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The Impact of the Government Policies on Direct Tax Collections

1.PNG  Union Minister Arun Jaitley

The first sixty-seven years after Independence from 1947 to 2014 saw a total number of 3.82 crores assesses filing tax returns.  Obviously, in comparison to a total population of almost 1.3 billion, this figure appears highly inadequate.  The total direct tax collection (income tax) in 2013-14 was Rs.6.38 lakh crore.

Prime Minister Modi led NDA Government had a multi-pronged strategy to increase the tax base.  A campaign involving various steps to flush out black-money, including black-money outside the country, was initiated.  The demonetisation led to a lot of people in possession of undeclared cash depositing the same in the banking system.  The source of the money was now questioned.  Almost 18 lakh people were identified who had made deposits disproportionate to their returned incomes.  The use of technology helped the tax department significantly.  Most of the functioning of the Income-tax Department is now online, returns are filed online, queries are addressed online, assessment orders are handled online and refunds are also made online.  Technology is also used for reconciliation purposes in order to detect those who should be filing returns but are non-filers.

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The implementation of the Goods and Services Tax as a single consolidated tax has had a significant impact even on direct taxes.   Those who have disclosed a business turnover for the GST now find it difficult not to disclose their net income for the purposes of income tax.

What would be the combined impact of all these measures on India’s direct taxation base? We had targeted to optimise the base increase without any increase on the tax liability.  India’s tax to GDP ratio in four years increased by almost 1.5%.  On the contrary, a large number of taxpayers in each of the four Budgets of the present Government has benefitted from relief given.  Today a medium-term assessment of the impact of these steps can be made.  In four years, the number of assesses has increased by 64.6%.  The total number of returns filed was 6.86 crores in FY 2017-18.  The number of new assesses who filed returns in FY 2017-18 were 1.06 crore. I hope that the percentage increase when the Government completes its first five years would be significantly higher.  The total income tax collection for the year 2017-18 is Rs.10.02 lakh crore, a four year increase of 57%.  Last year, despite formidable economic challenges, the income tax collection managed to grow by over 18 percent.

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Last year, the impact of the GST on direct tax collection was not visible.  Since GST had been imposed in the middle of the year, it will be more apparent this year.  The first big news for this year is that the advance tax deposit during the first quarter of this year has seen a gross increase of 44% in the personal income tax category and 17% in the corporate tax category.  After repayment of refunds due to some excess tax paid in earlier years, which are usually paid back in the first quarter, the net amount would be somewhat lesser.  But if the same trend continues in the next three quarters, one expects a significant increase in the direct tax collection this year.  The first indication is that the spending is higher, consumption is higher and corporates are seeing increased sales and a greater prospect of profitability.  But increase in the amount of collections in category of personal income tax is also due to more people coming within the tax net.  There is also the impact of the GST visible this year.  This unprecedented taxation growth is a result of the anti-black money measures, use of technology, demonetisation and the GST.  Most of these measures were severely criticized by the Congress Party.  This is just the medium-term impact of some of these measures.  The long-term impact would be significantly higher.  Higher tax collection would enable us to continue with the developmental programmes in the country, not to impose any extra burden on the taxpayers and yet maintain the targeted fiscal deficit.

Money in Swiss-Banks

A news item has appeared today indicating an increase of money by ‘Indians’ in the Swiss banking system.  This has led to misinformed reaction in certain circles raising a query whether the Government’s anti-black money steps have yielded results.

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Switzerland in financial disclosures was always a reluctant state.  Of late it was subjected to a lot of international pressures which favoured disclosures and Switzerland ran the risk of being a ‘non-compliant’ State by the FATF.  It has, therefore, entered into several bilateral treaties for making disclosures to requesting States.  It has amended its domestic laws involving all disclosures and entered into a treaty even with India and real time flow of information with regard to Indians will be made.  The flow of information is starting in January, 2019.  Any illegal depositor knows that it is a matter of months before his name becomes public and he will be subjected to the harsh penal provisions of the Black money law in India.  Assuming this information to be correct, what does past experience show?  When disclosures have been made with regard to ‘Indians’, including in the Panama Papers, certainly some of them have held illegal accounts.  ‘Indian’ money outside the country is of various categories.  Past investigation by CBDT have shown that this includes many held by persons of Indian origin who now hold foreign passport, monies belonging to Non-Resident Indians, as also monies belonging to resident Indians who have made legitimate investments abroad, including transfer of money under the liberalised remittance schemes.  It is only monies kept by resident Indian outside these categories which become actionable.  The first two categories are within the jurisdiction of those countries where these persons are residents and the third category can easily be checked up in India.  If the deposit does not fall in any of these categories, it is per se illegal for which investigations are undertaken, arrests are made and criminal prosecutions are launched.  Switzerland has taken significant efforts to get out of the image of being a tax haven and a non-compliant State.  It is on the verge of making disclosures in real time and, therefore, is no longer an ideal destination for tax evaders.  Those who participate in a public discourse must understand these basic facts before expressing an opinion which may be ill-informed.  To assume that all the deposits are per se tax evaded money or that Switzerland in the matter of illegal deposits is what it was decades ago, is to start on a shaky presumption.

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A Year After Demonetisation

Arun Jaitley arun1

November 8, 2016 would be remembered as a watershed moment in the history of Indian economy. This day signifies the resolve of this Government to cure the country from “dreaded disease of black money”. We, the Indians, were forced to live with this attitude of “chalta hai” with respect to corruption and black money and the brunt of this attitude was faced particularly by the middle class and lower strata of society. It was a hidden urge of the larger section of our society for a long period to root out the curse of corruption and black money; and it was this urge which manifested in the verdict of people in May 2014.

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 Immediately after taking up responsibility in May 2014, this Government decided to fulfil the wish of the people in tackling the menace of black money by constituting SIT on black money. Our country is aware that how even a direction from the Supreme Court on this issue was ignored by the then Government for number of years. Another example of lack of will to fight against black money was the delay of 28 years in implementation of Benami Property Act.

This Government took decisions and implemented the earlier provisions of law in a well-considered and planned manner over three years to meet the objective of fight against black money. These decisions span from setting up of SIT to passing of necessary laws for foreign assets to demonetisation and to implementation of GST.

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 When the country is participating in “Anti-Black Money Day”, a debate was started that whether the entire exercise of demonetisation has served any intended purpose. This narrative attempts to bring out positive outcomes of demonetization in short-term and medium-term with respect to stated objectives.

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RBI has reported in their Annual Accounts that Specified Bank Notes (SBNs) of estimated value of Rs.15.28 lakh crore have been deposited back as on 30.6.2017. The outstanding SBNs as on 8th November, 2016 were of Rs.15.44 lakh crore value. The total currency in circulation of all denominations as on 8th November, 2016 was 17.77 lakh crore.

