Get Smart Fast | Six things you have to know about GST

GST

 

Goods and Services Tax (GST)

Before delving into what GST is, let’s understand how taxes are collected in India. Taxes can be broadly classified under three buckets – income, production and consumption. The central government has the complete right (almost) to tax income and production in the form of income tax and excise duty. When it comes to consumption, both the central and state governments levy taxes in the form of service tax and Value added Tax (VAT). Income taxes are directly collected from people who earn salaries or companies that report profits. The others are paid by producers (Maruti Suzuki) or service providers (restaurants) but are collected from buyers. These are called indirect taxes.

 

What would the GST do?

It would merge almost all the indirect taxes into one tax that will be applicable all over India at a single rate. A car produced by Maruti would attract a single tax rate irrespective of where it is purchased.

 

Why do we need this Constitution Amendment Bill?

With GST, both the centre and the states will have powers to tax both production and consumption. States, at present, don’t have the powers to levy taxes on production, except on alcohol. Changing this means amending the constitution. And, amending the constitution requires two-third majority in both the Lok Sabha and the Rajya Sabha. Plus, half the states have to ratify the bill.

 

What happens next? Will GST be implemented from next month?

  • The Constitution Amendment Bill is like an enabling Act to roll out GST. The next steps include:
    50% of states have to approve the bill.
  • Once approved, both the centre and states will come out with laws that will administer GST.
  • The final decision on what the GST rate will be is yet to be taken. It could be 15% or 18%.
  • The technology and administrative platforms are being developed to handle paperwork but it remains to be seen when these could be rolled out.

Nevertheless, the Constitution Amendment Bill was the biggest task and it sorted out major issues. Now that there is a consensus, the rest would fall in place.

 

How will it benefit me?

It depends on the GST rate, which is yet to be agreed upon.

In 2010, Maruti’s Ritz attracted an indirect tax of 24%. This includes 12.5% VAT, 9% excise duty, 1-2% entry tax, 2% CST (Central Sales Tax), and registration charges.

Let’s say if the GST rate is 16%, then there will be a Rs 30,000 reduction in taxes. Of course, it depends on whether Maruti decides to pass on the benefit of this tax reduction.

If the GST rate is fixed at 18%, then all services will become costlier – from eating out to telephone bills – as the current service tax is at 15% including cess.

 

How will companies benefit from GST?

  • Optimal location of warehouses – at present, companies have warehouses in each of the states they operate. If they don’t do so, the dealer (who buys goods from the producer) has to pay CST of 2%. Now, CST would be absorbed into GST. Therefore, companies can locate warehouses to optimally distribute their goods.
  • Lower price could lead to higher demand – A reduction in price because of lower taxes will stimulate demand, and this in turn could lead to higher investments.

 

Are there any negatives?

Yes. Services account for more than half of the Indian economy. If the GST rate is higher than the 15% being levied now, then inflation will go up.

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News in Numbers, June 1, 2016: UP’s entry tax, impact of no discounts on online shopping…

7.9%

What is it? India’s economic growth rate in the January-March quarter of 2015-16.

Why is it important? With this, India retains the tag of the fastest growing major economy in the world for the second consecutive year. The growth has mainly been driven by a rebound in agriculture, improved government spending and private consumption, though companies are reluctant to make investments – putting the burden of boosting growth on the government.

Tell me more: India’s economy grew 7.6% in 2015-16 compared to 7.2% in the previous year. It also became a $2 trillion economy based on Tuesday’s exchange rate ($1 = Rs 67.26).

 

5%

What is it? The entry tax imposed by the Uttar Pradesh government on goods purchased from e-commerce sites.

Why is it important? This decision is said to be done to protect offline retailers’ profits due to the new-age e-commerce firms. Industry lobby Nasscom has opposed similar moves by states (such as Assam, Uttarakhand, Bihar and Rajasthan) on the basis that it puts additional burden on customers and SME traders, besides increasing technology upgradation costs of e-commerce firms to accommodate these new levies, which would anyway become redundant once the Goods and Service Tax is implemented.

