Page 1 of 7
Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 11
October 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 386
A Study on GST in India
MALLELA JANGAIAH
Department Of Management, Jntu Hyderabad
INTRODUCTION
Goods and Service Tax or GST as
it is known is all set to be a game changer
for the Indian economy. The Finance
Minister in his budget speech of Budget
2015 has announced time and again that
the tax will be introduced on 1 April, 2016.
In India, the tradition of taxation has been
in force from ancient times. It finds its
references in many ancient books like
'Manu Smriti' and 'Arthasastra'.Tax is a fee
charged by a Government on a product,
income or activity. If tax is levied directly
on personal or corporate income, then it is
a direct tax. If tax is levied on the price of
a good or service, then it is called an
indirect tax. The purpose of taxation is to
finance public goods and services, such as
street lighting, street cleaning, road, dams,
utility services etc. Since public goods and
services do not allow a non-payer to be
excluded, or allow exclusion by a
consumer, there cannot be a market in the
goods or services, and so they need to be
provided by the Government or a quasi
Government agency, which tend to finance
themselves largely through taxes. The
word tax is derived from the Latin word
‘taxare’ which means ‘to estimate’. “A tax
is not a voluntary payment or donation, but
an enforced contribution, exactly pursuant
to legislative authority" and is any
contribution imposed by Government
whether under the name of toll, tribute,
impost, duty, custom, Excise, subsidy, aid,
supply, or other name.”1
"A
comprehensive VAT widens tax net, as it
makes tax evasion difficult. Going by the
experience of other countries, VAT has
proved beneficial and leads to revenue
buoyancy."2
Introduction of VAT by Indian
States has been hailed as one of the biggest
taxreforms in several decades. The
1 Black’s Law Dictionary
2 World Bank country Director Michael Carter
Empowered Committee (EC) of
State Finance Ministers was the Central
body which coordinated the design and
implementation of VAT. Currently, all
Indian States have implemented VAT and
the transition to VAT has been fairly
smooth. The main motive of VAT has been
the rationalization of overall tax burden
and reduction in general price level. Thus,
it seeks to help common people, traders,
industrialists as well as the Government. It
is indeed a move towards more efficiency,
equal competition and fairness in the
taxation system.
The White Paper on VAT
mentions that ‘VAT is a state subject
derived from Entry 54 of the State List, for
which States are sovereign in taking
decisions’. The Empowered Committee
(EC) of State Finance Ministers (created
by the Ministry of Finance, Government of
India) is the body which drafted the details
of VAT through several rounds of
consultations and also tried to get the
assent of all States for implementation.3 As
of January 1, 2008, VAT has been
implemented by all States and Union
Territories.
One of the important components
of tax reforms initiated since liberalization
is the introduction of VAT. VAT is a
multi-point destination based system of
taxation,
with tax being levied on value addition at
each stage of transaction in the production/
distribution chain. The term 'value
addition' implies the increase in value of
goods and
services at each stage of production or
transfer of goods and services. VAT is a
tax on
the final consumption of goods or services
3 A White Paper on State-Level VAT, by The
Empowered Committee of State Finance
Ministers, January 2005, pp 1
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Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 11
October 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 387
and is ultimately borne by the consumer. It
is a multi-stage tax with the provision to
allow 'Input tax credit (ITC)' on tax at an
earlier stage, which can be appropriated
against the VAT liability on subsequent
sale.
This input tax credit in relation to any
period means setting off the amount of
input
tax by a registered dealer against the
amount of his output tax. It is given for all
manufacturers and traders for purchase of
inputs/supplies meant for sale, irrespective
of when these will be utilized or sold. The
VAT liability of the dealer/ manufacturer
is
calculated by deducting input tax credit
from tax collected on sales during the
payment period. If the tax credit exceeds
the tax payable on sales in a month, the
excess credit will be carried over to the end
of next financial year. If there is any
excess unadjusted input tax credit at the
end of second year, then the same will be
eligible for refund. Taxation Departments
are carrying out the responsibility of
levying and collecting VAT in the
respective States. While the Central
Government is
playing the role of a facilitator for the
successful implementation of VAT, the
Ministry of Finance is the main agency for
levying and implementing VAT, both at
the Centre and the State level.