One of the important objective of demonetisation was to make India a less cash economy and thereby reduce the flow of black money in the system. The reduction in currency in circulation from the base scenario reflects that this intended objective has been met. The published figure of “currency in circulation” for half year ending September, 2017 is Rs.15.89 lakh crore. This shows year on year variation of (-) Rs.1.39 lakh crore; whereas year on year variation for the same period during last year was (+) Rs.2.50 lakh crore. This means that reduction in currency in circulation is of the order of Rs.3.89 lakh crore.

Why should we remove excess currency from the system? Why should we curtail cash transactions? It is common knowledge that cash is anonymous. When demonetization was implemented, one of the intended objectives was to put identity on the cash holdings in the economy. With the return of Rs.15.28 lakh crore in the formal banking system, almost entire cash holding of the economy now has an address. It is no more anonymous. From this inflow, the amount involving suspicious transactions based on various estimates ranges from Rs.1.6 lakh crore to Rs.1.7 lakh crore. Now it is with the tax administration and other enforcement agencies to use big data analytics and crack down on suspicious transactions.

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 Steps in this direction have already started. Number of Suspicious Transaction Reports filed by banks during 2016-17 has gone up from 61,361 in 2015-16 to 3,61,214; the increase during the same period for Financial Institutions is from 40,333 to 94,836 and for intermediaries registered with SEBI the increase is from 4,579 to 16,953.

Based on big data analytics, cash seizure by Income Tax Department has more than doubled in 2016-17 when compared to 2015-16; during search and seizure by the Department Rs.15,497 crore of undisclosed income has been admitted which is 38% higher than the undisclosed amount admitted during 2015-16; and undisclosed income detected during surveys in 2016-17 is Rs.13,716 crore which is 41% higher than the detection made in 2015-16.

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Undisclosed income admitted and undisclosed income detected taken together amounts to Rs.29,213 crore; which is close to 18% of the amount involved in suspicious transactions. This process will gain momentum under “Operation Clean Money” launched on January 31, 2017.

 The exercise to remove the anonymity with currency has further yielded results in the form of

  • 56 lakh new individual tax payers filing their returns till August 5, 2017 which was the last date for filing return for this category; last year this number was about 22 lakh;
  • Self-Assessment Tax (voluntary payment by tax payers at the time of filing return) paid by non-corporate tax payers increasing by 34.25% during April 1 to August 5 in 2017 when compared to the same period in 2016.

With increase in tax base and bringing back undisclosed income into the formal economy, the amount of Advance Tax paid by non-corporate tax payers during the current year has also increased by about 42% during 1st April to 5th August.

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The leads gathered due to data collected during demonetisation period have led to identification of 2.97 lakh suspect shell companies. After issuance of statutory notices to these companies and following due process under the law, 2.24 lakh companies have been de-registered from the books of Registrar of Companies.

 Further actions were taken under the law to stop operation of bank accounts of these struck off companies. Actions are also being taken for freezing their bank accounts and debarring their directors from being on board of any company. In the initial analysis of bank accounts of such companies following information has come out which are worth mentioning:

  • Of 2.97 lakh struck off companies, information pertaining to 28,088 companies involving 49,910 bank accounts show that these companies have deposited and withdrawn Rs.10,200 crore from 9th November 2016 till the date of strike off from RoC;
  • Many of these companies are found to have more than 100 bank accounts – one company even reaching a figure of 2,134 accounts;

Simultaneously, Income Tax Department has taken action against more than 1150 shell companies which were used as conduits by over 22,000 beneficiaries to launder more than Rs.13,300 crore.

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Post demonetization, SEBI has introduced a Graded Surveillance Measure in stock exchanges. This measure has been introduced in over 800 securities by the exchanges. Inactive and suspended companies many a time are used as harbours of manipulative minds. In order to ensure that such suspicious companies do not languish in the exchanges, over 450 such companies have been delisted and demat accounts of their promoters have been frozen; they have also been barred to be directors of listed companies. Around 800 companies listed on erstwhile regional exchanges are not traceable and a process has been initiated to declare them as vanishing companies. Demonetization appears to have led to an acceleration in the financialisation of savings.

In parallel, there is a shift towards greater formalisation of the economy in the near term aided by the introduction of Good and Services Tax (GST). Some of the parameters indicating such shift are given below:

  • Corporate bond market has started reaping the benefits of additional financial savings and transmission of interest rate reduction. The corporate Bond market issuance grew to Rs. 1.78 lakh crore in 2016-17, the year on year increase was Rs.78,000 crore. With other sources of issuance in capital market the incremental variation is almost Rs.2 lakh crore in 2016-17 while that was Rs.1 lakh crore in 2015-16.
  • This trend is further substantiated by the surge in primary market raising through public and rights issues. There were 87 issues of public and rights for raising equity involving amount of Rs.24,054 crore during FY 2015-16; in the first six months of 2017-18 itself there are 99 such issues amounting to Rs.28,319 crore.
  • Net inflow into Mutual Funds during 2016-17 increased by 155% during 2016-17 over 2015-16 reaching 3.43 lakh crore; Net inflows in mutual funds during November 2016 to June 2017 was about Rs.1.7 lakh crore as against Rs.9,160 crore during the same period in the year before;
  • Premia collected by life insurance companies more than doubled in November 2016; the cumulative collections during November 2016 to January 2017 increased by 46 per cent over the same period of the previous year. The premium collections witnessed 21% growth for year ending September 2017 over the corresponding period of previous year.

With a shift to less cash economy, India has taken a big leap in digital payment during 2016-17. Some of the trends are given below:

  • 110 crore transactions, valued at around Rs.3.3 lakh crore and another 240 crore transactions, valued at Rs.3.3 lakh crore were carried out through credit cards and debit cards, respectively. The value of transaction for debit and credit card was Rs.1.6 lakh crore and Rs.2.4 lakh crore respectively during 2015-16.
  • Total value of transaction with Pre-Paid instruments (PPIs) have increased from Rs.48,800 crore in 2015-16 to Rs.83,800 crore in 2016-17. Total volume of transactions through PPIs have increased from about 75 crore to 196 crore.
  • During 2016-17, National Electronic Funds Transfer (NEFT) handled 160 crore transactions valued at Rs.120 lakh crore, up from around 130 crore transactions for Rs.83 lakh crore in the previous year.

With higher level of formalisation, it has brought out related benefits to workers who were denied of social security benefits in the form of EPF contribution, subscription to ESIC facilities and payments of wages in their bank accounts. Large increase in opening of bank accounts for workers, enrolment in EPF and ESIC are added benefits of demonetisation. More than 1 crore workers were added to EPF and ESIC system post-demonetisation which was almost 30% of existing beneficiaries. Bank accounts were opened for about 50 lakh workers to get their wages credited in their accounts. Necessary amendment in Payment of Wages Act was done to facilitate this.