Tell me more: Flipkart, through its logistics arm eKart, has filed a writ petition in the High Court of Uttarakhand opposing the state’s move of imposing 10% entry tax on goods bought through e-commerce sites whereas the standard entry tax rate is 5%.

 

175 million

What is it? The estimated number of online shoppers in India by 2020, according to a report by Google and consulting firm A.T. Kearney.

Why is it important? This would account for a quarter of the total organised retail sales in four years, up by 10% from the current level. The growth, estimated at over 40% each year, will happen even if e-commerce firms decided to do away with discounts.

Tell me more: A third of the estimated 175 million shoppers are likely to drive two-thirds of online purchases.

 

15 lakh

What is it? The approximate number of students in Industrial Training Institutes (ITIs) who will be considered Class XII pass, as per a government announcement.

Why is it important? This makes formal and vocational streams of education equivalent, providing the opportunity to the ITI students to pursue higher education and get better jobs. The ITI graduates will get Class XII (if a student has passed Class X before joining the ITI) and Class X (if a student has passed Class VIII before joining the ITI) certificates from the national board of open schooling by giving an exam.

Tell me more: There were 13,105 ITIs as of May 2016, which is to be increased to 18,000 by September this year.

 

0.5%

What is it? Krishi Kalyan cess to be imposed on all taxable services with effect from today, taking the effective rate of service tax to 15%.

Why is it important? The cess, which is to be used for agriculture and for improving the wellbeing of farmers, is likely to help the government garner Rs 5,000 crore in the remaining 10 months of 2016-17. This would make some services including air and rail travel, mobile bills, eating out in restaurants, health check-ups, movie tickets, insurance policies, private tuition and coaching centres and some banking services more expensive – an extra spend of Rs 5 for every Rs 1,000 spent.

Tell me more: The cess, which is to be levied on the value of the service and not on the component of service tax (similar to Swachh Bharat cess) will apply to bills generated before June 1 but paid from today.

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News in numbers, Apr 20, 2016: Maggi noodles’ comeback, cash still preferred payment mode…

51%

What is it? The market share Maggi noodles has in the Rs 2,000-crore noodles market, according to Nestle India quoting Nielsen.

Why is it important? The popular snack, which was relaunched in November after a five-month ban, is yet to gain the commanding position it had before the ban – an 80.2% market share in the January-March quarter of 2015. The ban came after the food regulator found excess lead in its sample packets, which caused its net profit to shrink by over half to Rs 532 crore in the calendar year of 2015.

Tell me more: With two variants in the market, Nestle India would soon relaunch two more: atta and oats noodles. Before the ban, the market of instant noodles was estimated to be Rs 3,800 crore.

 

10%

What is it? The percentage of stake Housing Development Finance Corp. (HDFC) has agreed to sell in its insurance unit, HDFC Standard Life, to the public.

Why is it important? This will make the company the first life insurer in India to go for an initial public offering (IPO) and could set a precedent for other insurers.

Tell me more: The divestment plan is likely to roll out in the second half of 2015. HDFC Standard Life, a joint venture between HDFC and UK-based financial services provider Standard Life, recently saw the latter increasing its stake in the company by 9% to 35% for Rs 1,705 crore. This valued the company at Rs 18,951.4 crore.

 

6.7

What is it? The number of card transactions per person per year in India.

Why is it important? This is among the lowest in the world, reflecting the fact that cash is still the most preferred mode of payment in the country. The number compares poorly with other major economies: Australia (249.3), Canada (247.9), Korea (260.8), United Kingdom (201.7), Brazil (54.8) and China (14.4).

Tell me more: Another data point that highlights this is: usage of debit cards at ATMs account for 88% of volume and around 94% of the total value of debit card transactions while the corresponding figures for point of sale terminals are 12% and 6% respectively.

 

33 crore

What is it? The number of people affected by drought in 10 states in India, according to the Indian government.

Why is it important? The country is staring at one of the worst water crises in the recent past, with over a quarter of India’s population facing water shortage and agricultural distress. The government said it would launch large-scale water conservation and storage measures under MGNREGA, the rural employment scheme. The weather department’s forecast of an above normal rainfall this year is likely to bring some respite.

