Taxes are being the major source
of revenue for the Indian government. India is the hub of taxes where people
pay many taxes and confused them as far as the payment is concerned. GST is a
blanket of indirect tax that will reduce several indirect state and federal
taxes such as value added tax and excise duty. The GST is an attempt to change
the whole scenario of current indirect tax. GST merges all indirect taxes under
an umbrella and helps in creation of smooth market that is expected to remove
the burden of existing indirect tax system and play an important role in growth
of the Indian economy.
The Goods and Services Tax was
launched at midnight on July 1,2017 by former president of India, Pranab
Mukherjee and Prime Minister of India, Shree Narendra Modi. Transactions made
within a single state are levied with central GST by the central government and
state GST by the state government.
idea of a Goods and Services Tax (GST) for India was first mooted sixteen years
back, during the Prime Ministership of Shri Atal Bihari Vajpayee. Thereafter,
on 28th February, 2006, Union Finance Minister in his Budget for 2006-07
proposed that GST would be introduced from 1st April, 2010. The Empowered
Committee of State Finance Ministers (EC), which had formulated the design of
State VAT was requested to come up with a roadmap and structure for the GST.
Joint Working Groups of officials having representatives of the States as well
as the Centre were set up to examine various aspects of the GST and draw up
reports specifically on exemptions and thresholds, taxation of services and
taxation of inter-State supplies. Based on discussions within and between it
and the Central Government, the EC released its First Discussion Paper (FDP) on
GST in November, 2009. The FDP spelled out the features of the proposed GST and
has formed the basis for the present GST laws and rules.
For interstate transactions and imported goods
or services, an Integrated GST is levied by the central government. The study
of GST helps us to learn objectives and features of GST and also helps us to
know the working of GST. GST implies the idea of one country – one tax. It
encourages the idea of consumption based tax instead of manufacturing based
tax. It also eliminates the cascading effect of indirect taxes on single
transaction. It reduces tax evasion and corruption. It will take some time for
the people to understand the concept of GST completely.
OVERVIEW OF GST
Fig. 1(classification of GST)
The goods that are
traded within a state is called Intra-State supply and the goods that are
traded between two states are called Inter-State Supply. Intra-State Supply
further consist of Central GST(CGST) and State GST(SGST). CGST is levied by the
Central Government and SGST and Integrated GST is levied by State Government
Ehtisham Ahmed and Satya Poddar (2009)3 studied, “Goods and
Service Tax Reforms and Intergovernmental Consideration in India” and found
that GST introduction will provide simplier and transparent tax system with
increase in output and productivity of economy in India. But the benefits of
GST are critically dependent on rational design of GST.
Dr. R. Vasanthagopal (2011)2 studied,”GST in India: A Big
Leap in the Indirect Taxation System” and concluded that switching to seamless
GST from current complicated indirect tax system in India will be a positive
step in booming Indian economy. Success of GST will lead to its acceptance by more
than 130 countries in world and a new preferred form of indirect tax system in
Agogo Mawuli (May
2014)1 studied, “Goods and Service Tax-An Appraisal” and found that GST is not
good for low-income countries and does not provide broad based growth to poor
countries. If still these countries want to implement GST then the rate of GST
should be less than 10% for growth.
Nitin Kumar (2014)6 studied, “Goods and Service Tax- A Way
Forward” and concluded that implementation of GST in India help in removing
economic distortion by current indirect tax system and expected to encourage
unbiased tax structure which is indifferent to geographical locations.
Pinki, Supriya Kamma
and Richa Verma (July 2014)7 studied, “Goods and Service Tax- Panacea For
Indirect Tax System in India” and concluded that the new NDA government in
India is positive towards implementation of GST and it is beneficial for
central government , state government and as well as for consumers in long run
if its implementation is backed by strong IT infrastructure.
Journey so far.
Prime Minister Atal Bihari Vajpayee sets up a committee which
was headed by the finance minister of West Bengal Asim Dasgupta to design a GST
model. The committee was also tasked with the responsibility of putting in
place the back-end technology and logistics for implementing a uniform taxation
regime in India.
In January 2017, Arun Jaitley announced July 1, 2017 as GST
In march 2017, Four Key GST Bills i.e. Central GST (CGST),
Integrated GST (IGST), State GST (SGST) and Union Territory GST (UTGST) was
passed by Lok Sabha and Rajya Sabha.
Ø Important Features of the GST
AMBIT OF GST
1) It is applied to all taxable goods and services except the exempted
goods and services and on transactions below the threshold limit.
2) Exempted goods and services
include alcohol for human consumption, electricity, custom duty, real
estate.Proposed article 366(12A)
3) Petroleum products crude oil, HSD(high speed diesel),motor spirit(
petrol), natural gas, ATF(aviation turbine fuel) are initially exempted from
GST till the GST Council announces date of their inclusion.