The reduction in incidences of stone pelting, protests in J&K and naxal activities in LWE affected districts are also attributed to the impact of demonetisation as these miscreants have run out of cash. Their access to Fake Indian Currency Note (FICN) was also restricted. During 2016-17, the detection of FICN for Rs.1000 denomination increased from 1.43 lakh pieces to 2.56 lakh pieces. At the Reserve Bank’s currency verification and processing system, during 2015-16, there were 2.4 pieces of FICNs of Rs.500 denomination and 5.8 pieces of FICNs of Rs.1000 denomination for every million pieces notes processed; which rose to 5.5 pieces and 12.4 pieces, respectively, during the post-demonetisation period. This shows almost doubling of such detection.

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In an overall analysis, it would not be wrong to say that country has moved on to a much cleaner, transparent and honest financial system. Benefits of these may not yet be visible to some people. The next generation will view post November, 2016 national economic development with a great sense of pride as it has provided them a fair and honest system to live in.

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Shri Arun Jaitley is the Union Minister of Finance and Corporate Affairs, Government of India

Paradigm shift in Governance

Dilip Kumar Bisoi* i20179701.jpg

The Nation has witnessed a paradigm shift in governance in the three years of Narendra Modi Government. Policy statements laced with highly reformative decisions have changed the mood of the nation for development and growth. Prime Minister Modi has pushed through a slew of reforms to bail out the country’s economy from a state of policy paralysis.

The NDA government inherited a baggage of low growth rate, high inflation and apathetic governance. With exports moving in south directions, industrial output almost stagnated.

The Prime Minister set the tone for the development and growth by announcing programmes like Make-in-India, Start-up India, Skill Development, MUDRA, PM Jan Dhan Yojana, JAM, DBT and many more.

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To support these initiatives, he put in place the required policies and reforms. The decision of demonetization and amnesty scheme to flush out black money helped in cleansing the economy to some extent. The creation of NITI Ayog in place of outdated Planning Commission is in line with the new demands and aspirations of a young nation and “New India”.

The historic indirect tax reform, the boldest step since Independence, came with the introduction of GST (Goods & Services Tax) in mid-night of June 30 and July 1, 2017. The GST regime put the countrymen under “One Nation One Tax” administration. The reform is aimed at bringing in transparency in taxation with an ultimate goal of safeguarding the interest of the consumers as well as the business and industries.

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The indirect tax reform decision, supported by all the states in the country including Jammu & Kashmir, was hailed by many countries world over. The signals from first month of GST implementation show a promising trend and bright economic future for the nation.

Meanwhile, the Modi government has achieved thunderous success so far as implementation of Direct Benefit Transfer (DBT) policy is concerned. Particularly, the DBT introduced for cooking gas proved to be the biggest DBT scheme in the world. Nearly 15 crore cooking gas consumers have come under the DBT known as PAHAL which has been acknowledged by Guinness Book of World Records. The DBT has saved over Rs56,000 crore government money from leakage.  The NDA government is now proposing to introduce DBT for fertilizer and kerosene subsidies on pilot basis.

The UPA policy of retrospective taxation and the stagnation in further opening up of sectors, spoiled the environment for Foreign Direct Investments (FDIs) in the country. Soon after coming to power, the NDA government announced that the retrospective taxation case would be considered case by case in a bid to assuage the feelings of the foreign investors.  It liberalized the FDI policy and announced a slew of decisions to attract off-shore investments in sectors like insurance, railways, defence, retail marketing.

The union finance minister, Arun Jaitley, in his budget speech, announced that FDI in insurance will be automatically allowed upward the sectoral cap of 49%. He also allowed more than 50% FDI in defense. Not only that most of the railways sector was opened for 100% FDI vide DIPP Press Note8 (2014), issued on 8/27/2014. Similarly, the DIPP Press Note 12 removed almost all restrictions on FDI in construction.

Removing restriction on foreign investment in single brand retail, the Centre allowed FDI up to 100% via the government approval route, but requires that 30% of goods sold in the first 5 years be manufactured in India. This period is tolled 3 years for ‘cutting edge’ technology. The Government also allowed more than 50% foreign investment in direct retail e-commerce with a rider that  FDI is not allowed in business-to-consumer e-commerce, unless items are all being sold under a single brand and meet local-content requirements.

The NDA government has put the fuel pricing reforms on fast track. Following the deregulation of petrol prices, the diesel prices were deregulated from October 18, 2014. So also the natural gas pricing.

Realizing that the mining sector plays a key role in propelling growth, the Modi government put in place laws and policies for development of the sector. The MMDR Act was amended to bring in transparency in leasing out non-coal major minerals. It also opened the coal mining sector to private and foreign investments by a legislation Coal Mines (Special Provisions) Act, 2015 on March 20, 2015. The transparent e-auction in mining sector has fetched government a huge revenue also.

Similarly, changes were brought in the policies to conduct the telecom spectrums in a transparent way. India has now conducted multiple free and fair telecom auctions with no complaints from stake-holders.

As part of ease of doing business, the government extended the expiration date of industrial licenses. DIPP issued an order on December 20, 2014, increasing the maximum validity of an industrial license from two years to seven years. Removing sectoral investment limit, the government on April 10, 2015 removed the last 20 products from the reserved list

The government has also recently enacted bankruptcy laws to make it easy for the companies to go for liquidations.

Modi government has several reform initiatives in its agenda. Now further reforms in subsidies expenditures is the top priority of the government. Reform is a long term and continuous process. The real dividend of the reform processes that have already initiated is expected to come in the next two years.

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* Dilip Kumar Bisoi is a Senior Journalist and Columnist. Presently working as the Editor of Odia daily ‘The Samay’.

Assessing India’s Progress in Various Fields

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We are celebrating 70 years of our Independence. But looking back at the history of these seven decades, what are the things which we should be proud of? Have we really progressed much and reached the level we should have in all these years?

The verdict will be divided. India is a land of a diverse population, with great variations in economic standards, having different religious and cultural customs and different stages of development. Hence, every section has its own view of development and reasons to whine or cheer.

But there are certain major and decisive strides we have made in these years particularly during last three years which no one can ignore or deny, irrespective of his or her political affiliation or personal grudges against certain leaders or governments or the ‘system’. Perhaps our greatest achievement is to have evolved a healthy democratic government system.

We have a very strong constitutional framework that makes democracy such a success here.  But that is just the tip of the iceberg. Our achievements in these years are endless, should we sit to prepare an exhaustive list. We have some of the best institutes in the world in the form of IIMs and IITs.

Our healthcare sector is looking up and health tourism is a reality where people from advanced nations are coming here for affordable treatment.  We have a railway network that is among the largest in the world in terms of track length and passenger volume. We have one of the largest armies in the world.

We have among the world’s busiest airports in Delhi and Mumbai. Our life expectancy at birth has increased from a mere 32 years in 1947 to 66 years today. We were one of the foremost nations to establish nuclear reactors and produce clean energy. Despite our financial and technological limitations, we have made the best use of our resources and from an importer of even a needle, today we are exporters of software.

