Indias
significant proportion of the GDP. non-creditable taxes on supplies. GST pharmaceutical market size. Because
According to the Economic Survey may replace these multiple taxes with a GST will help pharmaceutical
2015 - 16 , the real estate sector single tax; credit on supplies may also companies rationalize their supply
constituted 7.4 per cent of Indias GDP be available, thus reducing costs for all chain, they will have to review their
in 2013-14. Under the current indirect players. However, if real estate output distribution networks and strategy.
tax regime, the real estate industry is exempted, then input GST credit
has been embroiled in disputes due could be a substantial cost for the Additionally, GST implementation
to ambiguity in provisions as well as sector, resulting in blockage of credit will also envisage a seamless flow of
multiple taxation . and higher costs to end consumers. tax credit, account for improvement
in overall compliance and is also
Under the current law in force, expected to create a level - playing
Health Care Sector
various types of different taxes are field for pharmaceutical companies
involved, starting from construction One of the major concerns of in India.
of property to sale of the same to end this industry is the current inverted
customer: duty structure that adversely affects A big advantage for companies will
domestic manufacturers , cost of be the reduction in transaction costs
Service tax. with the discontinuance of Central Sales
inputs being higher than output .
Value Added Tax ( VAT). This discourages investment in this Tax ( CST). GST is expected to bring
industry. GST may either remove the down the manufacturing cost and even
Stamp duty. a 2 per cent reduction in production
inverted duty structure or allow refund
of accumulated credit. This would be or distribution cost is believed to add
Building Cess on construction ,
etc.
over 20 per cent to profits. If the rate of
...as GST is a destination-based GST is below the current total tax rate,
Further, there are various other it will eventually help consumers by
taxes which are embedded in the
tax, it might be a challenge to making healthcare and medicines more
cost of procurements (such as determine the destination of affordable which already is a big goal
excise duty, CST etc ) certain services (at present, for the Indian Government.
Hence, sale of under construction services are taxed at the place of This sector enjoys several tax
property attracts multiple taxes/duties rendering the service). This may exemptions and benefits. It is still
under the current regime, leading to lead to a difficulty in determining not clear whether these benefits will
cascading of taxes and higher tax cost state GST, central GST or inter-state continue under GST. Health insurance
burden on house purchasers. and diagnostic centres , which are
GST on B 2 B and B2C transactions.
mainly service- oriented , may fall
The proposed GST regime law
under higher tax rates, thereby making
aims to simplify and harmonize the a boon for this industry and can act as such services more expensive for
indirect tax regime in the country. its growth catalyst.
GST shall be levied on both goods
consumers.
and services which would subsume The current cascading tax structure Banking and Financial Services
most of the indirect tax laws (except on import duty makes it expensive for Sector:
few taxes such as stamp duty ) and the industry to import machinery.
hence is touted as a major tax reform . GST is likely to reduce this cost. In India , most of the banking
Transfer of (completed ) properties may Further, GST is expected to have a and financial services are exposed to
continue to be outside the purview of positive effect on the pharmaceutical service tax , at the rate of 14.5 per cent,
GST and be liable only to applicable sector. It will help the industry while GST is expected to be 18 per
stamp duties. by simplifying the tax structure , cent to 20 per cent. Thus, services are
since eight different taxes are levied likely to get costlier. GST may make
The GST is likely to result in
in the pharmaceutical industry at things cumbersome as financial service
transparency in the real estate sector,
the moment. A consolidation of all providers may be required to adhere
which will significantly reduce
these into one tax would ease doing to compliances across multiple states
tax evasion through more efficient
business , as well as mitigate the instead of the current single, centralised
transaction -tracking methods, and
cascading effects of multiple taxes registration compliances
improved enforcement and compliance.
applied on one product.
Since GST may be levied on a single Also, as GST is a destination -
value, the current issue of levying tax Apart from this, GST will also based tax, it might be a challenge to
on tax (VAT on central excise duty) is result in operational efficiency by determine the destination of certain
likely to be removed. streamlining the supply chain which services ( at present , services are

taxed at the place of rendering the after the implementation of GST. In pay service tax and vat both. Under
service). This may lead to a difficulty case it doesnt, the sector may be able the GST regime, it would be a single
in determining state GST, central to avail of input credit or CENVAT tax. As the states are expected also to
GST or inter-state GST on B2 B and credit on the duty paid on purchase of decide service tax rates, your phone
B2C transactions. inputs and services. These are likely bill could see escalation of taxes.
to bring down the final cost for the Accordingly, services consumed by
Interest on loans , trading in industry. a common man such as telecom , rail,
securities , foreign currency and transportation, banking, air travel ,
retail services are also expected Impact on Common Man etc may become expensive. Whereas
to fall within the ambit of GST. small cars, FMCG products, etc may
As the GST reaches its final stages,
Recommendations by the banking become cheaper.
the historic legislation promises to
industry suggest that such services
unify the tax system for the nation
and income should not come under Television could get cheaper, as
and increase the GDP by 2 per cent.
GST. It is still to be seen whether part of the Make in India initiative,
So, while services could get more
these recommendations will be the GST is expected to be lower. So
expensive , it s a mixed bag for
accepted. at present for Rs 20,000 LED TV you
consumers for goods.
pay around 24.5 per cent tax, shelling
Overall, it appears that imposing out Rs 24,900 eventually. Under GST
GST on banking and financial services if it is around let say 18 per cent, it will
may become a challenge and India, if As the GST reaches its final stages, cost Rs 23,600, thereby bringing the
successful, will chart a new course, cost down for the consumer.
which could well become a model for the historic legislation promises to
the rest of the world. unify the tax system for the nation Buying bags, shoes, electronics
and increase the GDP by 2 per cent. goods online will be getting more
Travel, Tourism and Hospitality: expensive as the e-commerce industry
So, while services could get more
India s travel , tourism and comes into a tax net and will have
expensive, its a mixed bag for to pay tax deducted at source for
hospitality industries have multiple
taxes, levied by both the Centre and
consumers for goods . every purchase from its sellers. So
the States. It is expected that under e-commerce companies which will
GST, supplies of hotels and restaurants Goods today are typically taxed at see shrinking of profit margins and
will be subjected to a single tax. 12.5 per cent (excise duty) plus 5-15 increase tax compliance net could
per cent ( VAT) which is invariably slash discounts and freebies that they
At present, no credit is available passed on to the end customer. If the offer.
on input services related to renovation standard rate of GST is capped at 18
or construction of hotels and resorts. It can be concluded that the real
per cent, there exists a scenario where
This is expected to change under GST. success of GST lies on the impact on
prices of goods can significantly
R & D cess, payable on franchise fees the common Indian consumer. The
reduce for the customer. This is
and technical know- how, is likely essence of GST is that all goods and
because procurement costs will also
:o be subsumed under GST, thus services be taxed at moderate rate.
go down for a business and some of
simplifying compliance procedures One Nation, One Tax proves to be
the profit can be passed on to the end
and reducing multiple taxes. However, a game changer in a positive way and
of the chain. The corollary to this is
it is unclear whether various benefits proves to be beneficial not only to
the Consumer Price Index where 55
the common man, but to the country
available under the existing Foreign -
per cent items are tax exempt, 32 per
as a whole. As and when a new law
Trade Policy will continue under GST. cent are at a low rate and only 12 per
If such benefits are provided, input cent are at a standard rate. is imposed, it surely leaves its impact
::edit may not be available, resulting especially on the common man. Same
in higher costs. On the whole, GST is This means that some essential applies in case of GST wherein the
likely to eliminate multiplicity of taxes items in a household ( textiles, books, common man being the final consumer
and lack of credits. However, it may cooking oil, etc) are actually subject of goods shall be directly affected after
also lead to increase in tax rates. to about 5-8 per cent tax because of introduction of GST. We hope GST
exemptions. If the rate hits 18 per leaves a positive impact and helps to
Education Sector: cent, then these goods go up in pricing, boost up the Indian economy and
wobbling the entire structure. In the convert India into a unified national
The education sector currently service industry, the typical tax output market with simplified tax regime. A
enjoys various tax exemptions and will go up from 15 per cent to 18 per rising Indian economy will anyways
revents; services provided by schools cent. help in the financial growth of the
L~e colleges are either not taxed or
common man!
are covered in the negative list. The Eating out under GST regime
ftutaation is likely to continue even could be cheaper, as right now you ( E- mail: ranjeetmehta@gmail .com)
Y DJANA November 2016 39

