All aspects related to implementation and working of GST (A question was asked in Mains 2017 on it)
Problems associated with GST
The introduction of the Goods and Services Tax (GST) raised much hope that it would herald the emergence of a ‘good and simple tax’ with ‘one nation, one market, one tax’There has been considerable concern with the new tax, both in its structure and operational details, including the ease of paying the tax and filing returns. Trade and industry have been grappling with the problem of payment, filing the returns and claiming input tax credit, and exporters have been facing liquidity crises
History of GST
GST is a standard policy recommendation for every country going in for the structural adjustment programme of the International Monetary Fund The GST has taken centre-stage in many countries and is considered important in view of the competitive reduction in corporation tax rates due to high mobility of capital of over 165 countries which have adopted GST in one form or another, only five have repealed it (Belize, Ghana, Grenada, Malta and Vietnam), but have reintroduced the tax later
Desirable features of GST
It is important not to have too low thresholds Reasonably high thresholds will reduce the compliance burden to a large number of small businesses without much impact on revenue In developing countries, a threshold closer to $100,000 would eliminate 75% of the taxpayers with a revenue loss of less than 4%
2. GST should have fewer rates
Multiple rates create classification problems, are harder to administer and would require the general rate of tax to be higher. It would also invite a lot of lobbying by special interest groups
3. It is important to prepare well before the plunge
Most countries take at least two years to prepare for the introduction of reform to ensure a smooth transition. This is particularly necessary for developing and testing the technology platform, educating the tax collectors and taxpayers and to avoid any anomalies in the structure of the tax
Indian version of GST
Given that the reform had to be evolved by taking into account the views of 29 States, two Union Territories with legislatures and the Union government, compromises are inevitableIt is impossible to expect the structure of the tax to be idealSome bad initial features may be an essential compromise to get the tax accepted in the first place. Having four tax rates and three rates of cesses should have been avoidedIt enormously complicates the technology platform to ensure input tax credit mechanism
Way Forward
Problems of transition to a major tax reform are unavoidable and most countries go through this all traders, in one way or the other, are being brought into the formal sector which would hurt some of them. It appears desirable to move immediately towards three slabs with the final goal of reducing the slabs to two
and to fix the threshold at ₹50 lakh.
Problems associated with GST
The introduction of the Goods and Services Tax (GST) raised much hope that it would herald the emergence of a ‘good and simple tax’ with ‘one nation, one market, one tax’There has been considerable concern with the new tax, both in its structure and operational details, including the ease of paying the tax and filing returns. Trade and industry have been grappling with the problem of payment, filing the returns and claiming input tax credit, and exporters have been facing liquidity crises
History of GST
GST is a standard policy recommendation for every country going in for the structural adjustment programme of the International Monetary Fund The GST has taken centre-stage in many countries and is considered important in view of the competitive reduction in corporation tax rates due to high mobility of capital of over 165 countries which have adopted GST in one form or another, only five have repealed it (Belize, Ghana, Grenada, Malta and Vietnam), but have reintroduced the tax later
Desirable features of GST
It is important not to have too low thresholds Reasonably high thresholds will reduce the compliance burden to a large number of small businesses without much impact on revenue In developing countries, a threshold closer to $100,000 would eliminate 75% of the taxpayers with a revenue loss of less than 4%
2. GST should have fewer rates
Multiple rates create classification problems, are harder to administer and would require the general rate of tax to be higher. It would also invite a lot of lobbying by special interest groups
3. It is important to prepare well before the plunge
Most countries take at least two years to prepare for the introduction of reform to ensure a smooth transition. This is particularly necessary for developing and testing the technology platform, educating the tax collectors and taxpayers and to avoid any anomalies in the structure of the tax
Indian version of GST
Given that the reform had to be evolved by taking into account the views of 29 States, two Union Territories with legislatures and the Union government, compromises are inevitableIt is impossible to expect the structure of the tax to be idealSome bad initial features may be an essential compromise to get the tax accepted in the first place. Having four tax rates and three rates of cesses should have been avoidedIt enormously complicates the technology platform to ensure input tax credit mechanism
Way Forward
Problems of transition to a major tax reform are unavoidable and most countries go through this all traders, in one way or the other, are being brought into the formal sector which would hurt some of them. It appears desirable to move immediately towards three slabs with the final goal of reducing the slabs to two
and to fix the threshold at ₹50 lakh.
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