Our technocrats and managers are celebrated worldwide for their professionalism and calibre. Today we are a nation reckoned as a leader in space technology. Millions of Indians have fought their way in and made Europe and the US their home, by sheer virtue of their hard work and professional competence, contributing seminally in global projects.

We have produced noble laureates, artists, singers, musicians, writers, sportsmen, scientists, diplomats, scholars and statesmen of world repute year after year, in hundreds. This is no mean thing in just seven decades of our independent existence.  We had difficult times in recent years with policy paralysis in government and slackness in ideation that slowed down India’s growth trajectory to some extent but in the last three years or so of the NDA government, things have started looking up.

In less than three years, at least 30 new projects have been launched for giving a new shape and direction to the country like Jan Dhan, Swachh Bharat, Startup India, Nat’l Health Policy, Give up LPG, Skill India, Make in India, Smart City, Udaan scheme, GST, Digital India, Crop Insurance scheme to name a few, even if we leave for the moment aggressive advancements in railway and road networks and facilities.

No wonder World Investment Report finds India among the top three prospective host economies of the world. In Financial Year 2015-16 we had a whopping 55 billion dollars’ worth of investments in the country. In World economic forum Global Competitive Index, India has jumped 32 places and today the country is the 6th largest manufacturing nation in the world. Projects worth Rs. 8 lakh crore pending for years have now been cleared and put on the fast track under the Prime Minister’s personal initiative.

India’s effort and commitment towards production and use of clean energy has found praise globally. The government has plans to produce 175 GW of renewable energy and we have already realised 50 GW production level in last three years.  India stands 4th in the world in global wind power installed capacity. At least 22 crores LED bulbs have been distributed, which is to lead to saving of Rs 11,000 crore in electricity bills of the country.  The government is not only targeting mega projects but is equally attentive towards micro-level social engineering and taking grassroots level steps to strengthen the common man and the rural foundations.

The Prime Minister deeply believes in public participation and hence all projects are prepared with a view to benefit more and more people.  In just three years of his governance, the government has ensured the establishment of 50,000 km of power transmission lines, even as over last five decades we had only 16,000 km covered. Not only that, in less than three years we have over 12,000 villages electrified, even as when the government came in power, it found over 18,000 villages in Independent India still living in the dark.

Between 2010 and 2014, just 59 village panchayats had been connected with optical fibre network which in last three years stands at 77,000 panchayats. Such is the pace at which the government is working.  It is very likely that in next two years we will have all the 2.5 lakh villages enjoying optical fibre network to enjoy seamless internet and communication facility.

The buzzword of the government is transparency and to bring in transparency in government working, digitisation has a big role to play, which is why the government is taking along the two together. The more digital technology penetration we have, the lesser corruption we have because everything is in the public domain for everyone to see and track. As Prime Minister Modi says, it is all about change in the viewpoint and way of handling things that would make all the difference.

The NDA government is a departure from the past because it has changed the work culture and viewpoint of the people, instilling hope in them, pushing them to dream big. The seeds of every success lie in dreams that we cherish!

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*The author is State Editor of the Madhya Pradesh Editions of The Hitavada.

India on Way to Change the Course Correction in Planning and Governance

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After a tryst with destiny 70 years back India is said to have now finally arrived at a take off stage to achieve the dreams and aspirations of its people. The nation is witnessing an upsurge of youth power bubbling with enthusiasm and confidence.

It is not out of context to state here that the present government at the Centre got elected on a massive mandate from electorate consisting in abundance of young, mostly first time, voters.

India has traversed a long way since the attainment of independence. The leadership of the party which guided the destiny of the nation for a number of electoral terms was obviously inclined towards socialism and adopted a model of planned development pursuing mixed economy with huge state sector investment. But the state machinery was not equipped and even prepared to own the mammoth task.

State intervention was needed and it initially paid dividends because we could not do without it as the big investments were not possible from private sector. We witnessed the first decade of independent India as full of hope and aspiration for change in socio economic situations that has been stagnant for historic reasons. There was superb enthusiasm and confidence among the people of the new republic that they would change their destiny. However, the following decades proved to be the period of disillusionments. Despite the country pumping in huge public money we found, by the turn of the century, it was complete shattering of hopes as the system started showing it’s rotten state.

For a long time state sponsored economy kept the market based economy at bay. But for the first time in all these long years we are witnessing a course correction after the last elections sent a party to govern with huge electoral mandate.

Unlike its predecessors, the NDA government has no inhibition or compulsion to follow the beaten path and is using the bulging market economy for the benefit of rising the standard of living of the masses, particularly of the poorest of the poor.

The government at the centre, headed by Narendra Modi, is showing a determination and vigour in taking decisions and implementing them, including the latest one of GST. The whole model of subsidies has been changed to transfer financial help directly to the beneficiaries in their bank accounts.

With the clarion call of ‘Sabka Saath, Sabka Vikas‘(Together with all, development for all) and ‘Minimum Government and Maximum Governance’ as policy initiatives the present government, headed by Narendra Modi, has established itself a doer.

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Of all the policy initiatives taken by the government, the Goods and Services Tax (GST) is the most transformative and impactful reform GST aiming at making India a common market with common tax rates.

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Replacing the leaky and inefficient welfare delivery system with the cash transfer model has been adopted using direct benefit transfer (DBT) pilots with the JAM (Jan Dhan, Aadhaar, Mobile) as its foundation.

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This initiative is natural corollary of the ambitious ‘Make in India’ which aims at making the country a global manufacturing hub. ‘Make in India’ initiative encourages both multinational as well as domestic companies to manufacture their products in India and the transparent and efficient tax collection system would make it realise.

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Similarly ‘Skill India’ wants to make India a skilled country targeting skill development training to over 500 million youth by the year 2022.

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Coupled with this the flagship ‘Digital India’ programme has already started transforming the country into a digitally empowered society and knowledge economy by bringing in digital infrastructure, creating digital empowerment and delivering governance and services through digital means. That brings transparency and efficient governance.

Start-up India’, ‘Stand-up India’ is aiming at young entrepreneurs to become self-employed. The scheme was launched to give a boost to entrepreneurship and job creation. The policy initiative promotes bank financing for start-up ventures.

The Prime Minister has rightly commented recently that “the pace at which people are taking to digital technology defies our stereotypes of age, education, language and income.” 

For the first time a sustained and effective effort is made against corruption which pervaded not only the state machinery but in politics too.

The battle against corruption has already started cleansing the rotten system it inherited. The Prime Minister is not only asserting that boldness is required to drive the corruption out of the system but adopting a bold approach indeed defying the preachers of doom. A robust boldness is evident in the functioning of the present government breaking the inertia.