NEW TAXATION SYSTEM

FRAMEWORK
GST and the Constitutional Conundrum
Jayanta Roy Chowdhury
he much awaited Goods coloured by its own experiences during

m
T
SA
Wi & Services Tax , intended partition, when sedetious tendencies
to transform India into threatened to render apart the nascent
* a single marketplace state still in its infancy.
-:5 as similar taxes have
transformed Canada and Many who were involved in
-v7

the European Union , may have one the proceedings of the Constituent
rh
TAX unintended consequence : turning
India s constitution from being
described as ' Federal with a Unitary
Assembly as well as independent
observers have often opined that the
Assembly was possibly obsessively
Bias to a ' Constitution for the Union focused on the need for ensuring
with a Federal Bias . the unity and integrity of the new
nation. In fact, in one lengthy debate,
Ahead of the passage of the GST, Syamanadan Sahaya, MP from Bihar
What the future protesting against the vexatious system argued In the matter of financial
holds for India s of multiple taxation at various stages
in different states, some ingenious
adjustments between Provinces and
the Centre, I think that the Provinces
taxation laws is businessmen came up with the slogan have not been treated as well as they
of One nation, One Tax. The process should be. In fact, I have a feeling that
something which the of unifying the country s market in this matter, the Provinces are worse
started with VAT in the begining of off than in the days of the 1935 Act.
Indian polity would this century. However, states remained The responsibilities of the Provinces,
determine in its own staunchly independent in their taxation their commitments and their sphere for
policy, in some cases led by their own introducing ameliorative measures for
unique manner. fiscal imperatives and this created the people are greater than even those
a situation where VAT was often of the Centre and as such, they should
However for the supplemented by a variety of taxes, have been given sufficient scope in the
present , the churn leading to India being described as one field of taxation.
of the highest taxed nations.
which has produced The slogan was, of course, a reaction
However, the fear of excessive
federalism was cogently argued as
GS T will for many to the absence of a seamless scheme of being against the spirit of One India and
taxation which smoothens the course the framework which thus came out
years to come well of commerce and not a reflection of tended to focus legislative and taxation
define Indias federal the process of constitution making powers with the centre rather than
in the aftermath of independence with the states . Indeed, Pt Hridaynath
relations and partition . Indias decision to be Kunzru, MP from the United Provinces
a federation with a Unitary bias was placed the Unitary debate in focus
The author is cun-ently Senior Editor- Business with The Telegraph, has been a journalist for more than two and a half decades. He specializes
in writing on Economic and Politico-Economic issues, but has a wide range of interests ranging from history to security issues to fiction. He
was Chevening Fellow in Development Economics at University of Bradford, UK, in 2010.

in the same debate arguing : The levy many taxes
financial and administrative stability independently
of the provinces depends to no small a n d earn
extent on the position of the Centre. It h a n d s o m e l y, *
would be short-sighted of the provinces f o r i n s t a n c e,

to demand a larger share from the the Mumbai
Centre, regardless of the effect that Corporations - I
their claims would have on the position
\
h u g e i n c o m e J:
tjf J
uM . f
V*
of the Central Government. from Octroi 3

* # it

-
COMMICCIAl U l i i CKtCK
fOJT
duty which will r

In the early years, with most states
be f i n a n c i a l l y
run by Congress Ministries in sync
with the Union Government led by challenged with
Pandit Jawaharlal Nehru never sought the roll out of the
to question this arrangement. From the GST, their power
to tax would be GST: A ffecting Federalism
1960s, when alternate Governments
emerged in states, there have been virtually decimated . Recognising this, from both the Union Parliament and
challenges which sought greater powers the Ministry of Urban Development state legislatures and these have to
for the federal units. has asked for a 25 to 30 per cent share be implemented across the country.
for all urban local bodies in the states W i t h o u t g o i n g i n t o t h e issue of
States currently have the right to tax share of the nation-wide goods and weightage of voting powers within
a wide range of goods and professions services tax. the GST Council , the fact remains that
through a variety of taxes, levies and this Council will now be the Supreme
charges, which states have over time legislative body in determining tax
very cleverly enlarged taking advantage The combination of these two rates on all goods and services through
of loose drafting of legislations. Bengal Acts - the GST Constitution the length and breadth of the country
for instance, levies a charge on coal Amendment and the FRBM Act and not the directly or indirectly
sold outside its borders. Other states elected Members of Parliament and
had introduced an entry tax for goods - in turn , turns the states Chief State legislature. In essence, this will
coming from across its borders. These Ministers and Cabinets into be like an educated super- body elected
to any consumer or business are indeed political executives charged with by Electors.
anachronisms.
implementation of programmes Not only this, the snuffing out of a
However, this ability of raising within their respective provinces, variety of taxes which the state levied
higher taxes gave states which were by subsuming them in the GST and
efficient, the ability to raise larger
but without the right to consider the early bias which the Constitution
resources to address problems unique how to raise funds for such imbibed by granting the Union taxation
to them or in some cases to squander programmes or even to scale powers over income and over residual
larger resources. The State of Tamil matters, means the state executive and
up their programmes without legislature will have little say over what
Nadu , which opposed many clauses
in the GST had a point when it said the connivance of the central taxes can be raised in their respective
that it had implemented wide ranging government . states.
social sector reforms on the back
A Fiscal Responsibility and Budget
of cash generated from its taxation While GST is expected to be divided Management Act also caps the amount
programme. of money which a state may raise
between the Centre and states based on
It is true that the Southern states have a mutually acceptable formula , the through bonds or market loans. While
done remarkably well in there social Ministry has argued that urban local the measure was indeed necessary
parameters - its health and education bodies will have to deal with a huge given the propensity of Indian states
parameters have helped catapult it way fiscal gap once local body tax, octroi to rush into indebtness which would
ahead of its rivals and are comparable and other entry taxes are scrapped have put even Greece to shame, the
to that of OECD countries. In the to make way for the new taxation measure does stop a potential Dr B C
words of economist Jean Dreze Kerala system . Roy or a Sir Visvesveraya or a Partap
and Tamil Nadu routinely come a t o r Singh Kairon from turning to debt as
Besides this, legally speaking ,

near the top in rankings of summary
development indexes, they also surpass the GST Amendment Act effectively
an instrument to address their state's
extraordinary needs for development
other States in terms of the speed of transfers the power of taxation over funds.
improvement. large swathes of possible taxation to
an unelected body. Effectively, the The combination of these two Acts
Even more than the states, it would GST Council, set up by the Act, takes - the GST Constitution Amendment
be m u n i c i p a l bodies which could on the power of deciding tax rates and the FRBM Act - in turn, turns

the states Chief Ministers and Cabinets into political executives
SOCIOLOGY
charged with implementation of programmes within their
respective provinces, but without the right to consider how to raise
funds for such programmes or even to scale up their programmes
without the connivance of the Central Government.
The power to tax is the crux of the argument of sovereignty , No Stones, Only Strategic Discussion
succinctly made during the American War of Independence which
the Continental states waged. The Finance Minister, a polished Don ' t Join A Coaching Institute
constitution lawyer himself very deftly and aptly handled the
objections raised to the move by stating that : For some of those If Possible , Join A Mentoring Institute
who felt that this was surrendering their sovereignty, this was, in
fact, pooling in of sovereignty of the states at the Centre. Dear Candidates,in the new pattern of Civil Services Examination,
the mantra for success is
However, it would do well to remember that the world has Worry Less About Content, Focus More On Analysis
not yet totally embraced GST as a panacea for its fiscal ills. In
Read Less - Think More, Write Less - Convey More
fact, the United States itself has, as yet, not agreed to usher in
any form of GST. Possibly because of the federal nature of its
constitution . In fact, the plethora of taxes levied by US federal
authorities, States and other municipal governments are often
I Result 2015: Rank 25, 244, 390 and many morej
bewildering for a newcomer. Especially since direct taxes fall in
the purview of the states in that country, unlike in India, where it
is levied by the Central Government and then shared with states
Regular Batches
according to a set formula. (Duration: 3 months; Timings: 5:00 - 7:30 pm (Mon - Fri) )
State and local taxable income is determined under state
law, though often based on federal taxable income calculations. Starting on: 1 December , 2016 and
Yet, in some cases, this is not so, with states devising alternative 15 March 2017 ( Paper I before Preliras and Paper II after Prelims )
measures of calculating taxable income, or even alternative
taxes. Confusing as this may be, the total measure of taxation on
individuals still work out to 24.8 per cent of GDP, compared to
Indias 16.6 percent.
Test Series
In fact, in Canada where the GST was introduced in the last Starting on: 1 January , 2017
century, the provinces have the power over direct taxes, while
the federal Government has the power to tax indirect taxes, ( Individual and Group Discussion: Only 5 candidates per group )
which is why the change over to GST did not entail any impact
* Collect Free Copy of (Mefe (Mains 2016), /nlrodidio/i to SOCK)
on state powers.
It is yet to be seen how the Indian polity will respond to
%and
the challenge to the eventual implementation of the Goods and main
Services tax. It could well accept the taxation powers which have * For Regular Updates and Free Sociology Notes, join
now evolved or chafe at the bit and seek a change from the new
status quo.
In case, states eventually decide to seek a fiscal arrangement
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Prefer
which is less straight-jacketed they could then either chose the * Postal Course Available SMS / Email
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Australian model, where 75 per cent of all taxes are raised by the
federal or commonwealth government and distributed through a
very sophisticated mechanism akin to that established by India s
Finance Commissions or opt for the Canadian model , with
Limited Seat * Admission Open
India s states swapping the power to levy indirect taxes with the The only institute for sociology where the focus
Centre and instead taking over the power to tax direct incomes
or to devise a new system altogether. on answer-writing starts from the very first class
What the future holds for Indias taxation laws is something
which the Indian polity would determine in its own unique
i
!( 1I!e Professors Classes
manner. However for the present, the chum which has produced ( in association with DIAS Academy )
GST will for many years to come well define Indias federal
relations.
26 / 3 ( Basement ) , near Madonna Hotel,
Old Rajendra Nagar, Delhi-110060
2016
/
173
(E-mail:jrchowdhury@yahoo.coml Contact: 9999663160, Email: adityadseiigmail.com YE -
YOJ ANA November 2016 43
THE GLOBAL SCENARIO

SPECIAL ARTICLE
Goods and Services Tax:

The International Experience
Pravakar Sahoo
Ashwani Bishnoi
he most awaited in India is its complicated tax system
T
economic reforms in with multiple rates at both the centre
India, for a simplified and states. Compliance with taxation
-
r* V-
and uniform tax rate, norms requires enormous time and
were passed in the money, and simplification has been
Parliament of India on one of the most demanded reforms
3 August 2016 . The biggest tax from industry and investors over
reform in independent India , and also the past decade. Integrating taxes on
Ai
the biggest economic reform since goods and services will reduce the cost
J the structural reforms in 1991, has of compliance and also give full tax
now been passed in both Houses of credit for inputs at one go.
Parliament after 11 years of political
For the first time, all political logjam , debate, and discussion . The present VAT system , at both
parties came together central and state levels , has certain
The Goods and Services Tax shortcomings. At the central level,
and passed the GST Bill ( GST ) , which subsumes 15 central only taxes paid on raw materials is
unanimously. This is not and state taxes on goods and services, given as input credit, but not taxes
only a mature act but truly will create one single indirect tax rate paid for post-manufacturing expenses.
an achievement for the across states, and make India a truly Service tax is imposed on limited
unified market. Come April 2017, products; therefore, it is difficult to
government The GST is there will be no state boundaries give credit of services tax consumed
called the world s most in taxation terms. This landmark in the process of manufacturing these
complex tax reform, where achievement, which will be a game- products . The comprehensive GST
7.5 million businesses can changer in coming years, is by far the will tax both goods and services, and
biggest milestone of the government is, therefore, essential to reduce the
register, make payments, in terms of economic reforms, but the cascading effect .
and file returns on a GST GST rate still needs to be fixed, and
portal. It is really a big relief operational issues sorted out. The present state VAT suffers
from limitations like charging VAT on
for business, as even today, The existing system of the central excise duty already paid to the centre,
because of layers of taxes value added tax (CENVAT) and state levying various other indirect taxes
and exemptions, the cost of VAT suffers from the cascading effect. like luxury tax , entertainment tax,
As the two are not inter- linked, the etc., and not having the provision of
tax compliance in India is
system leads to high tax on consumers, taking input credit on the central sales
too high. In sum, it is a much different input tax credit from the tax (CST ). Therefore, a compressive
needed landmark reform centre and states, and differential state GST is necessary to align rules for
VAT rates. One of the most difficult taking and utilising credits for CGST
challenges for investors and industry and SGST. Overall, both assesse and
Pravakar Sahoo is Associate Professor, Institute of Economic Growth ( IEG ), Delhi .

Ashwani Bishnoi is Assistant Professor, Department of Humanities and Social Sciences, National Institute of Technology ( NIT),
Kurukshetra
VOJANA November 2016 45

the government exchequer will benefit their products without any additional of tax burden due to mitigation of
from a simpler tax system, mitigation tax burden with proper input tax credit. cascading effect and increase in tax
of cascading effect, development of This will result in scale economies in revenue to the government owing to
common markets , broadening tax production . Ultimately, transaction increase in base whereas on , other
base, and reduction in compliance cost would be lower, and consumers hand , there is possibility of spike in
cost. would benefit . prices.
The proposed dual GST, with a The existing differential tax There are around 160 countries
central and state GST, will replace structure across states creates in the world that have implemented
this system . The CST will be replaced distortionary incentives for different VAT/ GST. There are seven countries
by an Integrated Goods and Services players. For production and logistics, in ASEAN , 19 in Asia , 53 in Europe,
Tax (IGST), to be levied on inter-state investors prefer locations that offer the seven in Oceania , 44 in Africa , 11 in
supplies of goods or services in India least tax rate and administration. Now, South America and 19 in Caribbean ,
and collected by the Centre. The IGST this tax incentive-influenced skewed central and North America . Clearly,
will apply to import of goods and production structure will go, which is Europe has the highest number of
services and inter-state stock transfers good for Make in India . Therefore, countries which have implemented
of goods and services. As the proposed simplifying the tax system through VAT or GST. France was one of the
GST is a destination- based tax , the tax the GST would be a game changer, first countries to implement GST in
burden will shift from the state of origin though other important reforms, like 1954, followed by Germany in 1968
to the state of consumption , and result land acquisition and flexible labour and the United Kingdom in 19731.
in less revenue for manufacturing and laws, will remain to be made . Typically, GST is a unified tax system
developed states . Though the GST in most of the countries but Canada
International Experience
would compensate states for any and Brazil have dual GST like India
revenue loss for the first five years, it The international experience proposed GST. Standard rate of VAT/
is not good news for developed states, shows that the success of a GST GST in most of the countries ranges
which have invested in infrastructure depends mostly on the model and between 16-20 per cent similar to
and other utilities to attract investment effective implementation . Over time, India s proposed GST rate of between
and industries for growth . Therefore, many countries have fine-tuned their 18 to 22 per cent.
consumption or destination states framework to reap the benefits of GST
( like Odisha , Uttar Pradesh , Bihar, If we look at some of the major
in terms of growth , revenues, and
and Kerala ) stand to gain, while origin countries like Australia , Canada, New
price stability. So far, the experience in
states ( like Tamil Nadu, Gujarat, and Zealand , Singapore, Japan , Korea
countries like Australia, Canada, and
Maharashtra) stand to lose . Overall, United Kingdom etc (Table-1 ), we find
New Zealand is better fiscal finance
that they have done fairly well in most
one single indirect tax rate all over and price stability in the short - to
of the macroeconomic indicators. The
India will create a common market medium-term. Of course, in case the
type of GST framework varies from
and lead to a less effective tax burden GST rate is high , there is always the
country to country. For example ,
on final consumers. fear of price hike immediately after
GST implementation in the short Australia adopted the least neutral,
The GST will not apply to a few New Zealand most neutral while
run .
lucrative sectors (such as alcoholic Canada s GST was intermediate .
products for human consumption , Many services (such as education, Most of these countries in Table-1
electricity, real estate, and petroleum health, and commercial and business experienced a temporary spike in their
products); states will apply differential services ) are not taxed now or taxed price levels immediately after the
tax rates on these sectors. However, at a low rate . As the proposed GST GST implementation . However, price
petroleum products, the prices of rate is 18-22 per cent, implementation levels stabilised and then declined
which have wide implications on the of GST may lead to inflation in the after few years and in the medium
general prices of other products, will short term . International experience term . As reported in Table - 1 , the
be brought under the GST once the shows that inflation went up in the inflation rate in most of the countries
GST Council notifies the date. short term as a lot of new services and have stabilised at lower rate after the
goods taxed under GST which were implementation of VAT/GST. Other
A uniform , pan - India GST will not taxed earlier. GST framework macro indicators like GDP growth
facilitate seamless input tax credit , will make it very difficult for non- rate, fiscal balance, current account
eliminate the tax -cascading effect , GST paying or businesses not paying balance, Tax-GDP ratio have improved
and enable the free flow of goods taxes as the entire value chain starting in most of the countries, particularly
and services across states. This will from manufacture to retail would in case of Canada , Australia , New
help manufacturing firms achieve transparently captured by an integrated Zealand, Korea, Singapore and United
economies of scale across the supply IT infrastructure. Therefore, on one Kingdom . Therefore , a simple and
chain and source raw material and sell hand there is possibility of reduction unified tax system like GST has made

these economies more competitive, Australia which implemented GST that GST would be inflationary in
helps improve exports, generate in 2000 has experienced positive nature especially if the effective tax
more revenues to the exchequer outcomes particularly in case of tax rate is higher than what prevailed
and stabilise prices. However, the revenues and current account balance before. For instance, Singapore saw
performance of the economy in (see Fig-2 ). Another country that has a spike in inflation in 1994 when it
general and major macro indicators as been successful in implementing GST introduced the GST. That makes it all '
mentioned in Table- 1 varies in great is New Zealand which introduced GST the more important for administrators
deal across countries due to the level in 1986. Unlike most countries, there to keep tabs on how prices move after
of development of these countries are few exemptions: for example, all imposition of the tax . Malaysia, to an
and also effective implementation
of proper GST model . Moreover,
types of food are taxed at the same
rate. In the European Union , the GST,
extent, was able to mitigate this risk
as price control on account of the GST
-
performance of these macro variables better known as the Value Added Tax , was administered by the Ministry
like growth , fiscal balance, current are known as output VAT ( VAT on of Domestic Trade and Consumer
account balance, etc are not dependent its output supplies ) and input VAT Affairs.
only on the taxation structure but ( VAT that is paid by a business to
many other structural , policy and another business on the supplies it Another key lesson from Malaysia
endowment factors. receives). A business is usually able is that businesses need to start early with
to recover the tax it paid either by the implementation process to be GST-
Following the success of many setting it against the output VAT if it ready. The Malaysian Government
countries adopting GST framework , received strong resentment even after
is in excess by claiming a repayment
Malaysia is among the recent countries from the government. providing 1.5 one and half years for
in Asia to introduce GST and China is GST preparedness. Given the complex
working towards a uniform system of However many countries have GST model proposed in India and the
taxes. Malaysia introduced the GST had to increase rates very soon after need for a businesses to undergo a
of 6 per cent only from 1st April 2015. introduction. This is highly relevant
transformation to adapt to the GST
In the south Asian region most of the in the India context where once
regime, it would be quite challenging
countries including Bangladesh, Sri revenue- neutral rate was discussed
for the Indian government to tackle
Lanka , Pakistan and Nepal had VAT at 27 per cent and now realistically
the task of requiring businesses to
in place from the 1990s latest by early being talked about at 16-18 per cent.
implement GST in less than 9 months,
2000s. Most African countries also It is imperative that a reasonable rate
with 1 April 2017 as the potential
had VAT in place before India did with structure is adopted to ensure the
the exception of a few like Burundi, date.
success of GST.
Congo, Gambia and Mozambique and F u r t h e r, t h e i n t e r n a t i o n a l
Seychelles, who have done so during International ExperienceL lessons experience is that , for long, GST has
the last 7-8 years. A main challenge encountered been essentially a central tax and
Similar to the Indian context, it is by most of the GST countries was the levy by two different levels of
only Canada that has the concept of
dual GST. While there was a strong Figure- 1 : GST and Macroeconomic Performance in Canada
opposition to the introduction of
GST in Canada by various political 20
factions , Canada went ahead and 18
16
Canada
implemented it despite the opposition. 14
In fact , the government of Canada 12
10
has been pragmatic and consistently 8
worked towards reduced GST rate 6
4
post-implementation . In Canada, the
GST replaced the Manufacturer s _ 2
0U i
Sales Tax and came into force in 1991 .

