GST is an integrated scheme of taxation that does not discriminate between goods and services. GST is levied only on the value-added at every stage of production. In this system every person is liable to pay tax on his output and is entitled to get input tax credit (ITC) on the tax paid on its inputs. Ultimately the final consumer shall bear the tax.
The main objective is to eliminate the double taxation i.e. cascading effects of taxes on production and distribution cost of goods and services. The exclusion of cascading effects till the level of final consumer will significantly improve the competitiveness of the original goods and services in the market. This will have a beneficial impact on the GDP growth of the country.
The main features of the GST is that Central & State taxes like Central Excise Duty, Additional Excise Duties, VAT, Sales Tax, Entertainment tax, Luxury Tax would be subsumed in GST. The implementation of the same is bound to bring more companies under the new tax regime, thus providing a level playing field to organized players forming part of sectors having a high proportion of the unorganized segment.
However, there are positive sides to GST by reduction of business cost, more competitive pricing, and increase in Gross Domestic Product, there is a negative side to it.
The working capital requirements for the company will go up. When GST comes, it will have to be paid as soon as there is a stock transfer. But the company will be able to claim credit on the tax paid only when it finally sells the goods, which could take months. The company's money will be blocked in this period. This would have negative implications on working capital requirements.
There has been no clarity with regards to the utilization of input tax credit which the company would have accumulated prior to the implementation of the GST. They have fears whether the same would be eligible for utilization or not. As per an article in the Business Standard, recently a company based in Israel delayed its capital investments of Rs 1 bn in India due to the confusion prevailing on the above aspect.
There has been a political logjam in Parliament around the Constitution Amendment Bill on GST. It has run in to trouble with some political parties voicing their opposition to it.
Under the dual-GST structure, there will be two GST rates - one by the Centre (central GST), and the other by the state (state GST). There could be a category of goods and services that enjoy tax exemption by the Centre, but are taxed by the states. The multiplicity of rates will add to the complexity of arriving at an impact on price.
While GST is of great importance to the economy of the country, the implementation of the same must be a high priority for the government, in order for it to be effective. The government will have to address all the above mentioned issues and ensure that the GST proves to be a boon and not bane for the country.