Election driven development schemes, wrapped in rigid bureaucratic framework, are now slowly but certainly being replaced with people’s participation. Young generation of the 21st century is now aspiring for finding its national identity too as a powerful and competing country in the world. Majority of Indians are now asserting that they be counted and are not in a mood of compromise. We may call it self-confidence.

The country is preparing to celebrate Independence Day with greater hopes and aspirations with full of confidence not witnessed for a long time.

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*The author is a senior journalist with experience of more than 40 years of journalism. Has served in the Press Trust of India for over 26 years in various capacities including the Chief of Bureau, Rajasthan.

India in Fast Motion

*Ramesh K Arora i201782106.jpg

During the initial years after country’s independence, the Government of the day had three major challenges to meet – managing the massive refugee crises and the consequent re-settlement of lakhs of people; integration of more than 560 princely states into one strong nation; and promulgation of the Indian Constitution which laid the foundation of political democracy and socio-economic justice. With this, the planning system adopted by the country, facilitated the development of infrastructure for promoting science, technology, power, agriculture, industry, roads, irrigation and other segments of development. The state, including the Central and State governments, performed a key role in guiding and controlling the process of socio-economic change. However, a radical transformation of Indian economy took place in 1991 through the adoption of Liberalization–Privatization–Globalization paradigm. A new era of partnership between the public and the private sectors commenced authentically, heralding faster and less regulated economic development. During the next year (1992), the 73rd and the 74th Constitutional Amendments paved the way for the democratization of urban and rural local governance institutions. In later years, another important reform in strengthening political democracy was promulgated – the introduction of the Right to Information Act, 2005.

In the domain of socio-economic development, there has been an enormous growth of the public sector, despite its erratic performance. Further, there have been numerous schemes and programmes in the realms of urban change, rural transformation, transportation, communication and other sectors of national life. The focus of many programmes has been on the development of backward regions, provision of urban services to rural areas, mitigation of poverty, promotion of agriculture and raising the dignity and status of less privileged sections of society.

The Faster Track after 2014 

After the NDA government came to power in 2014, vigorous initiatives and innovations have been introduced in almost all facets of national life. Narendra Modi’s pro-active foreign policy has augmented India’s prestige and strengthened economic and defence relations at the cross-national level. Besides, massive investment is being made on modernizing India’s defence system. Of late, India’s economic growth has been accelerating consistently, making it the fastest growing economy in the world.

What is most noteworthy in the present regime is the re-vitalization of economic democracy. There has been a massive participation of common people in banking services, employment generation, industrial expansion, business growth, educational transformation and delivery of health services.

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The “Digital India” campaign has become an effective catalyst to ensuring greater transparency, accountability and people’s participation in the governance system. GST is one such upshot of the technological revolution.

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The trinity of JAM (Jaan Dhan Yojana, mobile and Adhaar) has empowered crores of people financially and economically.

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Start-ups and stand-ups have inculcated the spirit of enterprise and self-esteem among young people, women and underprivileged sections of society. Obviously, the socio-economic philosophy of the present government is characterized by the time-honoured dictum of growth with equity. Beti Bachao, Beti Padao is an example of garnering support for gender justice and women empowerment.

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Perhaps the three most important innovations of the Modi government are the Make in India campaign (facilitating even the production of defence equipment and supercomputers), strengthening the spirit of Team India that has given a fillip to deliberative democracy, and the Skill India Mission.

skill-india.jpgDemonetization and GST will eventually be helpful in containing black money, although many more systematic efforts will be required to curb economic crimes and corruption.

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We need to build an India where people are devoted to the performance of their duties and voluntarily conduct themselves honestly in their private and public life.

The Swacchh Bharat Abhiyan of the Modi government is a revolutionary movement in the India of Mahatma Gandhi who proclaimed that “cleanliness is next to godliness”.

logo2.pngFor the success of this and other programmes, people should demonstrate strong civic sense which can be promoted by voluntary social groups, families and educational institutions. India deserves a more responsible society where people do not evade taxes nor violate laws. They must feel a strong bonding with their nation and its governments at various levels. Modi’s “New India” can be constructed only when we have “New Indians” – hard working, sincere, emotionally intelligent, decent, honest and patriotic.

Apart from national defence and internal security, which are the areas that require a more focused attention in the near future?

Perhaps, these would be: multi-dimensional infrastructural development, industrial regeneration, agricultural re-invention, primary health, primary education, digitalization including Artificial Intelligence, non-conventional sources of energy and provision of pure drinking water to all people in all regions. Importantly enough, the Modi government has emphasized and adopted the approach of ‘holistic’ development, thus aptly balancing all significant components of nation building.

Every Indian citizen, irrespective of religion, caste, region and political affiliation, should contribute to making India a great nation. We truly need to ensure that there is “Sab ka Saath, Sab ka Vikas”.

******

* Author is Chairman, Management Development Academy, Jaipur.

The Story of India’s Union Budgets

*Anjan Roy i201781012.jpg

India’s budget documents over the last seventy years since Independence capture the struggles and achievements, frustrations and leaps of faith of India as a nation. These mirror the nation’s aspirations and achievements. The jejune budget figures spring to life in the context of India’s post-colonial history   

Come the union budget next year, think of what you will do next morning. You will possibly run a cursory glance at the major highlights of the budget. Nothing more.

Now question yourself, what did people do on the morning after the union budget for the greater part of the seventy years since Independence? If you are old enough to recall, they would make a beeline for the newspapers to make out the prices of things of everyday use. From electric fans to cosmetic articles, textile items and the perceived luxury goods, prices would mostly go up. Cigarette prices would certainly increase, much to the chagrin of smokers.

Now nobody should worry about the budget impact on prices of ordinary goods and even services. Because they would know what the rates of GST were on each of these items and the finance minister would be in no position to alter them, however much, his finances were stretched. These could be decided now by only the GST Council and this is a kind of once for all arrangement, unless there is some extraordinary snafu.

The union finance minister in a way has passed on his authority to change taxes on goods and services to GST Council. Not only he, all his state counterparts have also done so.

The union budget has, as if, disappeared for the ordinary people. Not really though. What has happened is that we have got a steel framework of indirect taxes which can now be changed or tampered through an agreed mechanism of “collaborative federalism” now called the GST Council by all the finance ministers of the country. That is a long transition from what budgets used to be in the seventy years of the life of Independent India.

The profile of the union budget has profoundly changed over the last seventy years. The first surprise for a present-day reader of the budgets of yesteryears would be the numbers. These would look so small. Even after these are adjusted for inflation, the numbers would be peanuts by today’s standards. That measures the strides we have made. Then the budget treatment would be so very different and so were the predominant priorities. In all, going through the budgets you get an impression it was as if another planet. But take a little closer look. There some worries and observations which might hold relevance.

The first budget

Three months after Independence, in November 1947, presenting an interim budget, the union finance minister R.K. Shanmukham Chetty, underlined his concern over rising prices, due mainly to “accumulation of surplus purchasing power in the hands of the community” as well as “all round fall in production, both industrial and agricultural”.