-4A-
-
-6
2
T o 'fc -
0 i
.
-
, oC <>
,
:
vCr
The tax did not apply to products
^ ^ ^
'
such as groceries , residential rent ,

and medical services, and services

o
A J* A
A
A A s*
such as financial services. The macro
economic performance in terms of
growth , government finance , tax
revenues and price stability have 1981-1990 1991 -2000 2001- 10 2011- 15
improved in case of Canada during
post-GST period ( Fig- 1 ). Similarly, Source: World Development Indicators, World Bank.
YOJAN A November 2016 47

V
Table- 1 : Economic Performance of GST Implementing Countries
Country Year of GDP Growth (per cent) Fiscal Balance (per cent of GDP)
introduction
1961
70
1971-
80
1981
1990
1991
2000
2001-
10
2011-
15
1961-
70
1971
80
1981
1990
1991-
2000
2001-
10
2011-
14
Australia 2000 5.09 3.02 3.42 3.32 3.05 2.64 - 0.11 0.04 -1.36 -0.14 -2.50
Brazil 1964 6.19 8.51 1.77 2.60 3.73 1.02 - - -3.39 -2.26 -2.37 -2.13
Canada 1991 5.21 4.06 2.67 2.87 1.87 2.13 - - - -2.17 0.77 -0.16
France 1954 5.57 3.64 2.49 2.10 1.22 0.85
- 1.16 -1.05 -4.50 -4.94 -4.21
Japan 1989 9.30 4.50 4.64 1.14 0.80 0.62 - -3.32 -3.31 - -4.01 -7.72
Korea, Rep. 1977 8.71 9.05 9.74 6.63 4.44 2.96 - - 1.53 1.90 1.49 1.69
Mexico 1980 6.81 6.71 1.88 3.64 1.82 2.84 - - -2.55 -0.45 - -
New Zealand 1986 - 1.26 1.91 3.06 2.55 2.71 - 0.49 -2.47 - 1.41 -2.16
Singapore 1994 9.35 9.09 7.79 7.19 5.91 3.96 - - 10.51 14.95 5.75 8.92
United 1973 3.06 2.14 2.95 2.44 1.62 2.10 - - 1.24 -0.70 -3.62 -4.90 -6.44
Kingdom
Current Account Balance (per cent of GDP) Tax to GDP (per cent)
Year of introduction 1961- 1971-80 1981- 1991- 2001-10 2011-15 1961- 1971-80 1981- 1991- 2001-10 2011-14
70 1990 2000 70 1990 2000
Australia 2000 - - -5.56 -3.95 -5.32 -3.64 - 19.40 22.27 21.43 23.75 21.53
Brazil 1964 - -4.40 -1.55 - 1.93 -0.68 -3.32 - - 12.01 11.31 15.39 14.50
Canada 1991 -1.91 -2.87 -2.28 -1.43 0.49 -3.00 - - - 14.16 13.07 11.75
France 1954 - 0.23 -0.58 1.26 0.11 -0.84 - 18.45 19.32 20.45 22.12 22.74
Japan 1989 - - - 2.39 3.44 1.64 - 10.27 11.84 12.27 9.84 10.24
Korea, Rep. 1977 - -3.80 -0.74 0.60 1.64 5.12 - - 13.35 13.08 14.23 14.44
Mexico 1980 - -4.69 -0.79 -3.28 -1.30 -1.93 - - 11.78 9.53 - -
New Zealand 1986 - - - -3.30 -4.32 -3.17 - 27.86 30.42 - 29.74 27.34
Singapore 1994 - -11.41 0.34 13.99 19.71 19.21 - - 14.54 15.45 12.80 13.58
United 1973 1.51 -0.30 -0.77 -1.33 -2.32 -3.99 - 23.02 24.26 25.33 26.33 25.52
Kingdom
Taxes on Goods and Services (per cent of revenue) Inflation ( Growth in CPI)
Year of introduction 1961- 1971-80 1981- 1991- 2001-10 2011-14 1961- 1971-80 1981- 1991- 2001-10 2011-15
70 1990 2000 70 1990 2000
Australia 2000 . 21.10 23.12 20.04 24.03 23.37 2.47 10.45 8.13 2.22 3.01 2.30
Brazil 1964 - - 24.17 25.09 31.02 25.99 - - - - 6.69 6.72
Canada 1991 - - - 17.38 15.97 14.21 2.94 8.06 5.97 2.00 2.02 1.68
France 1954 - 34.47 29.67 26.37 23.59 21.57 4.22 9.67 6.37 1.72 1.71 1.10
Japan 1989 - 22.22 19.38 13.87 31.78 37.04 5.80 9.10 2.06 0.84 -0.26 0.72
Korea, Rep. 1977 - - 34.72 32.33 28.01 24.88 - 16.48 6.39 5.10 3.19 1.90
Mexico 1980 - - 56.05 55.03 - - 2.87 16.80 69.08 18.69 4.68 3.61
New Zealand 1986 - 18.94 21.06 - 26.27 26.29 4.02 12.52 10.76 1.83 2.57 1.57
Singapore 1994 - - 16.00 17.07 22.83 24.49 1.19 6.72 2.28 1.73 1.62 2.53
United 1973 - 26.23 29.99 32.80 31.32 32.98 - - - 2.69 2.10 2.27
Kingdom
Source: World Development Indicators, World Bank

Figure-2: Figure-1: GST and Macroeconomic Performance in Canada Operational Issues:
26 As the main hurdle of constitutional

24
22
Australia amendment is over, the operational
20 issues of effective implementation
18 are likely to be taken care of soon , as
16
14 the Finance Minister has promised to
12 implement the GST from 1 April 2017.
10
8 And many issues need sorting out .
6 The GST is a landmark reform bill.
4
However, given that Indias tax system
2
0 tBBL: i is complex, the implementation of
-2
-4 -GDR -gr-owt-b- -Cash
- r the GST is fraught with challenges.
-6 tarrmjat ) suTptus/dHfrcrt account arrdirervlceTt% The two main challenges that the
-8 ^ ( % ofGDP ) balance ( % of of revenue ) government would need to overcome
GDP ) is the setting of the revenue-neutral
rate ( RNR ) and the threshold limit
1991- 2000 2001- 10 2011-15 in the GST. It would be mandatory
to ensure that through the RNR the
Source: World Development Indicators, World Bank. revenues of the government remain
the same despite of giving tax credits.
government was considered infeasible like this . Keeping the exemption Similarly, fixing an appropriate
or undesirable due to high collection list long will not enhance states threshold limit would be a challenge
costs, compliance costs and possible fiscal autonomy, makes the tax base especially to ensure that there is no
distortions arising from tax disharmony narrower and in any case will not taxing burden on small businessmen
and the possible limitations on the ensure comprehensive crediting of in the country.
central government s powers to input taxes.
undertake effective macroeconomic There are few other challenges
and redistribution policies ( Bird Among different countries , that make introduction of GST by
and Gendron 2007 ) 2 . Technical New Zealand has the least number 1 April 2017 a daunting target. These
objections to the levy of sub-national of exemptions and the most include rolling out the required IT
GST were also raised on account of comprehensive coverage of GST, but platform for implementing GST
cross- border trade. Therefore, most it may not be possible to follow that in and sorting out the administrative
federal countries have the VAT at the a country like India . At the same time, arrangements for a very complex
federal level though some of them it is important to resist the political GST system consisting of state GSTs,
share the revenues with sub-national pressures to accord exemptions central GST, and an integrated GST
governments. The earliest sub-national to fulfil ostensible objectives of for inter-state movement of goods
VAT was introduced in Brazil on an equity, administrative ease, regional and services. Tax litigation policies
origin basis. The European Union development , employment creation and procedures have to be unified
( EU ) implemented the VAT on the through small - scale industry and an effective litigation system has
basis of the destination principle, development and many more. to be evolved before implementation
but the issue of cross- border trade of GST on a national level . Having a
From the lessons learnt, there is robust IT network is another major
continues to be a subject of discussion no denying that acceptance of GST
( Keen 2009; Cnossen 2010 ) 3. The challenge for the implementation GST.
by general public, businesses and Government has already incorporated
Canadian experience with dual VAT firms would not be an easy task, with
by harmonising the tax bases and to
Goods and Service tax network
advance planning and extending (GSTN ). GSTN has to develop GST
some extent rates has shown that the adequate time to industry, continued portal which would ensure technology
system is eminently workable. dialogues between businesses and support for registration, return filing,
The international experience with administrators, engaging with industry tax payments , IGST settlements ,
GST suggests that it is necessary to on the implementation planning, a etc. A robust IT backbone would be
keep the exemptions to the minimum, reasonable tax rate, timely release of essential . Improvement in banking
but resising the pressures from various the legislative documents, has proven system , providing extensive training
political groups to accord exemptions to aid in smooth GST implementation to tax administration staff, finalisation
in one pretext or other is not going in many countries. Of course, GST is of the GST rate, safeguarding the
to be easy. However, it is possible to proven to be an efficient tax collection interests of less developed states with
prune the list collectively by all the system despite teething problems in lower revenue potential , protecting
states concerned in a reform exercise the initial implementation period. and balancing the present and future

