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Consumers of the manufactured goods can expect a decline on prices of many goods they

consume as well as increase in some of the products. The effect of cost savings due to taxation
changes and optimized supply chain will mostly be passed on to the end consumers and they’ll be
more aware of what taxes they are paying.
But again, much of this is speculative in nature because of the uncertainties involved and the fact that
the changes are yet to be implemented and the full extent of the impact on the three pillar stones of
the country’s economy viz Business, Government and Society can only be realized once GST has
been implemented and its effect studied.
On whole, GST is all set to roll out in coming July and the extent to which it serves it purpose
would largely depend on how well the system is adopted and implemented across the country. If
failed, it could lead the economy in a state of sluggish growth but if successful, the structural
change would help in many aspects of business, government tax revenue collection, the consumer
side and hopefully make Indian ecosystem more conducive for business and raise India’s ranking
on the list of ‘ease of doing business’ across the globe.

gim e_in_India

VAT/Sales Tax

Surcharges & Entertainment

Cesses Tax

Excise Duty

Purchase Tax
State Central Sales Tax

Surcharge &
duties of

Taxes Entry Tax
Taxes on
Excise Duty -
Service Tax
Luxury Tax

Duties of

Annexure -3

Discussion on Indian taxation system with Mr. Sibichen K Mathew (IRS), Income Tax

The following discussion is largely based on the talk and follow up discussion with Mr.
Sibichen K Mathew []. He is an Indian Revenue Service (IRS) cadre
and working in the Income Tax Department. He is of the belief that the country should abolish all
kinds of taxes one day, especially GST which is a regressive tax (i.e. everyone in the population
would come under its ambit).
Taxes in India: Case in Point

Taxes originated in the medieval ages with the advent of wars between tribes and nations. To
continue their massive war campaigns, every nation used this instrument. Even in India, the origin
of tax comes about from the colonial rule and the tradition has continued till date. Historically, it is
easy to see why taxes are looked down by the people of the nation as something which is unjust,
unfair, and biased.
There are multiple factors as to why we dislike taxes so much. During the British rule, it was a tool
of repression. It has been politically and sociologically moulded in the following years leading
to its present state.
While in the European nations, taxes have a certain degree of social reciprocity meaning the
taxpayer can see the benefit coming back to him. The situation in India is completely different with
the general notion on tax being a welfare scheme for the less able. Once you cough out the
money, just forget about it. The limited accountability of the government in terms of its expenditure
of taxpayer’s money further aggravates this problem.
Once you keep this existing notion in mind and look at tax regulations, it all boils down to
simple application of game theory. The penalties are so lax and the chances of getting caught
dramatically low, why should one pay taxes. Let’s just follow the norm and evade like a pro.
Income Tax Collection: Now and next
The effective tax base of India is pathetically low.
The government’s aim to increase tax revenues
and is looking at innovations in the taxing
process to achieve its aim. Tax payment, in the
language of the IT dept., can be treated as a
national good. Like any other good, it follows a
supply demand curve. Further introspection shows
that the tax revenue should follow the Laffer’s
The objective is to reach this peak, where tax rates
are lower than current but the tax base has widened.

IRS has limited resources and must be selective in

perusing cases of tax evasion. An implication of the
situation is the plethora of amnesty schemes announced
every other year.
Here in lies the challenge and a prospective solution in
the form of digital payments. The current regulations
which stops cash payments above 3 lakhs give a great
boost in this direction. This allows the IT Dept. to create
a 360-degree profile of every PAN card holder and use
non-intrusive and non-invasive methods to keep
defaulters at check. A special mention of the PMO office
to push these reforms through.
To illustrate the importance of this step, take the net yearly seizures by the IT dept., a miserly figure
of 3000. The limited manpower calls for innovative steps to solve this problem. Digitization not
only increases transparency, it also brings down the cost of tax collection. Gone are the days of
making rounds of IT office, now you can e-file your returns from the convenience of your home or
office. This has an added benefit of bringing down corruption by removing the middlemen from
the process.
The nation is ready for a leapfrog in the prevailing tax culture. To further strengthen this move, a
low rate of tax (say 5%) should also be applied to agricultural income and religious institutions.
This would promote transparency and plug the leaks in the tax net which occur via these activities, i.e.
the practice of fund transfers into these instruments to evade taxes.

Annexure -4

Discussion with Mr. Akshat Agarwal, director of an export oriented textile unit

Q. What are your first impressions regarding the impact GST will have on the manufacturing sector?

Ans: Based on the buzz that is going on regarding the GST bill, a quick overview shows
that implementation of GST should improve the performance as well as the
competitiveness of India’s manufacturing sector.

Q. Do you expect any changes in your supply chain?

Ans: For us there will not be much changes in our supply chain as we operate from a
single state. For other manufacturers who have their manufacturing and their warehouses
in different state based on the incentives they had sought while building these units,
supply chain changes may be necessitated. The GST being a destination based tax, in
order to handle stock transfers, ‘First Stage Dealer’ registrations will be required for out
of state transfers. This will result in a locking up of working capital as GST
would be required to be paid on this transfer, the refund for
which will be processed once the goods are transferred again to
the end customer. This locking up of working capital may force
some companies to have their stocking units closer to their
manufacturing setups and have smaller storing units in the
various states.
Q. Will there be a change in the tax structure for you?

Ans: Yes, there will be a change in the way the goods are taxed
for us. Currently, the excise duty is payable as soon as the goods
are billed and are cleared for movement from the factory gate.
Whereas, GST being a destination based tax, the tax will take
place based on the time of supply i.e. the earliest date of
issuance of bill, payment received, goods transferred in the
books of receiver and the date of removal of goods.
Q. One of the biggest positives about the bill?

Ans: Implementation of GST will resolve the double taxation

issue which takes place because of the different state and central
taxes and the non-transfer of credits between them. /this would
result in overall lower taxes on the final price of goods and
hence should result in lowering of prices for some items as the
final outcome will depend on which tax slab the goods may fall
Q. One of the biggest negatives?

Ans: The process of input credit for the initial taxpayer will
depend on the matching of records of returns as filed by the
vendor. Thus, it would become very important for the
manufacturer to train and equip dealers with appropriate systems
in order to ensure smooth flow of credits across the system and
prevent any capital getting blocked in the process.
Q. With regards to further capital investments, what is your view on that?
Ans: Up until now many states have attracted large investments
by offering various state tax credits even though the final
consumption of the goods is not within their state. With
unification of the taxes and taxing at the point of sale, such
provision for states will not be possible as the state tax which
they were passing on back to the manufacturer is now going to
be collected by the consumption state. In such a scenario, a state
providing a better infrastructural support will be favored for
future investments. This in a way levels the playing field for all
states as providing such incentives does not need much work
from the end of the government. Also, states which have already
made investments based on such incentives may need to rework
their return on investment and also make some sort of a deal
with the state government for some sort of drawbacks.

1. References

1 CBEC. Retrieved from


3 Retrieved from