Next year, in 1948-49, the finance minister’s budget speech had devoted a good part on the “Balance of Payments”. It is important to take note of this because that gives a clue to the state of the economy and what turned out to be a festering problem. He drew the attention of “The House to a matter, which had been causing some concern to Government, namely, the emergence, in recent times, of a substantial adverse balance in India’s external payments”. In the subsequent paragraphs he explained this with reference to rising food imports bill.

This issue has been so important for India’s economic policy for the subsequent decades, I cannot help but quoting him in detail: “The second and by far the more important, reason for this deficit is, as is well-known, our imports of food grains. India has of course been a regular importer of foods for many years. But quantities and prices have both been recently going up. In 1944-45 and 1945-46 the value of food grains imported into India was Rs14 crore and Rs24 crore, respectively. In 1946-47 the amount was Rs89 crore. These figures are in addition to the import of supplementary food articles, which cost a further Rs15 crore in 1946-47. In 1947-48 the amount expected to be spent on the import of food grains is Rs110 crore.

Behind these figures lay a grim reality. It had caused misery to the people. It had destroyed India’s image as well. This is what the Delhi correspondent of the Time Magazine had reported in a story in its issue of August 22, 1949: “India celebrated the anniversary of Independence by announcing new and stricter austerity measures. India is still basically a hungry land; the government has launched a drive to raise more food. To highlight the food drive, ploughs ripped through New Delhi’s vice-regal gold course. Governor General Chakravarty Rajagopalachari, no golfer himself, posed behind a team of bullocks…

The lucid interval

Fast forward half a decade to the mid-fifties. By then the mantle of union finance ministry has been taken over by a legendary man of the financial sector – C.D. Deshmukh. Between 1950 and 1955, the fortunes of the country had miraculously improved. Presenting his budget in 1955, finance minister Deshmukh there were increase in food production, improvement of supplies in general (like those of cloth, cement, jute goods and steel), and above all, “the disappearance of inflationary conditions”.

The country had even shown a surplus in external balances of Rs55 crore in 1953. India’s “Sterling Balances” –foreign exchange reserve of those days—had also increased. As India had gained independence from the British, India had inherited a treasure chest. It is now forgotten that India had made a tremendous effort during the Second World War. It was not only sending some fifty lakh soldiers from the subcontinent to the War effort, but India had supplied general provisions from food grains (starving millions of Indians at home) to jute bags, gunnies, steel and iron items.

Britain had then promised to pay for these later. It did not have the money during the war years, burdened as it was with the huge expenses for fighting a dug in war on fronts across the world. The payments for war supplies had accumulated over the years from 1939 to 1946. It was a huge sum in those days.

In parallel with the Sterling Reserves, the “Dollar Position” – which used to be accounted separately – because dollar used to be the mode of payment for imports of food from the United states – had also shown improvement.

But then even in the midst of moderate surplus, finance minister Deshmukh warned:       “ We must not forget, however, that our foreign exchange expenditures are bound to grow rapidly …..and we must spare no efforts to conserve our foreign exchange reserves ..” This rang true for India’s policy making till the external payments crisis of 1991-92.

Reading successive budget speeches of finance ministers, along with the plan documents of those years, one gets the feeling that 1956 was the best as it could get for India. The finance minister had confidently announced that when he said: “The spell of stagnation had been broken”. GDP had grown by 18% between 1950 and 1955, due to a sharp turnaround in food production imports were lower, export demand for tea and jute were booming, current account had shown a surplus of Rs25 crore and sterling balances peaked at Rs735 crore.

The inflexion point

With hindsight, it appears misfortunes struck just when things seemed rosy. In 1956, India could have taken a course towards a more open economy, integrating with the global economy and the West with freer trade policies. Instead we took a reverse turn. With his 1956 budget, C.D. Deshmukh introduced policies which were continued with little variations well into the 1970s.

What had changed the policy paradigm was the urgency of the political powers to launch the Second Plan with its hugely ambitious targets and lop-sided strategy. The Plan had embarked upon developing a massive capital goods sector, following the Soviet model. It called for large project imports. With uncanny sense of what was coming, Deshmukh had observed that physical targets could not be formulated leaving aside financial considerations.

Anticipating a severe crisis, Deshmukh observed “there is little doubt that, if the Second Five-Tear Plan proceeds according to schedule, not only shall we not be able to achieve any surplus in our external accounts but we are likely to be faced with fairly substantial deficits”. The demands of the Plan led to general import compression. To meet the requirements of the Second Plan and to gather the financial resources massive doses of taxation was slapped. Income tax reached 91.2% at the margin – a sure way of generating black money.

The financial implications of the Second Plan had given rise to budgeting for two kinds of resources gap. The budget began to treat separately the overall domestic resources gap and the foreign exchange resources gap. It was as if preparing two distinct budgets.

The anomaly of this approach was noted by a young American economist who was visiting India under the aegis of a US foreign aid agency. A future Nobel Laureate Milton Friedman had come to India in 1955 and presented a memorandum to the government in which he had argued that treating foreign exchange gap separately from overall domestic resources gap was wrong. The former was part of the latter. He had also criticised the policies of exchange control, import and export licensing on the ground that these necessarily involved “indiscriminate implicit subsidies to those granted import licences”.

He offered three to options to finance minister Deshmukh he had met. Let exchange rate fluctuate, inflate or deflate internally in response to putative surplus or deficit in balance of payments, or auction off exchange released. The memorandum was of course forgotten.

Three fears

Indeed, three fears seemed to have stalked our finance ministers in those days immediately after the Independence which had singularly influenced India’s economic policy. Fear of food shortage, fear of run-away price rise and fear of dearth of foreign exchange to meet external payments obligations. Much of India’s economic legislation had been the upshot of these three fears, which in fact had haunted the country off and on.

Food shortages had dogged the country throughout the ‘fifties and ‘sixties until we achieved breakthrough in crop production after what is now known as Green Revolution of the 1970s. We had to import food from the United States, which had used time and again the vulnerability for overt and covert political purposes. This had destroyed the image of the newly emergent country as a vibrant, growing economy. The union finance ministers had betrayed this constant anxiety in budgets after budgets.

Worries about food shortages dogged from the beginning. Worries because the memory of the horrific Bengal famine were fresh. Country was facing monsoon failures and shortages of food grains. These was need for money to import food from overseas. Foreign exchange became scarce. It had to be preserved for meeting the essential needs of food imports.

Foreign exchange was needed to fund the fledgling Indian Foreign Service posts overseas. The budget even mentions the allocation of funds for the Indian missions abroad and the people posted in the missions. Even that was difficult because it was a question of opportunity cost: whether you keep money aside for essential imports or you send money to the embassies and high commissions. It was no easy choice. These were the precursor days to the eventual promulgation of the ill-famed Foreign Exchange Regulation Act, which of course came decades later.