revenues of the centre and states are a few of the other key
challenges.
.
M PURIS IAS
-
The successful implementation of GST requires fixing
the appropriate GST rate, which is the RNR , and requires an
efficient IT infrastructure and capacity building of the entire Pre-cum- Mains- 2Q17
tax administration. There have been many recommendations
GS II PLUS
for fixing the revenue - neutral GST rate at between 11 per
cent and 12 per cent . But the report of the Committee on
RNR and Structure of Rates for General Sales Tax ( 2015 )
headed by Dr. Arvind Subramanian ( Chief Economic
Adviser to the Government of India ) recommended that
the RNR should be between 15 per cent and 15.5 per cent ,
with a standard GST rate of 17-18 per cent .
Second , the government needs to go all out for a
<3> M PURI .
GS- Paper II ( Full Syllabus ) f --
successful Digital India programme , as the GST will
require a state-of- the-art IT infrastructure all over India Selected Topics of GS- III & GS- IV
(Course covers nearly 1/3rd of GS Syllabus.)
for effective implementation . Ensuring high -speed IT
connectivity across states with huge geographical disparity - -
75/o in GS II Mains 2015 was from our
Class Notes & Test Series
in such a short time is going to be challenging. Moreover,
the entire tax administration needs capacity building to Why Join Puri Sir s Classes
handle the GST.
1. Complete coverage of syllabus (Reality not
The proposal to give states the freedom to impose the merely Rhetoric)
state GST within a band will dilute the purpose of unified 2. New pattern demands specialized focus &
GST. Therefore, the GST Council, the proposed highest
decision taking body, made up of voting representatives Approach
from the states and the centre, should stick to one GST rate 3. Understanding of trends & issue and not merely
for every state . There are also issues of balance of power events & facts.
in favour of the Centre in most powerful GST council with 4. Governance specific vocabulary building.
one- third share in voting rights.
. Art of opinion building/shaping as opposed to
For the first time, all political parties came together and
passed the GST Bill unanimously. This is not only a mature
merely plagiarizing opinions of others .
act but truly an achievement for the government . The GST 6. Art of writing Answers with precision & brevity.
is called the world s most complex tax reform, where 7.5
7. Course covers nearly l /3rd of GS Syllabus.
million businesses can register, make payments, and file
returns on a GST portal . It is really a big relief for business ,
as even today, because of layers of taxes and exemptions,
the cost of tax compliance in India is too high . In sum , it
I NEXT BATCH WILL C01ENCESIH NOVEMBER 2nd WEEK I
is a much needed landmark reform .
But , although the merit of the GST is evident and
indisputable, the devil lies in the details , as they say, and
INDIAN ECON. OMY
Including Topics of Paper-in Qj A AGGARWAL
only time will tell if it is a success.
Complete coverage of Basics from NCERTs
Reference Comprehensive coverage of BUDGET & ECONOMIC SURVEY
_
1. http://gst.customs.gov.my/en/gst/Pages/ gst ci .aspx
A Answer writing & problems fotPre, Mains & Interview
2. Bird. Richard and Pierre- Pascal Gendron (2007): Value Added
Taxes in Developing and Transitional Countries (Cambridge and & Developmental Schemes and Programmes
New York: Cambridge University Press)
3. Cnossen, Sijbren (2010): VAT Coordination in Common Markets
and Federations: Lessons from the European Experience , Tax
IADMISSION OPEN!
11A/22, 2nd Floor, Old Rajendrs Nagar
Law Review, Vol 63, pp 584-622. Keen, Michael (2009): What (Near Bikaner Sweet)Delhi-110060
Do ( and Don t) We Know about the Value Added Tax? , Journal
of Economic Literature, Vol 47, No 1 , pp 159-70 Ph.: 01145633700 M . : 9899154622 8130153699 2016 /
( E-mail:pravakarfirst@gmail.com
ashwani.mbe@gmail.com) Visit mpuriias.com 171YE-
EXPLAINING GST
OVERVIEW
GST: One Nation, One Tax
Shishir Sinha
am sure that the enactment will join the select club of nations such
> TT "
of the GST, will bring as Canada, Australia, Singapore and
about the best as far as the Malaysia having GST as the indirect
economic management of tax system .
this country is concerned,
in a federal form. It will Now, in order to introduce GST
empower the States. It will from April 1 next year, the Government
increase the revenue of the States as has jet set the process in motion. First,
also of the Central Government. It will the Goods & Service Council, the apex
tiy to dissuade and discourage, and body of Centre and the States, has not
bring down levels of evasion. It would just been set up, but already taken key
ensure that there is no tax on tax. So the decisions in its initial meetings. Second,
cascading effect of taxes in the value GST Network for providing all kinds
of goods itself will no longer be there of information technology support
for GST is fully functional . Third ,
This tax, because and that would even make some of the
model GSR law is in public domain
products cost less. It would, certainly,
of its transparent give a boost, as far as the economy is which will finally be converted into
character, would be concerned, which is required at this supportive legislations. And , fourth ,
very critical stage. the Government aims to finalise rates,
easier to administer. exemption , threshold limit and key
Also remember, Excerpts from the speech of the rules for GST by November 22, 2016.
Union Finance Minister while moving
implementation of GST the Constitution Amendment Bill ( related What is GST?
will help in improving with the Goods & Services Tax ) for GST is a simplified tax structure
consideration and passage in Rajya Sabha applied on both goods and services. It
Indias ranking in on August 3, 2016 is a value-added tax levied at all points
ease of doing business With this speech , the Finance in the supply chain with credit allowed
which, in turn, will help Minister managed to end the long wait for any tax paid on input acquired for
for the introduction of one of the most use in making the supply. It would
foreign investors to be applicable on supply of goods
ambitious tax reforms of independent
bring more and India, the Goods & Services Tax or or services as against the prevailing
GST. Since, the 122nd Constitution system of tax on the manufacture
more money into of goods or on sale of goods or on
Amendment Bill has become a law
the country ( 101 st Amendment ) enabling the provision of services. It would be a
Centre and the States to levy GST destination based tax as against the
concurrently, India is all set to usher existing system of origin based tax.
the Financial Year 2017-18 with a new In order to maintain the federal
tax regime i .e. GST. Accordingly, India structure, the nation is going to have
The author is Economic & Business Journalist for last 21 years, presently working as Business Editor with ABP News. He has earlier
worked with the Hindu Business Line, CNBC Awaaz, Aaj Tak and Amar Ujala.

dual GST, Central GST (CGST ) and on tax. It is believed that the new tax Develop Tax Payer Profiling
the State GST ( SGST ). This means regime would result in significant Utility (TPU ) for Central and State
that there will be common tax base for reduction in overall tax burden (which Tax Administration.
both the Centre and the States. There is currently anything between 25-30 Assist Tax authorities in improving
will also be Integrated GST ( IGST ). It per cent ) on goods, thus, making them Tax compliance and transparency
would be levied on inter-State supply cheaper for the consumers. of Tax Administration system .
of goods or services. This would be
collected by the Centre so that the GSTN Deliver any other services of
credit chain is not disrupted. Import relevance to the Central and
In order to provide IT infrastructure
of goods or services would be treated State Governments and other
and services for implementation of the
as inter-State supplies and would be stakeholders on request.
GST, the Government set up Goods
subject to IGST in addition to the and Services Tax Network ( GSTN ). GST Council
applicable customs duties. Rates for It is a Section 25 company which
all the three would be decided by the means it will not work for profit. It is After the 101 st Constitutional
GST council. a Non-Government and private limited Amendment, the first big development
company. The Central Government was setting up of the GST Council. This
Why GST? council is an apex body comprising of
holds 24.5 per cent equity in GSTN
India has a multiplicity of taxes as while all States, including NCT of Delhi Centre and the States for GST. It has
the Constitution prescribes different and Puducherry, and the Empowered been empowered not just to finalise
power for the Centre and the States to Committee of State Finance Ministers nitty-gritty of GST, but also to resolve
make legislations for levying taxes on ( EC), together hold another 24.5 per disputes . The Council is headed by
the Union Finance Minister while the
goods and services at various levels. cent . Remaining equity is with non - Union Minister of State for Finance
For example, the Central Government Govemment financial institutions. The
is authorized to make legislation as company has been mandated to: (In-charge of revenue) and the Minister
well as rules to impose tax on the In -charge of finance or taxation or
manufacture of goods (except alcoholic any other Minister nominated by each
...multiplicity of taxes results in State Government will be members.
liquor for human consumption, opium ,
narcotics etc.) while the States have the tax on tax which makes a good Effectively, the council will have two
powers to levy tax on the trading of costlier for the consumer. As GST members including the Chairman
goods. The Centre has two distinctive from the Centre and one member
will have just one tax , which means
powers: first, it has power to levy tax on each from 29 States and the 2 Union
compliance would be easier and Territories ( with legislature ) taking
the Inter-State sales of goods (however,
the tax is collected and retained by the cheaper and thus help in ease of the total strength to 33. The Union
States ) and second, only the Centre doing business. Revenue Secretary will be Ex-officio
can impose tax on services i.e. Service Secretary to the GST Council while
Tax. the Chairperson , Central Board of
Provide common and shared IT Excise and Customs (CBEC) will be a
Such a system makes the entire infrastructure and services to the permanent invitee ( non-voting) to all
indirect tax system a complex one. Not Central and State Governments, Tax proceedings of the Council .
only this, this has many disadvantages. Payers and other stakeholders.
For example, a business man has to Partner with other agencies for The C o u n c i l w i l l m a k e
maintain too many records for tax recommendations to the Union and
creating an efficient and user-
compliance. This increases the cost of the States on important issues related
friendly GST Eco-system.
running business, while, at the same to GST, like the goods and services that
time goes against the basic principal
Encourage and collaborate with may be subjected or exempted from
of ease of doing business. Similarly, GST Suvidha Providers ( GSPs ) GST, model GST Laws, principles
multiplicity of taxes results in tax on to roll out GST Applications for that govern Place of Supply, threshold
tax which makes a good costlier for the providing simplified services to limits, GST rates including the floor
consumer. As GST will have just one the stakeholders. rates with bands , special rates for
tax , which means compliance would Carry out research , study best raising additional resources during
be easier and cheaper and thus help practises and provide Training and natural calamities/ disasters , special
in ease of doing business. Similarly, Consultancy to the Tax authorities provisions for certain States, etc.
since GST is to be levied at all stages and other stakeholders. Every decision of the Council will
right from manufacture up to final Provide efficient Back - end be taken at a meeting, by a majority
consumption with credit of taxes paid Services to the Tax Departments of of not less than three-fourths of the
at previous stages available as setoff, weighted votes of the members present
the Central and State Governments
this will remove the anomaly of tax and voting. Now, the voting college has
on request.

