Understanding GST – Summary

GST, also known as Goods and Services Tax, slated to be a landmark

reform is a comprehensive value added tax levied on goods and
services. In a GST regime, goods and services are not differentiated
as they move through the supply chain.
The goods and service tax (GST) is proposed to be a comprehensive
indirect uniform tax levy on manufacture, sale and consumption of
goods as well as services at a national level. Integration of goods
and services taxation would give India a world class tax system and
improve tax collections. It would end the long standing distortions
of differential treatments of manufacturing and service sector. The
introduction of goods and services tax will lead to the abolition of
taxes such as octroi, Central sales tax, State level sales tax, entry
tax, stamp duty, telecom licence fees, turnover tax, tax on
consumption or sale of electricity, taxes on transportation of goods
and services, and eliminate the cascading effects of multiple layers
of taxation. GST will facilitate seamless credit across the entire
supply chain and across all states under a common tax base.
There will be an enormous demand for high-quality, reasonable-cost
services in the logistics sector, if tax legislation changes. That will
give us huge opportunities to leverage our global skills in logistics.
It is suggested that all transactions of goods or services, made for a
‘consideration’ would attract Central GST as well as State GST (Dual
GST), except:
• exempted goods and services;
• goods and services which do not fall within the purview of GST;
• transactions which are below the prescribed threshold limit;
Currently, the Discussion Paper is not explicitly clear on precisely
how transactions where there is no specific consideration (such as,
branch transfers, inter-unit movements, free issues and captive
consumption) would be dealt with. However, it appears that taxes
may also possibly be applied to branch transfer of goods and
services. It has reached a stage of recommendation
wherein the 13th Finance commission has recommended tax on all
goods and services to be 5% at centre and 7% at state level and
that all exemptions are scrapped.
Clarity is also awaited on transactions which have historically been
‘deemed sales’ under VAT/ Sales, including transactions involving
both supply of goods and provision of services (such works contract
transactions) and lease transactions. Given that the GST rate for
goods and services may be different, it is imperative to determine
appropriate taxable value, separately for goods and for services and
the principles for treatment of such transactions. Another point to
be mentioned is that Exports would be exempted whereas Imports
would be subjected to GST. Overall, it is a step in the right direction
if properly implemented. Tax rates can be moderate only when tax
base is broad. However, broad basing the tax net and tax rate fall
would have a mixed impact since at one level, tax rates on most
items would come down which is good for the consumers while at
the other hand, essential items such as agricultural services would
become expensive.