4) Tabaco products are included in GST along with central excise tax.
AND COLLECTION OF GST
1) The power of making law on taxation of goods and services lies with
both union and state legislative assemblies. A law made by union on GST will
not overrule a state GST law.(proposed article 246A)
2) GST has two components CGST
and SGST as discussed above. CGST will be collected by central government
whereas states governments will collect SGST.
3) IGST is levied on supplies in the course of interstate trade
incuding imports which is collected by central government exclusively and
distributed to imported states as GST is destination based tax. The proportion
of distribution between center and states is decided on recommendation of GST
Council (proposed article 269A).
1) It is set up by president under article 279-A. It is chaired by
union finance minister.
2) It will constitute union minister of state in charge of revenue and
minister in charge of finance or taxation or of any other field nominated by
state governments. The 2/3rd representatives in council are from states and
1/3rd from union.
3) The decision of council is made by 3/4th majority of the votes cast
and quorum of council is 50%.
4) It will make recommendations
a) Taxes, surcharge, cess of
central and states which will be integrated in GST.
b) Goods and services which may be exempted from GST
c) Interstate commerce – IGST-
proportion of distribution between state and center
d) Registration threshold limit
e) GST floor rates
f) Special rates during
g) Provision with respect to
special category states specially north east states
5) It may also work as Dispute
Settlement Authority for GST.
How does GST works.
Businesses have to register under GST if their annual
sales turnover has exceeded the prescribed limit. Only a registered person will
get the refund. GST is charged on the value or selling price of the products.
The amount of GST incurred on input (input tax) can be deducted from the amount
of GST charged (output tax) by the registered person.
If the amount of output tax is more than the input tax in the relevant taxable
period, the difference will not be refunded. However, if the input tax is more
than the output tax, the difference will be refunded by the Government.
for registration of business:
get register under GST the following step need to be followed:
Registering your Business:
The first step to register for a
GST identification number, the business need to check whether you are required
to register or whether you want to register voluntarily. Persons having
businesses with annual sales turnover exceeding RM500,000 are liable to be
registered under GST.
Types of registration under GST:
For deregistration of your business within 30 days from the
date of registration under the following circumstances when:
business has ceased; or
longer fulfill the requirements of registration.
Voluntary registration is for those whose annual income
is less than the prescribed limit. Voluntary registration is allowable but
remains in the system for at least 2 years.
Once registered, you are required to charge and collect GST and at the same
time are entitled to claim input tax credit and eligible to enjoy all
facilities provided under the law.
Group registration is a facility that allows several
companies to group and centralize their administration for the GST accounting
purpose. Each company must be registered individually before they can be
grouped as a single registered person.
Requirements for group registration:
are eligible for group registration if one company controls another company.
One company is taken to control another
company if the first mentioned company holds directly, indirectly through subsidiaries
or together directly or indirectly through subsidiaries more than 50% of the
issued share capital of the second mentioned company.
of the members has to be nominated by the group as the representative member of
taxable supply made by or to a member of the group shall be treated as a supply
by or to the representative member.
between group members would be disregarded as a supply.
member of the group is required to keep proper records as they are jointly and severally
A taxable person who is carrying on its business in
several divisions or branches upon request and subject to stipulated terms and
conditions can be registered in the names of those divisions/branches. This is
a facility for any taxable person with a number of self accounting units to
register each unit separately for GST.
Each division/branch will be given a separate GST identification number and
make its own returns. However, the taxable person remains accountable for all
GST liability of all divisions/branches.
Issuing Tax Invoices
GST is charged, tax invoices are issued which shows GST and price of the
commodity separately. The tax invoice has to be issued within 21 days after the
time of the supply.
An invoice that does not contain
all the particulars as required in the standard tax invoice and subject to the
approval of the Director General. Simplified tax invoice can be used by the GST
registrant to claim ITC provided the value of the invoice (inclusive GST) does
not exceed RM500.
Accounting for GST
all taxable persons will be required to account for GST based on accrual
(invoice) basis of accounting i.e. all output tax and input tax are to be
accounted and claimed based on the time when the invoice was issued or
However, certain categories of taxable persons may be allowed to use the
payment (cash) basis of accounting. This facility may be given to businesses
that carry out their activities solely on a cash payment basis.
All business and accounting records relating to GST transactions are to be kept
in Bahasa Melayu or English for a period of seven (7) years.
returns must be submitted to the GST office not later than the last day of the
following month after the end of the taxable period.
Taxable period is a regular interval period where a taxable person is liable to
account and pay to the government his GST liability. The standard taxable
period is on quarterly basis.
