REFORMS IN DIRECT AND INDIRECT TAXES: IMPACT ON COMMON PEOPLE BY DR. SANJAY KUMAR ASST. PROFESSOR OF LAW THE WBNUJS

INDIAN POLITY FEDERAL- STATE AND UNION CONSTITUTION OF INDIA, 1950 Subject to the constitution, STATE AND UNION HAVE EXCLUSIVE POWER OF TAXATION- ART. 246 r/w SCHEDULE VII, CONSTITUTION UNION HAS more FINANCIAL POWERS UNION AND STATES BOTH HAVE POWER TO LEVY DIRECT AND INDIRECT TAXES.

TAXES Direct taxes – taxes paid from own pockets e.g. Income tax Indirect taxes – taxes paid from others pocket e.g. Excise duty, customs duty, service tax, sale tax, entry tax, etc.

Reform in indirect taxes Introduction of VAT Introduction of GST ( YET TO BE EFFECTIVE) GST is a destination based consumption tax. GST is a tax on supply of goods and services.

GST MODELS DUAL – UNION AND STATE SINGLE – ONE LAW FOR ALL INDIA OPTED FOR DUAL GST BECAUSE OF ITS FEDERAL SETUP There shall be – Union GST State GST GST (Inter- State transaction)

TAXES TO BE SUBSUMED IN GST UNION TAXES ALL INDIRECT TAXES EXCEPT CUSTOMS DUTY E.G. CENTRAL EXCISE DUTY, ADDITIONAL EXCISE DUTY, SERVICE TAX, CENTRAL SALES TAX, all cess and surcharges. STATE TAXES- All indirect taxes except local taxes levied by local bodies, e.g. sale tax/ VAT, purchase tax, entry tax, luxury tax, entertainment tax, luxury tax, tax on lottery, betting and gambling, turnover tax, all cess and surcharge.

GST RATES On 3rd November,2016 GST COUNCIL has decided a four tier GST rate structure i.e. 5%,12%,18% and 28%. Final GST Slab rates are : Zero rated items : Foodgrains used by common people. ( BIG Relief…hmmm…) 5% Rate : Items of mass consumption including essential commodities will have low tax incidence. 12% and 18 % Rate :  Two standard rates have been finalised as 12% and 18%. 28% Rate : White goods like Air conditioners,washing machines,refrigerators,soaps and shampoos etc.that were taxed at 30-31% shall be now taxed at 28%. Demerit goods like tobacco,tobacco products,pan masala,aerated drinks and luxury cars shall be charged at the highest rate of 28%.An additional cess on some luxury goods shall also be imposed.

Positive impact Uniform classification- HSN (HOMONIZED SYTEM OF NOMENCLEATURE) FOR GOODS AND ACCOUNTING CODES FOR SERVICES COMMON BASE India as one market A unified tax system removing a bundle of indirect taxes like VAT,CST, entry tax, luxury tax,Service tax,Excise etc. Less tax compliance and a simplified tax policy as compared to earlier tax structure. Removes cascading effect of taxes i.e. removes tax on tax. Zero rating possible Utmost transparancy

Cont…. Due to lower burden of taxes on the manufacturing sector,the manufacturing costs will be reduced,hence prices of consumer goods likely to come down. Due to reduced costs some products like cars, FMCG etc.will become cheaper. This will help in lowering the burden on the common man. The low prices will further lead to an increase in the demand/consumption of goods. Increased demand will lead to increase supply. Hence, this will ultimately lead to rise in the production of goods.

Cont… The increased production will lead to more employment generation in the long run. It will curb circulation of black money as the “kacha bill” system may not be possible. A unified tax regime will lead to less corruption which will indirectly affect the common man. Most importantly, GST will help to boost the Indian economy in the long run.

Negative impact Regreive in nature i.e. poor pays more and rich pays less Widening the gap between rich and poor Service tax rate @ 15% is presently charged on the services. So,if GST is introduced at a higher rate which is likely to be seen in the near future,the cost of services will rise. In simple words,all the services like fooding, lodging, touring, telecom,banking,transportation, airline etc. will become more expensive. An increase in inflation in short term.

Con.. Being a new tax, it will take some time for the people to understand it completely. Its actual implications can be seen only when laws is enacted and the rate of tax is determined. It is easier said than done.There are always some complications attached. It is a consumption based tax, so in case of services the place where service is provided needs to be determined. Cost of compliance may go up.

Although,a large number of officers are being trained and a systematic IT software is being developed for the successful implementation of GST. But,it will take some time for the people including the manufacturers,the wholesalers,the retailers or the final consumers to understand the whole process and apply it correctly.   However, GST is a long term strategy planned by the Government and its positive impact shall be seen in the long run only.

The rate of GST and how effectively GST is introduced in all the States and at the Centre also plays a crucial role in deciding the actual impact of GST on the common man. A well designed GST Policy can bring a qualitative change in the tax system of India, like, it will be better to have only one rate for goods and services. GST with one uniform rate is completely neutral with respect to all forms of productive inputs. However, political, economic, and social considerations demand modified systems with multiple rates and exemptions. It will be better to bring the petroleum products also in GST net.

Thanks !!!!!