GST—A BOON OR A CURSE


Introduction of the Value Added Tax (VAT) at the Central and the State level has been considered to be a major step - an important breakthrough - in the sphere of indirect tax reforms in India. If the VAT is a major improvement over the pre-existing Central excise duty at the national level and the sales tax system at the State level, then the Goods and Services Tax (GST) will indeed be a further significant improvement - the next logical step - towards a comprehensive indirect tax reforms in the country.

The choice of a single or a multiple VAT rates is highly controversial. There is a belief that the public will accept a VAT type GST more easily if products consumed by low-income households are taxed at lower rates than products consumed by those that are better off.

If the Value Added Tax (VAT) is considered to be a major improvement over the pre-existing Central excise duty at the national level and the sales tax system at the State level, then the Goods and Services Tax (GST) will be a further significant breakthrough - the next logical step - towards a comprehensive indirect tax reform in the country.

"GST is proposed to benefit large industrial houses and MNCs. It is anti-farmer, anti-poor and anti-democratic and is aimed at divesting the states of their financial freedom," Raghavji told reporters on the sidelines of an industry meet.

The proposed new indirect tax, which will subsume all the major levies like excise, sales tax, VAT and other local levies like octroi, is anti-democratic as the proposed GST Council will not be accountable to Parliament as well as to the state assemblies and through it the power of the states to levy tax on sale and purchase will be taken away, he said.

It is important to take note of the significant administrative issues involved in designing an effective GST model in a federal system with the objective of having an overall harmonious structure of rates. Together with this, there is a need for upholding the powers of Central and State Governments in their taxation matters. Further, there is also the need to propose a model that would be easily implementable, while being generally acceptable to stakeholders.

Common GST disadvantages

The GST has now been operating for almost nine years, yet despite a massive education campaign by the Australian Taxation Office (ATO) there are still many errors and omissions made by small businesses on their BAS returns. Most of these errors relate to the over-claiming of GST credits.

There are a number of serious disadvantages of this system which were not addressed adequatel

* Not using the correct accounting method.

* Incorrectly claiming GST credits on bank fees

* Incorrectly claiming GST credits on government charges --such as land tax, council rates, water rates.

* Incorrectly claiming a GST credit on the 'total cost' of a business insurance policy.

Because there’s a stamp duty component in the premium which is not subject to GST, a GST credit cannot be

claimed on this portion of the payment.

* Not remitting GST on some government grants and incentives which are received inclusive of GST

* GST is not paid on the sale of cars and equipment including the trade of motor vehicles.

* Incorrectly claiming GST credits on wages and superannuation payments.

* Incorrectly claiming GST credits on GST-free purchases

such as basic food items, exports and some health services.

* Incorrectly claiming the full amount of GST credits on entertainment expenses

where the business has elected for fringe benefits tax purposes to use the 50/50 split method, in which case only

50% of the input tax credits can be claimed.

* Claiming the entire GST credits on a car purchased for more than the luxury car limit.

* Sole traders and partnerships are not apportioning input tax credits and making adjustments to

expenditure that’s partly private and partly business use .

* Incorrectly claiming an upfront GST credit on assets financed through a commercial hire purchase (CHP).

While an up-front GST credit is available for businesses accounting for GST using the accruals or invoice basis,

*. Incorrectly claiming GST credits on payments for Yellow Pages advertising. If the business chooses to pay

for the cost of advertising by instalments,

*. Claiming a GST credit when the business does not have a valid tax invoice at the time of lodging the BAS.

Importance of GST




GST will bring more transparency into the system and enhance competitiveness as well as efficiency of the manufacturing sector and its overall governance. Implementation of GST would create a level playing field for domestic manufacturers and help them to compete better with their global counterparts. GST would aid manufacturers in accessing seamless credit across the entire supply chain.


A well-designed GST is the most graceful method to get rid of distortions of the existing process of multiple taxation. Therefore, all taxes on goods and services levied by Central and state governments should be included under GST. Some of the current taxes that will be abolished with the implementation of GST are Stamp Duty, Octroi Tax, Central Sales Tax etc.

In an Interview with Rajeev Dimri Head Indirect taxes at BMR and associates told that "The government could make some preparatory changes." The GST was implemented on April 1st 2010 but, now it is excepted that it will implemented on April, 2011.

Another interview with Anil Khandelwal Chief Financial Officer, Cox and Kings ( India )ltd has told CNBC-TV 18 that "I think the most important thing is rationalization of service tax. Most important is we are moving towards the GST very soon, I think that will a positive factor because right now there are lot of industry anomalies which are there in the service tax sector, which needs to be corrected, I think GST, going forward, is going to correct those anomalies".

On 26th Feb,2010 Finance Minister in Budget speech has announced a roadmap for GST. In his words, "The process of building a simple tax system is near completion." We aim to implement GST by April 1,2011.

To summarise the above, the GST will be implemented on April 2011 and is welcomed by all the classes.

Jayati Goel

(Technical Analyst)

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