been structured in such a way so the
Table 1
Goods and Services Tax - Basic Issues neither the Centre nor all States together
can apply veto. The vote of the Central
Taxes/duties to be subsumed Government will have a weightage of
From Centre: one-third of the total votes cast, and
Central Excise Duty the votes of all the State Governments
Duties of Excise (Medicinal and Toilet Preparations) ( including the Union Territories with
Additional Duties of Excise (Goods of Special Importance)
legislatures) taken together shall have
Additional Duties of Excise ( Textiles and Textile Products)
a weightage of two-thirds of the total
Additional Duties of Customs (commonly known as CVD )
votes cast . Any decision will require at
Special Additional Duty of Customs (SAD)
Service Tax least three-fourth of total votes.
Cesses and surcharges as far as they relate to supply of goods or services Key Decisions by GST council
From State:
The council, in its first two meetings,
State VAT
took some major decisions:
Central Sales Tax
Purchase Tax Threshold Limit-For GST, the
Luxury Tax exemption threshold is fixed at Rs.20
Entry Tax (All forms) lakh. However, this will be Rs 10 lakhs
Entertainment Tax (except those levied by the local bodies) for businesses in the 7 North Eastern
Taxes on advertisements
States ( Assam, Meghalaya, Manipur,
Taxes on lotteries, betting and gambling
Nagaland , Mizoram , Arunachal
State cesses and surcharges insofar as far as they relate to supply of goods or
Pradesh and Sikkim ) and 3 Hill States
services
( Jammu & Kashmir, Uttarakhand and
Commodities not included in GST at all: Himachal Pradesh ). It means that those
Alcohol for human consumption traders with a turnover of below Rs.20
Electricity lakh annually in general States will be
Real Estate. exempted from getting registered under
Commodities to be included in GST but at a later date: GST while for North East States and
Petroleum crude Hill States, those with less than 10 lakh
Motor spirit (petrol) annual turnover will be out of GST.
High speed diesel Experts justify these threshold limits
Natural Gas by saying that many small scale traders
Aviation Turbine Fuel and service providers would be saved
Existing system of VAT and Sales Tax will continue for these products. from undertaking GST compliances
and it also reduces a substantial burden
How tobacco to be treated under GST: for tax authorities to assess small time
GST to be levied on tobacco and tobacco products. In addition , the Centre dealers.
would have the power to levy Central Excise duty on these products.
Cross Empowerment - It has
Compensation to the States for revenue loss, if any, after introduction of GST been decided to adopt the middle path
States to get full compensation for revenue loss, if any, for first five years. in terms of sharing of administrative
powers between the Centre and the
How import to be treated: States. It was agreed upon that States
Imports of Goods and Services will be treated as inter-state supplies and will get exclusive control over all
IGST will be levied on import of goods and services into the country. dealers up to an annual turnover of
Rsl .5 crore. For traders with revenue
How exports to be treated: above Rs. 1.5 crore, there will be an
Exports will be treated as zero rated supplies. element of dual control and cross
empowerment of officials of the Centre
List of goods and services to be exempted:
and the States based on formulation
Effort is to keep the list of exemptions smaller. GST council will decide
about goods and services to be exempted . of risk assessment. It has also been
decided that the Centre will get control
What next before the introduction of GST: over all the existing 11 lakh service
Centre to enact two legislations, one related with CGST and another related tax-registered dealers irrespective of
with SST. States and Union Territories with legislature to enact a law related their revenue levels.
with SGST. These are ordinary laws and can be enacted by simple majority
in Parliament/State Legislatures.
Composition Scheme - A
consensus has been reached on the
54 YOJ AN A November 2016

shape of compounding or composition the specific industrial exemptions they It must be highlighted here that
scheme. It was decided that traders with wish to continue. The exact details GST will bring benefit not just for
gross turnover up to Rs 50 lakhs will on whether all the exemptions will the Industry / business or trading
pay 1 -2 per cent tax. Such a scheme be grandfathered or refunded will be community, but also for the masses.
aims to facilitate small traders. Under worked out. If the new system is going to reduce
the scheme, a taxpayer shall pay tax multiplicity of taxes, to mitigate
as a percentage of his turnover during GST Rates
cascading/double taxation, bringing
the year without the benefit of input tax The Empowered Committee of more efficient neutralization of taxes
credit ( ITC). The floor rate of tax for the Finance Minister suggested two especially for exports and developing
Central Goods & Services Tax (CGST) guiding principles for finalising GST the common nation market, then it is
and State Goods & Services Tax rates and now these have become going to be a simpler tax system for
( SGST) will not be less than 1 per cent. guiding for the GST council too. First of the consumer where he can expect
A tax payer opting for composition the guiding principle says that the rate reduction in prices of goods & services
levy will not collect any tax from his of taxation as it is leviable today with due to elimination of cascading of taxes,
customers. Tax payers making inter- the implementation of the GST will uniform prices throughout the country,
state supplies or paying tax on reverse gradually come down from its present transparency in the taxation system and
charge basis will not be eligible for level so that it is more citizen friendly. increase in employment opportunities.
composition scheme. The second principle prescribes that the Introduction of GST would make our
Area Based Exemption - At taxation should be adequate enough to products competitive in the domestic
present , hill states such as Jammu maintain the present levels of revenue and international markets . Studies
& Kashmir, Himachal Pradesh and to make sure that the Central and State show that this would instantly add up
Uttarakhand besides 7 North Eastern Governments are able to discharge their to 2 per cent in GDP. There may also
States get area based exemptions. Such duties and obligations with the fullest be revenue gain for the Centre and
exemptions from taxes provided for amount that they collect. It is believed the States due to widening of the tax
companies to set up plants is difficult. that the GST council will follow these base, increase in trade volumes and
Now it has been decided to continue two principles before arriving on the improved tax compliance. This tax,
with area- based excise duty exemptions final rates. It is also expected that there because of its transparent character,
based on GST regime kicks in from next will be four rates: would be easier to administer. Also
year. However, these will be provided Merit Rate - Essential Goods or remember, implementation of GST will
as refunds, not as exemptions. It was Services; help in improving Indias ranking in
agreed that there would be levy of tax Standard Rate - Goods or Services ease of doing business which, in turn,
on all exempted entities under GST. in General ; will help foreign investors to bring
The Centre or the State that gets the tax more and more money in to the country.
Special Rate - Precious metals
will then reimburse it to the exempted
Nil Rate - Exempted Goods or
entity. The States will now decide on ( E-mail:hblshishir@gtnail.com)
Services.
NORTH EAST DIARY
NORTH - EAST STATES AS PRIORITY STATES FOR PMUY
_
A A inistry of Petroleum and Natural Gas will extend the benefits under Pradhan Mantri Ujjwala Yojana to the people of all Hilly States
J Vx including North- East States by treating them as Priority States and release LPG connections to the eligible beneficiaries. This
measure will help to tackle the difficulties faced by poor people in accessing LPG for cooking purposes, residing in the States of
Jammu and Kashmir, Himachal Pradesh, Uttarakhand, Sikkim, Assam, Nagaland, Manipur, Mizoram, Arunachal Pradesh, Meghalaya
and Tripura.Pradhan Mantri Ujjwala Yojana is being implemented with an objective to provide deposit free LPG connections to BPL
households as a clean fuel solution . So far, more than 50 lakh connections have been released to the beneficiaries.
1 lakh LPG connections will be released in the next 15 days. The Central Government has released 2 lakh connections during the
last 2 years in J & K vis a vis 5 Lakh connections released during the previous 8 years in J& K by the previous governments. There are 4
LPG bottling plants in the state and another LPG plant at Kargil will be put up and also to increase the capacity of Leh LPG plant.
PMUY scheme provides assistance of Rs. 1600/- to the woman beneficiary, comprising security deposit of Domestic cylinder &
pressure regulator; Suraksha hose; Domestic gas consumer card and installation charges.
SECOND LINE BETWEEN NEW BONGAIGAON AND KAMAKHYA IN ASSAM

'I ffie Cabinet Committee on Economic Affairs has given its approval for construction of second line between New Bongaigaon
X and Kamakhya of Northeast Frontier Railway in Assam. The estimated cost for this line is Rs.2,232.32 crore and an expected
completion cost of Rs.2,586.85 crore. The 176 km long railway line is expected to be completed in five years during 12th and 13th
Plan period.