The Department of Revenue,
under the Ministry of Finance, exercises
control in respect of matters relating to all
the direct and indirect taxes, through two
statutory boards, namely, the Central
Board of Direct Taxes (CBDT) and the
Central Board of Customs and Central
Excise (CBEC). The Sales tax Division, of
the Department of Revenue, deals with
enactment and amendment of the Sales tax
Act; levy of tax on sales in the course of
inter-State trade or commerce; levy of
VAT; etc. The Central Board of Excise and
Customs (CBEC) deals with the tasks of
formulation of policy concerning levy and
collection of Customs and Central Excise
duties, allowing of Central Value added
Tax (CENVAT) credit, etc. The decision to
implement State level VAT was taken in
the meeting of the Empowered Committee
(EC) of State Finance Ministers, held on
June 18, 2004, where a broad consensus
was arrived at to introduce VAT in all
States/Union Territories (UTs). The power
to levy taxes and duties is distributed
among the three tiers of Government, in
accordance with the provisions of the
Indian Constitution. The main taxes/duties
that the Union Government is empowered
to levy are: - Income Tax (except tax on
agricultural income, which the State
Governments can levy), Customs duties,
Central Excise and Sales tax and Service
Tax. The principal taxes levied by the State
Governments are: - Sales tax (tax on intra- State sale of goods), Stamp Duty (duty on
transfer of property), State Excise (duty on
manufacture of alcohol), Land Revenue
(levy on land used for agricultural/non- agricultural purposes), Duty on
Entertainment and Tax on Professions and
Callings. The Local Bodies are empowered
to levy tax on properties (buildings, etc.),
Octroi (tax on entry of goods for
use/consumption within areas of the Local
Bodies), Tax on Markets and Tax/User
Charges for utilities like water supply,
drainage, etc.
The authority to levy a tax is
derived from the Constitution of India
which allocates the power to levy various
taxes between the Centre and the State. An
important restriction on this power is
Article 265 of the Constitution which
States that "No tax shall be levied or
collected except by the authority of law”.
Therefore each tax levied or collected has
to be backed by an accompanying law,
passed either by the Parliament or the State
Legislature.
VAT TO GST
The existing VAT is a major
improvement over the Sales tax regime
that existed at the state level before VAT
was introduced. Similarly, the existing
CENVAT (Central
VAT) regime at the national level was also
an improvement over the Central Excise
duty.In VAT system, set-off was allowed
for CENVAT, which was levied when
goods move form the Central tax to State
tax. Secondly, there were several other
Page 3 of 7
Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 03 Issue 11
October 2017
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 388
indirect taxes such as luxury tax,
entertainment tax, which were not
subsumed in VAT. Thirdly, services were
taxed separately, where it needs a separate
Act for its implementation. There is no set
off allowed for the tax paid on services.
Numerous other Central taxes such as
Central Excise duty, Customs duty were
not subsumed in VAT, and finally CST
was phased out.
VAT has been implemented in good spirit.
The Centre has started to compensate the
States for their revenue losses. It was really
tough for the Centre to implement VAT in
different States as most of the States were
purely dependent on the grants from the
Centre. Though there were opposition from
many State Governments, it was possible
for the Centre to implement VAT. VAT is
a step towards the implementation of GST.
GST is a comprehensive structure of both
goods and services. It is perceived by the
general public that VAT is necessary to
curb tax evasion and to contribute to the
National exchequer sizeable revenue. This
study analyzes the main reason for tax
evasion by the traders, and the general
public on VAT system. VAT compels the
traders to maintain books of accounts and
regular filing of returns. In this scenario, it
is necessary to know the extent of
difficulties undergone due to the
implementation of VAT. Puducherry being
a small State depends on the Centre for its
main source of revenue. It has to generate
more revenue out of its own resources. So,
it necessary to know how the revenue of
this State has increased or decreased due to
the implementation of VAT. This study
reviews the administrative difficulties of
the tax department undergoes in
administering VAT and its preparedness
and expectations under the proposed GST.
Also, study attempts to know the
expectations of the traders in the
forthcoming GST scenario. More than 150
countries in the world have been
experiencing the VAT/GST regime. India
is now moving towards GST to be rolled
out in April/Oct 2012. Hence, this study is
very relevant in India in the especially
Puducherry context of transition from
erstwhile tax regime to VAT and further
GST.
ORIGIN OF GOODS AND SERVICES
TAX
Goods and Services Tax also
known as the Value Added Tax (VAT) or
Harmonized Sales Tax (HST) was first
devised by a German economist during the
18th century. He envisioned a sales tax on
goods that did not affect the cost of
manufacture or distribution but was
collected on the final price charged to the
consumer. Thus it did not matter how
many transactions the goods went through,
the tax was always a fixed percentage of
the final price. The tax was finally adopted
by France in 1954. Maurice Lauré, Joint
Director of the French Tax Authority, the
Direction générale des impôts, was the
first to introduce VAT on April 10, 1954.
Initially directed at large businesses, it was
extended over time to include all business
sectors.
Personal end-consumers of
products and services cannot recover VAT
on purchases, but businesses can recover
VAT on the materials and services that
they buy to make further supplies or
services directly or indirectly sold to end- users. In this way, the total tax levied at
each stage in the economic chain of supply
is a constant fraction of the value added by
a business to its products, and most of the
cost of collecting the tax is borne by
business, rather than by the state. VAT was
invented because very high sales taxes and
tariffs encouraged cheating and smuggling.
Value added taxation avoids the cascade
effect of sales tax by only taxing the value
added at each stage of production. Value
added taxation has been gaining favor over
traditional sales taxes worldwide. In
principle, value added taxes apply to all
commercial activities involving the
production and distribution of goods and
the provision of services. VAT is assessed
and collected on the value added to goods
in each business transaction. Under this
concept the government is paid tax on the
gross margin of each transaction.
The Kelkar Task Force on
implementation of the Fiscal
Responsibility and Budget Management
