Goods and Services Tax (GST) and demonetisation was one of the most daring and controversial steps taken by the Modi government within a span of 12 months in 2016-17.
GST was implemented on July 1, 2017, just eight months after the shock of demonetisation which was painfully slow in ebbing away. Initially, as expected, GST threw everyone in panic from the neighbourhood kiranawala to multinationals in their plush offices. There were numerous compliance requirements, tons of paperwork, upgrading of tax software, increase in tax rates and a very slow online portal to cope with.
But after hundreds of meetings, numerous reforms, revisions and changes, where do we stand after more than 2 years of GST implementation? Time to do a quick recap of things and get a heads-up on what to expect next in GST reforms.
But firstly, let’s understand what GST is and why it was created.
What is Goods and Services Tax?
Before the implementation of GST, there were several types of indirect taxes in India. To avoid the confusion and inefficiency in the taxation system due to a number of indirect taxes, the government decided to sign the Goods & Services Tax (GST) into law. GST is a single indirect tax regime for the entire country.
GST is an indirect tax system that levies taxes on a product or service at every point of sale in the supply chain until the finish products reaches the hands of the consumer. For instance, GST is levied during the following points of sale, such as:
- Sale of raw materials to manufacture
- Sale to wholesalers or warehouses
- Sale to retailer
- Sale to end consumer
Apart from grappling with the compliance requirements of GST, businesses today are facing a serious credit crunch due to lack of business loans. A series of high profile loan frauds, defaults and bankruptcies have put banks on the back foot and they are very reluctant in disbursing business loans.
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History of GST
What to expect with GST 2.0?
After the initial hiccups, things have significantly fallen back on track with regards to GST but there are several unfinished agendas and reforms needed to simplify compliance and rationalise tax rates.
Here is a brief snapshot on what are the likely rounds of reforms expected in GST in 2020 and beyond:
Reduction of tax rate on cement to negate the impact of higher property prices and low demand in the sector.
Bringing electricity under the purview of GST to bring down production costs in the manufacturing sector.
Petroleum products may come under the GST umbrella.
Lower GST on automobiles; from 28% to 18%.
Reforms in place of supply (POS) provisions that have forced businesses to take their businesses out of India.
Simplified single return filing in a month instead of twice a month.
Introduction of the electronic tax invoice system or e-invoicing.
37th GST Council Meeting – Highlights
On September 20, 2019, the GST council headed by Finance Minister, Nirmala Sitharaman, convened a meeting even as there was an outcry among businesses houses for tax rate cuts to counter the economic slowdown. The outcome of the meeting was a slew of rate cuts and even abolishing of GST for jewellery exports. Below are the highlights.
Highlights of recommendations:
A lower, 12% cess on 1,500cc diesel and 1,200cc petrol vehicles.
GST rate on caffeinated beverages raised from 18% to 28%
Specific defence goods not manufactured in India exempted from GST
Zero GST on jewellery exports
GST rate hiked on railway wagon, coaches from 5% to 12%
Reduced rates on hotel accommodation services
On a positive note, the new GST reforms and simplification of returns and more transparency in the system may be game changing for the nation’s economy in the long term. However, given the bad business sentiment in the country, it’s tough to persuade businesses to wait out this transition period, which has extended longer than expected.
To tackle the downturn, the government and RBI should pull out all the stops to make credit more readily available for micro, small and medium enterprises (MSMEs) since they are the backbone of the economy. If you are a small or medium sized business looking for hassle-free and fast business loans up to Rs. 30 lakh, consider taking a Bajaj Finserv Business Loan available on Finserv MARKETS. Finance your business with attractive business loan interest rates and flexible repayment tenures, ranging from 12-60 months. Also, get access to your Financial Fitness Report and protect your business loan liability with customized insurance plans. Read more about components of GST only at Finserv MARKETS
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