The Finance Minister of India, Ms Nirmala Sitharaman announced on Friday September 20, 2019 a substantial Corporate Tax Rate cut to boost the economic development of India. Since Corporate Tax also called corporation tax or company tax, is a direct tax, the changes in its rates will not impact the GST rates as Goods & Services Tax remains an indirect tax. Important changes in Corporate Tax as announced by the Finance Minister of India include the reduction of corporate tax rate to 22% from 30% while for new manufacturing companies it has been cut down to 15% from 25%.
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GST is one of the hot topics and an MBA aspirant should be able to present the facts on the same along with his/her views coherently. Experts at MBAUniverse.com bring forth key facts on this hot GD topic to help an MBA aspirant to take his/her view point while speaking in the GD round of a top MBA college.
Key Updates on GST
Impact of fiscal and monetary policy changes on economy is more relevant to understand whether it would bring with it a wheel of growth or could prove against the economic and business interests of the country, an MBA student is supposed to know and must be able to speak about it in the GD round after gathering thought and analyzing the pros and cons of the same.
What is the GST
Goods and Services Tax (GST) is an indirect tax applicable throughout India which has replaced multiple cascading taxes levied by the Central and State governments. GST was introduced as The Constitution (One hundred and first Amendment) Act 2017 following the Constitution 122nd Amendment Bill. The GST is governed by a GST Council and its Chairman is the Finance Minister of India. The process of forming the legislation took 17 years. It was first proposed in the year 2000. The minimum tax rate under GST is 0% and highest tax rate is 28%.
Key Facts
Activities covered under GST
GST is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of goods and/or services. India has adopted a dual GST model implying that taxation is administered by both the Union and State Governments.
Transactions made within a single state will be levied with Central GST (CGST) by the Central Government and State GST (SGST) by the government of that state. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government.
GST is a consumption-based tax the impact of which will be at the destination. The taxes therefore, are paid to the state where the goods or services are consumed and not the state in which they were produced.
IGST complicates tax collection for State Governments by disabling them to collect the tax owed to them directly from the Central Government. Under the previous system, a state would have to only deal with a single government in order to collect tax revenue.
GST: Why Differential tax rates are applied?
The Goods and Services Tax Network (GSTN)
Government has created GSTN as a non-profit organization. As per the government website on GST, "Goods and Services Tax" Network (GSTN) is a nonprofit organisation proposed to be formed for creating a website / platform for all the concerned parties related to the GST, namely stakeholders, government and taxpayers to collaborate on a single portal. When up and running, the portal is supposed to be accessible to the central government which allows it to track down every transaction on its end while taxpayers are advertised to have the ability of connecting this to their tax returns. However its efficacy and efficiency is yet to be tested. The IT network was touted to be developed by unnamed private firms. The known authorised capital of GSTN is ₹10 crore (US$1.6 million) in which Central Government holds 24.5 percent of shares while the state government holds 24.5 percent and rest with private banking firms for smooth running of the transactions.
GST Launched WEF July 1, 2017
After a long nationwide debate on Goods and Service Tax (GST), the initiative was launched at midnight on June 30, 2017 in a ceremony held at Central hall of Parliament. Various provisions and benefits of GST were shared in their speeches by the Finance minister of India, Mr Arun Jaitley; the Prime Minister of India Mr Narendra Modi and the President of India Shri Pranab Mukherjee.
India’s biggest tax reform was launched at midnight of June 30 at Parliament's historic Central Hall, by President Pranab Mukherjee and Prime Minister Narendra Modi. GST therefore, became effective from July 1, 2017.
Current tax rates were replaced by GST rates with effect from July 1. It is the fourth time since Independence that an event was held at the Central Hall of Parliament at midnight. The last three celebrated India's Independence. Congress boycotted the GST launch along with several other opposition parties. GST replaced a slew of indirect taxes with a unified tax and was set to dramatically reshape the country's 2 trillion dollar economy.
The Cheaper and costlier after GST launch
Inflationary impact
The GST fuelled inflation in the short term. The GST rate started at 5% and went upto 28%. The 18% taxation on services such as restaurants; movies increased prices. Another problem with the GST is not including liquor and petroleum under GST’s ambit. These are major revenue sources for the government.
After the introduction of the GST, while costs of essential food items did not increase so much, other consumer goods and services in India including food, hotel charges, insurance and cinema tickets have become costlier. Upon its introduction in the country, GST led to a number of protests by the business community, primarily due to an increase in overall taxes and hence the prices of goods. Thousands of cinema theatres in the states where higher rate of GST was applied on movie tickets went on strike.
However, with the launch of GST, the check posts across the country were abolished ensuring free and fast movement of goods. The central government has assured states of compensation for any revenue loss incurred by them from the date of GST for a period of five years. However, no concrete laws have been framed to support such action.