Inflation is a worry for all finance ministers, including the present incumbent. In his last budget speech Arun jaitley had expressed concern about price stability in the context of global commodity price. Inflation is no longer only domestic; it is connected to the global economy, price of oil, US Federal Reserve stance and China’s demand for industrial raw materials.

As of now, Indian inflation is benign. We are hoping for accommodative monetary policy on the back of it to give a further push for growth. Today we can afford to be a little ambitious given our financial strength.

What a distance have we covered. A foreign exchange kitty of close $400 billion was unthinkable at the beginning of that journey. Despite increasingly open economy, current account deficit is minimal. We are receiving foreign direct investment of record amounts. And India is a cynosure of global investors with its stellar growth performance among major economies. Its stable political climate is an envy and germinates optimism.

Good cheers, this Independence Day as we never had it so good before, if we remember what Times Magazine wrote in 1949.

*******

*The author is a senior freelance journalist based in Delhi. He was with the Economic Times and the Telegraph previously.

GST: The Biggest Ever Tax Reform

Ajay Kumar Chaturvedi* i201763003.jpg

Much awaited Goods and Services Tax (GST) will finally be a reality tonight that would radically change the way manufacturer, service provider, trader and eventually the consumer, pay taxes to the exchequer, both at the state and Central level, through a single levy, subsuming a plethora of indirect taxes and making India unified market.

WHAT IS GST?

GST is a unified taxation system which would end multiple taxation across the states and create a level playing field for businesses throughout the country, much like the developed nations. It is a multi-stage destination-based tax which will be collected at every stage, starting from procuring the raw material to selling the final product.

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The credit of taxes paid at the previous stages will be available for set-off at the next stage of supply. Being destination or a consumption based, the GST will also end multiple taxes levied by Centre and the State Governments like Central Excise, Service Tax, VAT, Central Sales Tax, Octroi, Entry Tax, Luxury Tax and Entertainment Tax etc. This will lower the overall tax burden on the consumer and will benefit the industry through better cash flows and working capital management. Currently, 17 State and Central levies are being applied on goods as they move from one State to the other.

BENEFITS

Different estimates peg the net advantage to the Gross Domestic Product, up to two percentage points. The GST regime is also expected to result in better tax compliance, thereby increasing its revenue and narrowing the Budget deficit. All the imported goods will be charged Integrated Goods & Services Tax (IGST) which is equivalent to the Central GST + State GST. This will bring equality with taxation on local products.

Mainly, there will be three types of taxes under the GST regime: Central Goods and Services Tax (CGST), State (or Union Territory) Goods and Services Tax (SGST) and Integrated Goods and Services Tax (IGST). Tax levied by the Centre on intra-State supply of goods or services would be called the CGST and that to be levied by the States and Union Territories(UTs) would be called the SGST respectively. The IGST would be levied and collected by the Centre on inter-State supply of goods and services. Four supplementary legislations approving these taxes, namely the Central GST Bill, the Integrated GST Bill, The GST (Compensation to States) Bill, and the Union Territory GST Bill were passed by the Lok Sabha in May this year, making the realisation of 1st July, 2017 deadline a reality.

All the matters related to the GST are dealt upon by the GST Council headed by the Union Finance Minister while all the State Finance Ministers are its Members. The GST Council also has a provision to adjudicate disputes arising out of its recommendation or implementation thereof.

TAX RATES

The GST Council has fixed four broad tax slabs under the new GST system – 5 per cent, 12 per cent, 18 per cent and 28 per cent. On top of the highest slab, there is a cess on luxury and demerit goods to compensate the States for revenue loss in the first five years of GST implementation. Most of the goods and services have been listed under the four slabs, but a few like gold and rough diamonds have exclusive tax rates. Also, some items have been exempted from taxation. The essential items have been kept in the lowest tax bracket, whereas luxury goods and tobacco products will invite higher tax.

17-YEAR-LONG WAIT

Many countries in the world switched to a unified taxation system very early. France was the first country to do so in 1954 and many others followed, some by implementing GST and others by using a different form of Value Added Tax (VAT). In India, the discussion on GST started in the year 2000, in the NDA Government led by the former Prime Minister, Shri Atal Bihari Vajpayee. Finally, after 17 years of consensus building, 101stConstitution Amendment Bill was passed by Parliament in 2016. The States had apprehension of reduction in their revenue and their desire to keep some lucrative goods out of the GST baskets like alcohol, petroleum and real estate among others.

IMPACT ON CONSUMERS

From agarbattis (incense sticks) to luxury cars – all these goods will be taxed under different slabs. Movie tickets costing less than Rs 100 have been kept in the 18% GST slab while those over Rs 100 will attract 28% tax under GST. Tobacco products have been kept under a higher tax bracket. Industries such as textiles and, gems and jewellery are subject to a GST rate of 5%.

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The Government has shown its strong determination and stuck to implementing the GST with effect from 1stJuly, 2017. The road ahead would require a lot of resolve by the implementing agencies like the Goods and Services Network, states and the industry. To sail through initial hiccups and successfully steer the ship of the economy, the Government needs to show the same determination and courage. A bold initiative like GST taken for the welfare of the country must lead to a grand success.

* The Author is a retired Indian Information Service Officer who writes on developmental issues.

FAQs on Goods and Services Tax (GST)

Question 1. 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 set-off benefits at all the previous stages.

Question 2. What are the benefits of GST?
Answer: The benefits of GST can be summarized as under:For business and industry

  • 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.
    • Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services 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 inbuilt 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.

Question 3. 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 as 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 4. What are the major chronological events that have led to the introduction of GST?

Answer: GST is being introduced in the country after a 13 year long journey since it was first discussed in the report of the Kelkar Task Force on indirect taxes. A brief chronology outlining the major milestones on the proposal for introduction of GST in India is as
follows:

a. In 2003, the Kelkar Task Force on indirect tax had suggested a comprehensive Goods and Services Tax (GST) based on VAT principle.
b. A proposal to introduce a National level Goods and Services Tax (GST) by April 1, 2010 was first mooted in the Budget Speech for the financial year 2006-07.
c. Since the proposal involved reform/ restructuring of not only indirect taxes levied by the Centre but also the States, the responsibility of preparing a Design and Road Map for the implementation of GST was assigned to the Empowered Committee of State Finance Ministers (EC).
d. Based on inputs from Govt of India and States, the EC released its First Discussion Paper on Goods and Services Tax in India in November, 2009.
e. In order to take the GST related work further, a Joint Working Group consisting of officers from Central as well as State Government was constituted in September, 2009.
f. In order to amend the Constitution to enable introduction of GST, the Constitution (115th Amendment) Bill was introduced in the Lok Sabha in March 2011. As per the prescribed procedure, the Bill was referred to the Standing Committee on Finance of the
Parliament for examination and report.
g. Meanwhile, in pursuance of the decision taken in a meeting between the Union Finance Minister and the Empowered Committee of State Finance Ministers on 8th November, 2012, a ‘Committee on GST Design’, consisting of the officials of  the Government of India, State Governments and the Empowered Committee was constituted.
h. This Committee did a detailed discussion on GST design including the Constitution (115th) Amendment Bill and submitted its report in January 2013. Based on this Report, the EC recommended certain changes in the Constitution Amendment Bill in their meeting at Bhubaneswar in January 2013.
i. The Empowered Committee in the Bhubaneswar meeting also decided to constitute three committees of officers to discuss and report on various aspects of GST as follows:-
(a) Committee on Place of Supply Rules and Revenue Neutral Rates;
(b) Committee on dual control, threshold and exemptions;
(c) Committee on IGST and GST on imports.
j. The Parliamentary Standing Committee submitted its Report in August, 2013 to the Lok Sabha. The recommendations of the Empowered Committee and the recommendations of the Parliamentary Standing Committee were examined in the Ministry in consultation with the Legislative Department. Most of the recommendations made by the Empowered Committee and the Parliamentary Standing Committee were accepted and the
draft Amendment Bill was suitably revised.
k. The final draft Constitutional Amendment Bill incorporating the above stated changes were sent to the Empowered Committee for consideration in September 2013.
l. The EC once again made certain recommendations on the Bill after its meeting in Shillong in November 2013. Certain recommendations of the Empowered Committee were incorporated in the draft Constitution (115th Amendment) Bill. The revised draft was sent for consideration of the Empowered Committee in March 2014.
m. The 115th Constitutional (Amendment) Bill, 2011, for the introduction of GST introduced in the Lok Sabha in March 2011 lapsed with the dissolution of the 15th Lok Sabha.
n. In June 2014, the draft Constitution Amendment Bill was sent to the Empowered Committee after approval of the new Government.
o. Based on a broad consensus reached with the Empowered Committee on the contours of the Bill, the Cabinet on 17.12.2014 approved the proposal for introduction of a Bill in the Parliament for amending the Constitution of India to facilitate the introduction of Goods and Services Tax (GST) in the country. The Bill was introduced in the Lok Sabha on 19.12.2014, and was passed by the Lok Sabha on 06.05.2015. It was then referred to
the Select Committee of Rajya Sabha, which submitted its report on 22.07.2015.

Question 5. 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 6. 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.

A diagrammatic representation of the working of the Dual GST model within a State is shown in Figure 1 below.

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Question 7. Will cross utilisation 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 under the IGST model which is explained in answer to the next question.

Question 8. How will be Inter-State Transactions of Goods and Services be taxed under GST in terms of IGST method?
Answer: In case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supplies of goods and services under Article 269A (1) of the Constitution. The IGST would roughly be equal to CGST plus
SGST. The IGST mechanism has been designed to ensure seamless. flow of input tax credit from one State to another. The inter-State seller would pay IGST on the sale of his goods to the Central Government after adjusting credit of IGST, CGST and SGST on his
purchases (in that order). The exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The importing dealer will claim credit of IGST while discharging his output tax liability (both CGST and SGST) in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST. Since GST is a destination-based tax, all SGST on the final product will ordinarily accrue to the consuming State.

A diagrammatic representation of the working of the IGST model for inter-State transactions is shown in Figure 2 below

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Question 9. How will IT be used for the implementation of GST?

Answer: For the implementation of GST in the country, the Central and State Governments have jointly registered Goods and Services Tax Network (GSTN) as a not-for-profit, non-Government Company to provide shared IT infrastructure and services to
Central and State Governments, tax payers and other stakeholders. The key objectives of GSTN are to provide a standard and uniform interface to the taxpayers, and shared infrastructure and services to Central and State/UT governments.

GSTN is working on developing a state-of-the-art comprehensive IT infrastructure including the common GST portal providing frontend services of registration, returns and payments to all taxpayers, as well as the backend IT modules for certain
States that include processing of returns, registrations, audits, assessments, appeals, etc. All States, accounting authorities, RBI and banks, are also preparing their IT infrastructure for the administration of GST.

There would no manual filing of returns. All taxes can also be paid online. All mis-matched returns would be autogenerated, and there would be no need for manual interventions. Most returns would be self-assessed.

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Question 10. How will imports be taxed under GST?

Answer: The Additional Duty of Excise or CVD and the Special Additional Duty or SAD presently being levied on imports will be subsumed under GST. As per explanation to clause (1) of article 269A of the Constitution, IGST will be levied on all imports into the
territory of India. Unlike in the present regime, the States where imported goods are consumed will now gain their share from this IGST paid on imported goods.

Question 11. What are the major features of the Constitution (122nd Amendment) Bill, 2014?

Answer : The salient features of the Bill are as follows:
g. Conferring simultaneous power upon Parliament and the State Legislatures to make laws governing goods and services tax;
h. 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;
i. 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;
j. Dispensing with the concept of ‘declared goods of special importance’ under the Constitution;
k. Levy of Integrated Goods and Services Tax on inter-State transactions of goods and services;
l. 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;
m.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;
n. 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 under the Chairmanship of the Union Finance Minister and will have all the State Governments as Members.

Question 12. What are the major features of the proposed registration procedures under GST?

Answer: The major features of the proposed registration procedures under GST are as follows:
i. Existing dealers: Existing VAT/Central excise/Service Tax payers will not have to apply afresh for registration under GST.
ii. New dealers: Single application to be filed online for registration under GST.
iii. The registration number will be PAN based and will serve the purpose for Centre and State.
iv. Unified application to both tax authorities.
v. Each dealer to be given unique ID GSTIN.
vi. Deemed approval within three days.
vii. Post registration verification in risk based cases only.

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Question 13. What are the major features of the proposed returns filing procedures under GST?

Answer: The major features of the proposed returns filing
procedures under GST are as follows:
a. The common return would serve the purpose of both Centre and State Government.
b. There are eight forms provided for in the GST business processes for filing for returns. Most of the average tax payers would be using only four forms for filing their returns. These are return for supplies, return for purchases, monthly returns and annual return.
c. Small taxpayers: Small taxpayers who have opted composition scheme shall have to file the return on the quarterly basis.
d. Filing of returns shall be completely online. All taxes can also be paid on-line.

Question 14. What are the major features of the proposed payment procedures under GST?

Answer: The major features of the proposed payments procedures under GST are as follows:
i. Electronic payment process- no generation of paper at any stage
ii. Single point interface for challan generation- GSTN
iii. Ease of payment – payment can be made through online
banking, Credit Card/Debit Card, NEFT/RTGS and through
cheque/cash at the bank
iv. Common challan form with auto-population features
v. Use of single challan and single payment instrument
vi. Common set of authorized banks
vii. Common Accounting Codes.

 

 

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