Tell me more: Uttar Pradesh is the worst-affected state accounting for nearly a third of the drought-affected people. The Indian government has disbursed Rs 19,551 crore this month under the rural employment guarantee scheme, which is half of the government’s annual budgetary allocation.

 

7,500

What is it? The number of small cases relating to service tax and customs – involving amounts less than Rs 15 lakh – that are being withdrawn by tax authorities from tribunals and High Courts.

Why is it important? This is likely to reduce the burden of pending cases on tribunals and courts. This move is also aimed at making the tax regime non-adversarial and to focus on cases based on merit alone and not on meeting collection targets.

Tell me more: Last December, the Finance Ministry had increased the threshold limit for filing appeals before the Customs Excise & Service Tax Appellate Tribunal and High Courts to Rs 10 lakh and Rs 15 lakh respectively.

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News in Numbers – June 10, 2015

 

4,470

In another round of de-registrations, the Indian government has cancelled the licence of 4,470 non-governmental organisations (NGOs). The list includes the names of prominent entities such as the Supreme Court Bar Association, Escorts Heart Institute, Panjab University (Chandigarh) and Gujarat National Law University. The Ministry of Home Affairs has cancelled the registration of these entities due to non-filing of annual returns and other irregularities. The new round of cancellation began on May 6 and 971 organisations (the highest number of such entities) were de-registered on June 9. Here is the link to a data story we did on NGOs receiving notices from the government and the foreign funding tangle.

1 lakh

Over 1,00,000 people have been affected by floods in Assam, a north-eastern state in India, this year. The flood has claimed the lives of two people since Monday. Heavy rains in the last three days have increased the water levels of Brahmaputra river and its tributaries, submerging many areas in the state. The districts of Tinsukia, Dhemaji, Lakhimpur, Sonitpur, Darrang, Baksa, Nalbari, Barpeta, Bongaigaon, Goalpara, Kamrup (Metro) and Jorhat, have been affected by the floods. Take a look at some of the major disasters in India and the number deaths and victims.

5.6%

Only those restaurants with air-conditioning (AC) facilities will charge service tax and the others cannot, the Ministry of Finance clarified on Tuesday. And, the AC restaurants will charge only on the 40% of the total bill amount. This clarification comes in when there is confusion over the levy of service tax and complaints of higher charges, after the increase in service tax to 14% (from 12.26%) came into effect from June 1. The effective service tax rate for eating out in an AC restaurant will be 5.6% of the total food bill when compared to the earlier rate of 4.94%.

For instance, if A’s bill at an AC restaurant is Rs 1,000 (including the service charge), then the effective service tax levied would be 5.6% of the total bill amount (5.6% of Rs 1,000), which is Rs 56. Before June 1, A would have paid Rs 49.4 as service tax, the increase being Rs 6.6 on a total food bill of Rs 1,000.

 

$1.6 billion

India’s equity mutual funds (MFs) have received net inflows of around $1.6 billion in May, marking the 13th consecutive month of positive net inflows into the equity MFs. This adds up to $14.9 billion or Rs 91,800 crore. A Deutsche Bank report released on Tuesday said this is almost equal to net cumulative inflows since January 2002 to April 2014 (over the last 12 years), on a nominal basis.

 

36

The Indian Army’s Special Operations Forces killed about 36 militants and destroyed two terror camps “in a hot pursuit” along the India-Myanmar border on Tuesday. The army men were targeting militants who were responsible for an ambush on an army convoy and killing 18 soldiers in Manipur last week.

 

Re 1

In a different way of getting people use the public toilet facilities instead of defecating in the open, the Ahmedabad Municipal Corporation has announced a scheme titled ‘Use and Get Paid’. The conventional way is the user would have to pay to use the public toilet facilities but the local body of one of the largest cities in Gujarat has turned it around. Not all the users will be paid (Re 1) but those who defecate in the open would be sensitised and rewarded for using the public toilets. The municipal corporation has identified 1,200 such people and the list would be revised on a regular basis.About 40% of people defecate in the open in Gujarat and the percentage of people defecating in the open in Ahmedabad is much lower at 13%, as per the 2011 Census data.

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