Taxes replaced by GST
The following taxes have been replaced by the GST:
GST Calculation
Assume that the GST is set at 20%. Suppose that the manufacturing cost of a Product A is 100 and assuming a GST of 20% the total amount is Rs. 120. The next step of taxation would be when the Product is sold to consumers. Suppose the product is sold at a price of 150. The GST will charge another 20% on just the difference of Rs. 150 and Rs. 120 i.e. only 20% on Rs. 30 which is equal to Rs. 6. Accordingly, the final price is Rs. 150 + Rs. 6. GST will be applied at every step of value creation. The GST is estimated to provide an immediate boost of 0.9% – 1.4% of the GDP.
GST is in a form of comprehensive indirect tax on manufacturing, sales and consumption of goods and services within the country. It is based on the input tax method. The tax is levied and collected at each stage of sale or purchase of goods or services.
Benefits of GST
Adverse effects
Changes in GST
Barely three months after rolling out the Goods and Services Tax, Finance Minister Arun Jaitley, who heads the council, also announced businesses with a turnover of up to 1.5 crores would be allowed quarterly filing of GST Return.
Key points of change in GST regime
Small and Medium traders and exporters were hurt most by the application of GST. It was crucial to Prime Minister Narendra Modi’s plans to create millions of more jobs. Accordingly, the decisions were taken with a view to raise revenue and ease compliance. Following are the major changes in GST implementation taken to boost the growth rate of Indian economy and provide an environment for ‘Ease of doing Business’.
Reduced GST rates
GST rates for certain Goods and IGST rates on Imports of specified Goods were reduced shortly after the launch of GST:
A. GST RATE FOR FOLLOWING GOODS HAVE BEEN REDUCED
No.
|
Chapter/
Heading/
Sub-heading/
Tariff item
|
Description
|
Present GST Rate
|
GST Rate Recommended by the GST Council
|
---|---|---|---|---|
1.
|
0804
|
Mangoes sliced dried
|
12%
|
5%
|
2.
|
1905 or 2106
|
Khakra and plain chapati / roti
|
12%
|
5%
|
3.
|
19 or 21
|
Food preparations put up in unit containers and intended for free distribution to economically weaker sections of the society under a programme dulyapproved by the Central Government or any State Government, subject to specified conditions
|
18%
|
5 %
|
4.
|
21
|
Namkeens other than those put up in unit container and, -
(a) bearing a registered brand name; or
(b) bearing a brand name on which an actionable claim or enforceable right in a court of law is available [other than those where any actionable claim or enforceable right in respect of such brand name has been foregone voluntarily
|
12%
|
5%
|
5.
|
2710
|
Imposing GST only on the net quantity of superior kerosene oil [SKO] retained for the manufacture of Linear Alkyl Benzene [LAB]
|
18%
|
18%
[Clarification to be issued]
|
6.
|
30
|
Ayurvedic, Unani, Siddha, Homeopathy medicines, other than those bearing a brand name
|
12%
|
5%
|
7.
|
3213
|
Poster Colour
|
28%
|
18%
|
8.
|
3407
|
Modelling paste for children amusement
|
28%
|
18%
|
9.
|
3915
|
Plastic waste, parings or scrap
|
18%
|
5%
|
10.
|
4004 00 00
|
Rubber waste, parings or scrap
|
18%
|
5%
|
11.
|
4017 00 20
|
Hard Rubber waste or scrap
|
28%
|
5%
|
12.
|
4707
|
Paper waste or scrap
|
12%
|
5%
|
13.
|
4907
|
Duty credit scrips
|
5%
|
Nil
|
14.
|
5401
|
Sewing thread of manmade filaments, whether or not put up for retail sale
|
18%
|
12%
|
15.
|
5402, 5404, 5406
|
All synthetic filament yarn, such as nylon, polyester, acrylic, etc.
|
18%
|
12%
|
16.
|
5403, 5405, 5406
|
All artificial filament yarn, such as viscose rayon, Cuprammonium,
|
18%
|
12%
|
17.
|
5508
|
Sewing thread of manmade staple fibres
|
18%
|
12%
|
18.
|
5509, 5510, 5511
|
Yarn of manmade staple fibres
|
18%
|
12%
|
19.
|
5605
|
Real Zari
|
12%
|
5%
|
20.
|
6802
|
All goods falling under heading 6802 [other than those of marble and granite or those which attract 12% GST]
|
28%
|
18%
|
21.
|
7001
|
Cullet or other waste or scrap of Glass
|
18%
|
5%
|
22.
|
8305
|
Fittings for loose-leaf binders or files, letter clips, letter corners, paper clips, indexing tags and similar office articles, of base metal; staples in strips (for example, for offices, upholstery, packaging), of base metal
|
28%
|
18%
|
23.
|
8483
|
Plain Shaft Bearing 8483
|
28%
|
18%
|
24.
|
84
|
Parts suitable for use solely or principally with fixed Speed Diesel Engines of power not exceeding 15HP
|
28%
|
18%
|
25.
