The Goods and Services Tax popularly known as GST, is proposed to be a uniform and comprehensive tax which will be applicable on manufacture, sale and consumption of goods at an all India level. The GST comes as a constitutional amendment and one of the biggest tax reforms, which is all set to provide integration to state economies and also give fillip to overall growth. The boldest tax reform in more than 60 years is likely to transform the country into one single, large market with a reduction in transaction costs for businesses.
The current scenario
India is a country of multiple taxes. These are taxes at the state level and at the national level. A company wanting to set up business in two or more states has to grapple with the taxation issues in the different states. While at the national level it is the central sales tax or CST and service tax, the Value Added Tax or VAT plays the spoil sport at the state level. But this is not the end. There are several other taxes like purchase tax, luxury tax and additional customs duty which add to the worry of businessmen.
When it comes to services, the service tax is levied by the central government. But, the product and goods are taxed by the state government through the levy of Value added tax. The confusion amplifies when one comes to know that the VAT at the state level is not uniform. The state governments have the jurisdiction on the Value added tax, giving them the leeway to charge according to the budget passed in the state.
Most of India is connected by roads, rail and air network. The peninsula shape augments well for supplies through the sea also. While there is improvement in the infrastructure and the distances are reducing, we cannot lag behind in the taxation front. The businessmen have to deploy tax experts today to ensure that they comply with the tax laws. It is a very practical approach when the business entity purchases the raw material from “A” state, manufactures the goods in “B” state and sells the produce along with services in “C” state. The businessman does this to cut on costs and make his business profitable. But with the three states getting involved, he has to ask his tax expert to study and analyse the operations in all the three states.
We still are under the influence of inspector raj in the country. With the three states involved in the above example, the industrialist has to set up his accounts team to deal with the multiple state taxation offices and also at the national level. This also means dealing with the tax inspectors from the multiple agencies. The example cited here would have definitely given you an idea about the plight of those in business.
This kind of anarchic taxation laws have also given rise to rampant corruption. The judicial system is also overburdened with the tax litigation cases. It is high time we implement the GST.