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cbecjndia
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I
PM on GST
Goods and Services Tax (GST) is a Great Step by Team India, a Great Step Towards Transformation, and a
Great Step Towards Transparency.
Passage of the Bill is a victory not for any political party, but for Indian democracy.
The consensus over GST is proving that Rashtraneeti is above Rajneeti (national issues are above politics) in
India.
GST is one more pearl in the necklace of Ek Bharat - much on the lines of the Railways, the All India Services,
and visions such as Bharat Net and Sagarmala.
With GST, we intend to bring uniformity in taxation. The consumer would be supreme in the new dispensation.
The judicious use of man, money, machine, material and minutes (time) is an important principle of sound economic
policy, and GST would aid in achieving this.
GST would help bring in real time data, as its strength was in technology. Most of the things that can impact consumer
inflation have been kept out of the ambit of GST. GST would help reduce corruption in collection, as well as the
cost of collection .
Small businesses will also gain tremendously from GST, and will feel more secure with GST.
This reform will promote Make in India, help exports and thus boost employment whileproviding enhanced
revenue.
GST is a system that benefits all Indians and promotes a vibrant and unified national market.
GST will also be the best example of cooperative federalism, will take India to new heights of progress.
FM on roll out of the Goods and Service Tax
The Government is working on a target date of 1 st April, 2017 for the roll out of the Goods and Services Tax
(GST) in the country.
Post GST the system will be more efficient, more compliant and the avoidance will become more difficult. There
will be no cascading effect of tax on tax . There are many items which will either have lower rate of tax or no tax
at all
There will be one tax for one nation. There will be seamless transfer of goods and services through the country.
The whole country will become one integrated market. Simplification will be easier. It will also lead to lesser
leakages and evasions and therefore the tax base will naturally expand . This will benefit both states and the Central
Government.
This is a historical reform in the taxation of our country being carried out by our Parliament. This is a major
reform , which will in the long run , go in the interest of the country.
V
FROM OUR READERS
I would like to assert that the issues on Women Empowerment and Energy were really commendable. I wish to thank the entire
team for the appreciable efforts they put in . The articles were thought provoking and enlightening and a mirror for the people. They
would certainly help to shape our opinions in the right manner and direction. I would request to publish some issues on Terrorism,
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Response from Yojana Team
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EASE OF DOING BUSINESS

VISION
GST: Rejuvenating the Manufacturing Sector
Amiya Kumar Mohapatra
ndia is projected to be skill development etc. Therefore, it

the Youngest Nation in is necessary to focus on its growth
Sfta
I the world by 2020 , and
the average age of our
perspective.
population will be around National Manufacturing Policy and

29 years . Besides, by that Make in India
time, we will have surplus Any paradigm shift in policy that
youth of 47 million whereas the world has benefited the masses socially and
fi will be facing a shortage of youth of economically, has always got the top
56 million to take the development priority in India s developmental
agenda further. Therefore, the richness agenda. To break the vicious circle and
Indian manufacturing sector is of demographic dividend needs to be
primarily resource-driven than Stagnation of manufacturing sector,
properly utilized to accelerate our Government of India has formulated
technology-driven and therefore development process and to achieve
the input cost and subsequent
4
National Manufacturing Policy to
higher GDP. The benefits of the promote this sector and has taken
taxes on it, make the sector more demographic dividend can be realized various initiatives to trigger growth of
challenging. Manufacturing sector only by making these youth productive manufacturing sector to its potential
can be strengthened through fiscal in terms of health , education and and set a target of achieving 25 per
interventions like tax concession, skill development. To attain this , cent of GDP by 2025.
tax reduction on the manufacturing Indian manufacturing sector has
process, especially on import of great potential to absorb these youth Indian manufacturing sector
technology and research and and provide them the right forum to has great potential to create 90
development. Besides, subsidies and make them skillful . Even though , million jobs and is able to produce
other fiscal interventions on inputs service sector contributes highest to USD 1 trillion and can contribute
cost, import of technology and GDP and sustained till date, making approximately 25 - 30 per cent to
plant equipments will change the the country a Knowledge Economy , GDP by 2025 ( McKinsey Report ,
investment climate and eco-system but long-term growth of any nation 2012 ).To achieve the same, National
depends a lot upon the contribution Investment and Manufacturing Zone
and able to boost the manufacturing
of manufacturing sector, to make ( NIMZ) has been created to boost the
sector. Policy paradigm is the need
the growth self-sustaining . India s sector. It is based on infrastructure-
of the hour and the initiatives
manufacturing sector's contribution building approach through which ,
taken by the present government is is approximately around 16 per cent the congenial infrastructure support
forward-looking especially on the to GDP over a period of time, even is provided to bring much - needed
tax-front being a valued sector, in terms of its improvement in the manufacturing
contribution to GDP, employment , sector. NIMZ planned to have single
The author is Associate Professor in Economics and Area Coordinator of Strategy, Entrepreneurship and General Management at
Fortune Institute of International Business ( FIIB), New Delhi. He has been engaged in teaching as well as in research in the area of
Economics, Finance and Public Policy. He has regularly contributed to various seminars and conferences both at the national and
international level. He has to his credit the authorship of five books and twelve edited volumes. He has published more than forty
articles and research papers in various books, magazines and journals of repute. He is lifetime member of Indian Economic Association
and Indian Commerce Association .

window to provide solutions and manufacturing sector, V
:
I
i >
approvals to the sectors and contribute tax incentives need i ir
;
ft ?*
"
in ease of doing regulations and laws, to be provided to the

leverage on incentives etc. manufacturing units
in general and sector-
Unveiling of Make in India .
specific in particular, '

5
initiative brought unprecedented i!
keeping in mind to
changes in the investment landscape
achieve the set target
of India . Multi National Companies
( MNC ) are invited and encouraged 25 per cent of GDP by s
to contribute in manufacturing to manufacturing sector.
boost manufacturing sector in India . Tax Reforms and
Government of India has created :r J
Incentives
necessary avenues for making Make
in India successful and Skill India
to unleash the true potential of
Indirect tax reform was
already initiated by the present
Due to implementation of GST
the cost of production is expecte <
manufacturing sector. government by formulating to reduce by 15-25 per cent oi
Tax Reforms and Manufacturing
unified tax systems through indirect tax components . Thi ;
Sector Goods and Services Tax ' (GST ). will help in curbing inflationar
Introduction of GST is considered situation and will improv<
In a r a p i d l y c h a n g i n g as the ground - breaking reforms profitability in the manufacturing
environment, understanding in Indian fiscal system as well as sector.
and assessment of public policy in Indian federal finance in the
and subsequent developmental
intervention is very essential to look
indirect tax regime. Along with GST, governmen
has taken initiatives to create ;
for a better tomorrow. Public policy
and its implications have tremendous
Bundling of plethora of Indirect
taxes of Centre and states into a
litigation -free, investors-friendl;
environment to make India a hul
impacts on our economic growth and single tax code will bring down of global manufacturing.
social development . These policies the cost and price especially in the
need to be redefined and reformulated manufacturing sector. Incidence In the recent budget, governmen
made a provision for startups tha
in order to customize them according and impact of multiplicity of
to the current need of the economy. indirect taxes and their cascading the profits for three out of th >
To match with the pressing needs, effects on input cost remains first 5 years would be eligible
government has initiated a series of the biggest challenge for Indian for 100 per cent deduction. Thi
tax reforms like tax concessions , tax manufacturing sector. However, is applicable to those who set u ]
reduction , tax holidays, simplifying tax code gets rationalized and their startups in between Apri
tax formalities and ease of legal become efficient o w i n g to 2016 to March 2019.
frameworks to facilitate faster implementation of GST.
economic development . New manufacturing companie
. Tax reforms can be considered as Differential and multiplicity

of tax codes across the states
incorporated on and after 1
March 2016, are given an optioi
efficient, when they result in enhancing of I n d i a m a k e i n t e r - s t a t e to be taxed 25 per cent aloni
the tax revenue with positive spill - with required Surcharges an <
t r a d e less c o m p e t i t i v e a n d
over effects in terms of accelerating Cess subject to other applicabl
more challenging. But due to
production , increasing employment and conditions, which is lower tha:
introduction of GST- a unified
enhancing skills for job creation . The
the previous year.
and uniform indirect tax code,
aim of tax reform is to bring certainty
the cascading effects of indirect
in taxes , augment tax buoyancy
with positive long -term economic taxes got nullified and cost of
To p r o m o t e s m a l l sectors
government has reduced th
effects. Reforms must address twin a product become simplified corporate tax rate for relativel
objectives namely, feasibility in benefiting both producer and small enterprises i.e. companie
implementation and sustainable in c o n s u m e r. G S T w i l l b r e a k with turnover not exceeding Rs
revenue generation . Considering the inter -state barriers across 5 crores.
the above fact , tax reform ( both the states and will develop a
direct and indirect taxes) is essential common national market making
the manufacturing sector more
To reduce cost and improv
competitiveness among domesti
to bring much- needed revolution in
fiscal -setting in fostering growth of competitive in India and world manufacturing industries
Indian economy. To rejuvenate the as well . government has reduced custor

and excise duties rates on certain public needs. Indian manufacturing effectiveness rely on how does the
inputs to Make in India scheme sector is primarily resource-driven government monitor and implement
attractive. than technology-driven and therefore, various schemes and programs meant
the input cost and subsequent for the overall development of the
To make Make in India a
success, government has been
taxes on it, make the sector more nation and manufacturing sector in
challenging. Manufacturing sector particular. Implementation of GST
reinstating the exemption of MAT would go a long way in promoting
can be strengthened through fiscal
for non-resident investors, those Make in India and will give much
are manufacturing goods in SEZs. interventions like tax concession ,
tax reduction on the manufacturing relief to the manufacturing sector and
This will give big boost to Make country by getting rid of cascading
in India campaign by triggering process , especially on import
of technology and research and effects of sales taxes, VAT etc.
the growth of manufacturing
sector. development . Besides , subsidies References
and other fiscal interventions on
Government has also allowed
manufacturer to import of capital
inputs cost , import of technology
and plant equipments will change the
1. Latest Economic Surveys, Government
of India
goods at zero customs duty to investment climate and eco-system 2. Union Budget Reports from 2003-04
promote electronic sector under and able to boost the manufacturing to 2016-17
the Zero duty Export Promotion sector. Policy paradigm is the need of 3. Annual Reports 2010,2011,2012, 2013
Capital Goods Scheme (EPCG ). the hour and the initiatives taken by of CII, India
the present government are forward - 4. Various Issues of CMIE Reports of
Conclusion:
looking especially on the tax-front . India
The praxis of policy should be The success of the various initiatives
5. Reports of McKinsey, PwC, EY-CII
designed after understanding the undertaken by government depends
and K.PMG
need of the economy, in the context upon the outcome ( contribution to
of socio-economic environment and GDP and employment ) and their (E-mai:amiyaacademics@gmail.com)
a*
' /5 Books on
/
?
Sardar Patel
b -
&
\
For your copies and business queries,

