What’s cooking in economy? – GST
What is GST?
GST = GOODS AND SERVICES TAX
Currently, in India
indirect taxes are collected by way of VAT, Service tax, Securities Transaction
Tax, centrally levied excise duty etc. Once GST is implemented there will be
uniform rate of tax on all products and services bought in India, collected by
a sole authority. The rate is expected to be 15-16%, which is lower than
current net tax levied on an average product, but is expected to increase the
number of tax payers, thus increase government’s revenue and better control.
Why is it under focus
now?
GST has been opposed by
many leaders of states from across the nation including Mr. Modi, as it would
reduce the state revenue. Now that Mr. Modi is speaking of having all states
into confidence in decision making process, his development agenda that
requires huge funds flow and the frequent hints supplied during the election
campaigning including a point in BJP’s manifesto, the GST issue has come under
focus.
What will be the effect
on markets?
Markets would happily welcome
the GST implementation, due to below benefits it offers:
1. GST would be collected
at point of sale on manufacturing cost from the end consumer. This will reduce
the overall price a buyer pays, thus increasing national savings.
2. Lower prices will also
increase consumption/demand, which will increase top line (sales) for
manufacturers.
3. This will also bring down
the consumer level inflation.
4. This will increase the
government revenue (expected increase $ 15 Bn per year), as GST is structured
to cover a larger base.
Which
sectors will benefit the most?
Banking,
FMCG, Consumer Durables, PSU, Healthcare, Media and Entertainment Etc.
Trivia:
- India might be
implementing dual GST system – Central GST and State GST
- Once GST is implemented
the overall indirect tax of around 20% that a retail consumer is paying currently, would reduce to on an average 15%
- GST may not be applied
on few products like alcohol, tobacco, petroleum etc.
- In year 2000, it was
Mr. A B Vajpayee, the then Prime Minister who initiated the discussion on
implementing GST in India. Key persons in the process since then include, Mr.
Asim Dasgupta, P Chidambaram, Mr. Pranab Mukherjee and now Mr. Narendra Modi
and the new finance minister
- Key committee – Empowered
Committee of State Ministers,
- More than 140 countries
in the world have GST system
Latest
News:
Mr. Modi’s quotes on GST in
the last few days: “BJP from the very first day is in favour of GST. GST is
needed. We are in favour of GST. We need to prepare for it in advance. When
Pranab Mukherjee was Finance Minister I had a detailed discussion with him. The
success of GST depends not merely on what law we bring in Parliament but how
much we strengthen the information technology. Unless and until you bring the
IT network, GST is impossible. Till date the government of India has not been
able to do it. Centre needs to work in partnership with states. Centre should
not differentiate between small and large states. If a law results in loss of
state, it won’t work. States should be taken into confidence. It was their (UPA
government) responsibility, they did not do it, we will do it”. The BJP
manifesto too had talked about implementation of the GST by “bringing on board
all state governments in adopting the GST, addressing all their concerns.”
Keep an eye on this, could be one of the key
achievement of Modi Sarkar…..
Author is a
Faculty in Finance and a PFP Consultant
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