|
84 or 85
|
Parts suitable for use solely or principally with power driven pumps primarily designed for handling water, namely, centrifugal pumps (horizontal and vertical), deep tube-well turbine pumps, submersible pumps, axial flow and mixed flow vertical pumps
|
28%
|
18%
|
26.
|
84 or 85
|
E-Waste
|
28%/18%
|
5%
|
27.
|
Any Chapter
|
Biomass briquettes
|
18%
|
5%
|
B. IGST EXEMPTION ON IMPORTS OF GOODS:
S. No
|
Description
|
Present applicable IGST rate
|
Recommended IGST rate
|
1
|
IGST exemption on imports of rigs imported for oil / gas exploration and production projects under lease, subject to the following conditions that:
(i) Integrated tax leviable under section 5(1) of the IGST Act, 2017 on supply of service covered by item 1(b) or 5(f) of Schedule II of the Central Goods and Services Tax Act, 2017;
(ii) The rig is not sold without the prior permission of the Commissioner of Customs of the port of importation;
(iii) to re-export the goods within 3 months from the expiry of the period for which they were supplied under a transaction covered by item 1(b) or 5(f) of Schedule II of the Central Goods and Services Tax Act, 2017 out of India;
(iv) to pay on demand an amount equal to the integrated tax payable on the said goods but for the exemption under this notification in the event of violation of any of the above conditions and applicable interest.
|
5%
|
Nil
|
2
|
Exemption from IGST on imports of medicines supplied free by international agencies like UNICEF, WHO, Red Cross etc.
|
12%/5%
|
Nil
|
3
|
A. Exemption from IGST on imports of bona fide gifts upto CIF value limit of Rs. 5000 imported through post or air.
|
28%
|
Nil
|
GST is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of goods and/or services. India has adopted a dual GST model implying that taxation is administered by both the Union and State Governments.
After the changes in GST rates, it is expected that prices of essential items will stop increasing. The small and medium businesses which saw no growth, would be on the track again and will contribute to the economic growth of the country.
Before Budget 2018: GST rates reduced again
GST Rates for 29 Goods and 53 Services have been reduced. These rates will come into effect from 25th January 2018.
GST Rate Changes for Goods:
Nil Rated Goods:
Vibhuti
Parts and accessories for the manufacture of hearing aids.
De-oiled rice bran
Rates reduced from 28% to 18%
Old and used motor vehicles [medium and large cars and SUVs] with a condition that No ITC is availed
Public transport Buses that run on Biofuel
Rates reduced from 28% to 12%
For Old and used motor vehicles [other than medium and large cars and SUVs] with a condition that No ITC is availed
Rates reduced from 18% to 12%
Rate reduced from 18% to 5%
Rates reduced from 12% to 5%
Articles of straw, of esparto or of other plaiting materials
Velvet fabric [with a condition that no refund is claimed on ITC]
GST Rate Changes for Services:
GST newly applicable on following:
Rate reduced from 28% to 18%
Services by way of admission to theme parks, water parks, joy rides, merry-go-rounds, go-karting and ballet
Rate reduced from 18% to 12%
1. Transportation of petroleum crude and petroleum products with ITC Credit.
2. Metro and monorail projects (construction, erection, commissioning or installation of original works)
3. Works Contract Services by Sub-contractor to the Main contractor under the following scenario:
Where the main contractor provides WCS to Central Government, State Government, Union territory, a local authority, a Governmental Authority or a Government Entity at the rate of 12%
Note: Similarly, GST Rate for Sub-contract services to the main contractor shall attract 5% where the Main contractor is providing services to Central Government, State Government, Union territory, a local authority, a Governmental Authority or a Government Entity at the rate of 5%
4. Common Effluent Treatment Plants services for treatment of effluents
5. Mining or exploration services of petroleum crude and natural gas and for drilling services in respect of the said goods
Rate reduced from 18% to 5%
1- Tailoring Services
Transportation of petroleum crude and petroleum products without ITC Credit.
Job-work services for manufacture of leather goods(Chapter 42) and footwear (Chapter 64)
Following Services are exempted :
By government or local authority to governmental authority or government entity
Supply as a part of specified composite supply of construction of flats, etc
Admission to, or conduct of examination provided to all educational institutions including any service of conducting entrance examinations on collection of entrance fees
Reinsurance services in respect of following insurance schemes :
General insurance business provided under schemes such as Pradhan Mantri Suraksha Bima Yojna and others listed in Notification 12/2017-CGST Rate
Life insurance business provided under schemes such as Pradhan Mantri Jan Dhan Yojana and others listed in Notification 12/2017-CGST Rate
GST is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of goods and/or services. India has adopted a dual GST model implying that taxation is administered by both the Union and State Governments.
After the changes in GST rates, it is expected that prices of essential items will stop increasing. The small and medium businesses which saw no growth, would be on the track again and will contribute to the economic growth of the country.
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