41 V please contact:
*9 -
011 24367260,24365609
-
e mail: busmesswng@gmail.com
MODERN
-
AlsoAvailable as e books at play.9009le.con1 ana kobo.com
*
MMIrfl INDIA
Sawfcw VJlUDhWuIf Ml
3TV or v
Publications Division
Ministry of Information and Broadcasting
Government of India
Website: publicationsdivision . nic.in
- - .
ibikaiiQrjM
V @DPD India - iu
: At
ir
^ li , hi

FAQs on GST
Following are the answers to the various frequently asked questions relating to GST:
Question. What is GST? How does it work?
Answer: GST is one indirect tax for the whole nation, which will make India one unified common
market.
GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer.
Credits of input taxes paid at each stage will be available in the subsequent stage of value addition,
which makes GST essentially a tax only on value addition at each stage. The final consumer will thus
bear only the GST charged by the last dealer in the supply chain, with setoff benefits at all the
previous stages.
Question. What are the benefits of GST?
Answer: The benefits of GST can be summarized as under:
For Business and Industry:
Easy compliance: A robust and comprehensive IT system would be the foundation of the GST
regime in India. Therefore, all tax payer services such as registrations, returns, payments, etc. would
be available to the taxpayers online, which would make compliance easy and transparent.
Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are
common across the country, thereby increasing certainty and ease of doing business. In other
words, GST would make doing business in the country tax neutral, irrespective of the choice of
place of doing business.
Removal of cascading: A system of seamless tax- credits throughout the value - chain, and across
boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce
hidden costs of doing business.
Improved competitiveness: Reduction in transaction costs of doing business would eventually
lead to an improved competitiveness for the trade and industry.
Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST,
complete and comprehensive setoff 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 in the international market and give
boost to Indian exports. The uniformity in tax rates and procedures across the country will also
go a long way in reducing the compliance cost.
For Central and State Governments:
Simple and easy to administer: Multiple indirect taxes at the Central and State levels are being
replaced by GST. Backed with a robust end -to - end IT system, GST would be simpler and easier
to administer than all other indirect taxes of the Centre and State levied so far.
Better controls on leakage: GST will result in better tax compliance due to a robust IT
infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the
chain of value addition, there is an in - built mechanism in the design of GST that would
incentivize tax compliance by traders.
Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of
the Government, and will therefore, lead to higher revenue efficiency.
For the consumer:
Single and transparent tax proportionate to the value of goods and services: Due to multiple
indirect taxes being levied by the Centre and State, with incomplete or no input tax credits
available at progressive stages of value addition, the cost of most goods and services in the
country today are laden with many hidden taxes. Under GST, there would be only one tax from
the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer.
Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the overall
tax burden on most commodities will come down, which will benefit consumers.

Some more FAQ's on GST

Question. Which taxes at the Centre and State level are being subsumed into GST?
Answer: At the Central level, the following taxes are being subsumed : a. Central Excise Duty, b.
Additional Excise Duty, c. Service Tax, d. Additional Customs Duty commonly known
Countervailing Duty, and e. Special Additional Duty of Customs.
At the State level, the following taxes are being subsumed : a. Subsuming of State Value Added
Tax/Sales Tax, b. Entertainment Tax ( other than the tax levied by the local bodies), Central Sales Tax
(levied by the Centre and collected by the States), c. Octroi and Entry tax, d. Purchase Tax, e. Luxury
tax, and f. Taxes on lottery, betting and gambling.
Question. How would GST be administered in India ?
Answer: Keeping in mind the federal structure of India, there will be two components of GST -
Central GST (CGST) and State GST (SGST). Both Centre and States will simultaneously levy GST
across the value chain. Tax will be levied on every supply of goods and services. Centre would levy
and collect Central Goods and Services Tax (CGST), and States would levy and collect the State
Goods and Services Tax (SGST) on all transactions within a State. The input tax credit of CGST would
be available for discharging the CGST liability on the output at each stage. Similarly, the credit of
SGST paid on inputs would be allowed for paying the SGST on output. No cross utilization of credit
would be permitted.
Question. How would a particular transaction of goods and services be taxed
simultaneously under Central GST (CGST) and State GST (SGST)?
Answer: The Central GST and the State GST would be levied simultaneously on every transaction of
supply of goods and services except on exempted goods and services, goods which are outside the
purview of GST and the transactions which are below the prescribed threshold limits. Further, both
would be levied on the same price or value unlike State VAT which is levied on the value of the goods
inclusive of Central Excise.
Question. Will cross utilization of credits between goods and services be allowed
under GST regime?
Answer: Cross utilization of credit of CGST between goods and services would be allowed.
Similarly, the facility of cross utilization of credit will be available in case of SGST. However, the cross
utilization of CGST and SGST would not be allowed except in the case of inter- State supply of goods
and services underthe IGST model which isexplained in answerto the next question.
Question. What are the major features of the Constitution (122nd Amendment) Bill,
2014?
Answer: The salient features of the Bill are as follows:
a. Conferring simultaneous power upon Parliament and the State Legislatures to make laws
governing goods and services tax; b. Subsuming of various Central indirect taxes and levies such as
Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty commonly
known as Countervailing Duty, and Special Additional Duty of Customs; c. Subsuming of State Value
Added Tax/Sales Tax, Entertainment Tax ( other than the tax levied by the local bodies), Central Sales
Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax,
and Taxes on lottery, betting and gambling; d. Dispensing with the concept of ' declared goods of
special importance' underthe Constitution ; e. Levy of Integrated Goods and Services Tax on inter-
state transactions of goods and services; f. GST to be levied on all goods and services, except
alcoholic liquor for human consumption. Petroleum and petroleum products shall be subject to the
levy of GST on a later date notified on the recommendation of the Goods and Services Tax Council;
g. Compensation to the States for loss of revenue arising on account of implementation of the Goods
and Services Tax for a period of five years; h. Creation of Goods and Services Tax Council to examine
issues relating to goods and services tax and make recommendations to the Union and the States on
parameters like rates, taxes, cesses and surcharges to be subsumed, exemption list and threshold
limits, Model GST laws, etc. The Council shall function underthe Chairmanship of the Union Finance
minister and will have all the State Governments as Members.
https://telegram.me/IAS4INDIA Regd. No. RNI 949/57
http://www.ias4india.com
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Posted on 25-26 October 2016 No. Pages 64
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NOVEMBER 2016 A DEVELOPMENT MONTHLY ? 22

GST: Game Changer for Indian Economy?

GST and the Constitutional Conundrum

Indias Tax System: Increasing Progressivity

Tax Reforms- Integral to Development

< * Co* *'***** Vtar

YOJANA November 2016 5

Tax Reforms: Past , Present and Future

ax reforms are an integral Realising this , two legislators

T part of the development

YOJANA November 2016 7

Heavy Discount OH tec Oasis of first Com first Serve

taxes, making the country more tax compliant .

for Antarctic and Ocean Research ( NCAOR ) , Goa,

the glacier melting and its relation to changing

MOBILISING FINANCIAL RESOURCES

India's Tax System: Increasing Progressivity

form or the other in money collected by the government

12 YOJANA November 2016

YOJANA November 2016 13

14 YOJANA November 2016

SWIFT) initiative and integration with Government

ail IAS <

The total cost involved in the project is Rs.2256 crore, w

1TMAN.A N ovember 2016 15

CLEAN TAX POLICY ENVIRONMENT

Indirect Tax Reforms : Facilitative Tax Regime

ax - Direct and Indirect Indirect Tax to GDP ratio for 2016-17

The author is the Chairman, Central Board of Excise and Customs.

YOJANA November 2016 17

implemented. ( m ) 80 per cent of the refund amount

18 YOJANA November 2016

off against the taxes being levied by

YOJANA November 2016 19

ERUDITION IAS Learning Simplified

Dr. Mukherjee Nagar, Delhi-9, Mob.: 9899449709 | 9953037963, Visit us at : www.eruditionias.com

Ushering in a New Era of Tax Reforms

he present Government menace of domestic black money. It

22 YOJANA November 2016

2015.The amount involved in these

24 YOJANA November 2016

RANK-1 IN SUCCESSIVE 3 YEARS

JANA November 2016 25

Road Map for Taxation

fter having faced The Scheme was effective from

YOJANA November 2016 27

transactions in advance for a maximum - MS

APA for four preceding years. More

and bilateral ) have been filed in just

North Block, which has not been

28 YOJAN A November 2016

Black Money Menace:

ven at two hours Of the over 120 crore population

30 YOJANA November 2016

Foreign Assets Disclosure window,

mandatory for transactions over Rs

goods and services tax (GST )- from >

subsume various indirect levies of

credit chain for refunds.

V OJANA November 2016 31

32 YOJANA November 2016

I Limitation of Benefit ( LOB) which is