However, a registrant may apply to be placed in other taxable period (monthly
or 6 monthly) subject to specific conditions as follows:
Standard Taxable Period
Applicable to all taxable
turnover not exceeding RM5 million
Applicable to taxable persons
with annual taxable turnover exceeding RM5 million
applicable to other taxable
persons on request and subject to approval
Tax Credit Mechanism
have to charge and collect GST on all taxable goods and services supplied to
the consumers. Only businesses registered under GST can charge and collect
Businesses are allowed to claim whatever amount of GST paid on the business
inputs by offsetting against the output tax.
The excess amount of output tax
shall be remitted to the government within the stipulated period.
In the case where the amount of
input tax cannot be fully recovered, businesses can make a claim for refund
from the government.
Maximum time period to claim the
input tax is 6 years from the date of supply.
Input tax credit cannot be claimed
on blocked input such as GST paid on passenger motor car, club subscription
fee, medical and personal accident insurance premium, medical expenses, family
benefits, entertainment expenses except for employees and etc.
Apportionment rules have to be
applied when the taxable person makes a mixed supply.
Claiming GST Refund
refund of tax may be offset against other unpaid GST, customs and excise
duties. Refund will be made to the claimant within 14 working days if the claim
is submitted online or 28 working days if the claim is submitted manually.
7. Paying GST
your output tax exceeds the input tax, the difference shall be remitted to the
Government together with the GST returns not later than the last day of the
following month after the end of taxable period.
Online payments through:
Banks (to be appointed).
Payment via cheque /bank
draft/money order must be made payable to ‘Ketua Pengarah Kastam’ and mail to:
Ketua Pengarah Kastam Malaysia
Jabatan Kastam Diraja Malaysia
Kompleks Kastam Kelana Jaya
No.22 Jalan SS6/3
Kelana Jaya 47301
Petaling Jaya, Selangor Or
at any nearest GST office counter from 8.00 am – 5.00 pm.
Overall reduction in Prices for Consumers.
Reduction in Multiplicity of Taxes, Cascading and
Uniform Rate of Tax and Common National Market.
Broader Tax Base and decrease in “Black”
Free Flow of Goods and Services – No Check
Non-Intrusive Electronic Tax Compliance
Economist say that GST in India would impact negatively on the real estate market. It
would add up to 8 percent to the cost of new
homes and reduce demand by about 12 percent.
Experts says that CGST(Central GST), SGST(State GST) are nothing but new names for Central Excise/Service Tax, VAT and CST. Hence,
there is no major reduction in the number of tax
products currently have only four percent tax on them. After GST, garments and clothes could become more expensive.
industry would be affected. Service taxes on airfares currently range from six to nine percent. With GST, this rate will surpass fifteen
percent and effectively double the tax rate.
Ø Adoption and migration to the new GST system
would involve teething troubles and learning for
the entire ecosystem.6
Ø CHALLENGES OF GST
HIGH REVENUE NEUTRAL RATE (RNR)
RNR is the rate which neutralize revenue effect of state and central
government due to change in tax system, means ,the rate of GST which will give
at least the same level of revenue that is currently earned by state and
central governments from indirect taxes is known as RNR. As per 13 finance
commission the RNR should be 12% whereas state empowered committee demanding
26.68%. Union government is reckoning the rate band should be 15%-20% which is
very high as compare to other counties. Hungary implemented GST from 1/4/2014
with 7% rate. Due to high RNR
Competitive edge of India in Asian giants will
decrease and domestic industry may be
Tax evasion and smuggling will increase.
Regressive nature of indirect taxes will badly
affect the purchasing power of poor people which will have negative impact on
human development index. So, before implementing GST, RNR should be minimized.
This can be achieved by inclusion of petrol, liquor, land, electricity within
the ambit of GST which will enhance the tax base and increase revenue of
Ø Suggestions for Improvement of GST
With the implementation of GST, India took a step
towards uni?ed common national market. It aims
to bring in increased ef?ciency and
compliance and also boost government’s
‘ease of doing business’ initiative. However,
being a new, evolving law, there are certain
improvements required. Few areas that need
consideration are as given below:
1. Processes must be reduced so that business
can operate ef?ciently in the best
interest of the people and for economic
growth. Filing of 37 returns per GSTIN
could be a very time consuming exercise, wherein
everyone would not even have the bandwidth
to comply with.
2. Relief must be given to small scale operators and
particularly reduced processes should be
applicable to them. They do not have
?nance or resource to comply. Much of
lndia’s business is one or two man
show. The facility to file quarterly returns
should be extended to assessees with up
to 10 crore turnover.
3. Rates should be rationalized and reduced to make
lndia competitive and in interest of compliance
and economic growth. The highest rate
should be kept at
18% and there should be only few items that fall
in 28% slab. Daily use items such as
soaps, cremes, movie tickets, electrical
goods should not be taxed at
4. Valualion Rules lack clarity and are debatable. This
is likely to lead