Tax Reformation in India

Tax
A feecharged("levied") by agovernmenton
aproduct,income, oractivity.
If tax is levieddirectlyonpersonalorcorporateincome,
then it is adirect tax.
If tax is levied on thepriceof a good or service, then it is
called anindirect tax.
The purpose oftaxationis tofinancegovernment
expenditure.
One of the most importantusesoftaxesis to
financepublic goods andservices, such as street lighting
and street cleaning.

Sales Tax
Under sales tax, tax is levied on every sale made.
For example if a dealer (say A) sold goods to another dealer
(say B) he collects local sales tax from such dealer which is
normally included in his sale price.If dealer B again sells
goods to another dealer (say C) he again collects tax on
sales made by him.The tax levied by dealer B shall be on
his sale price i.e (his purchase price + profit ). As his
purchase price already includes tax paid by him,sales tax
includes tax on tax already paid i.e it is repetetive in
nature.
Under VAT (value added tax) the tax is on sales made by
any dealer levied only on value added at each selling
point.so it is not repetetive in nature.

Value Added Tax(VAT)

Sales tax is retail only.
Value-Added tax is a tax at every
step of the inventory process
Taxed at every step from
manufacturer to distributor to
warehouser to retailer to customer.
VAT is uniform; whereas sales tax
differs from state to state.

Goods and Service Tax

(GST)
TheGoods and Service Tax (GST)is aValue Added
Tax(VAT) to be implemented inIndia,from April 2016.
GST is comprehensive tax mechanism where in all
major indirect taxes are clubbed into one, whether
they are levied on services(service tax) or
goods(excise and vat).
Government had promised that GST will reduce the
compliance burdens at present.
One of the aims of introducing GST is to reduce the
cascading effects of taxes which is the primary focus
of VAT but vat system is not comprehensive enough
to do so.

Dual GST
CGST,SGST

VAT Vs GST
VAT is value added tax (on products).
GST (Goods and Services Tax) is like
VAT but applies to Services also
(apart from products).
In India, we have VAT and Service
Tax. Whereas in many countries you
have only GST that applies to both
products and services.

History
In 2000, theVajpayee Governmentstarted discussion on
GST by setting up an empowered committee.
An announcement was made byPalaniappan Chidambaram,
the Union Finance Minister, during the central budget of
20072008 that it would be introduced from April 1, 2010.
After this announcement, the Empowered Committee of
State Finance Ministers decided to set up a Joint Working
Group on May 10, 2007, with the Adviser to the Union
Finance Minister and the Member-Secretary of Empowered
Committee as co-convenors and the concerned Joint
Secretaries of the Department of Revenue of Union Finance
Ministry and all Finance Secretaries of the states as its
members.

 The Joint Working Group, after intensive internal discussions

as well as interaction with experts and representatives of
Chambers of Commerce and Industry, submitted its report to
the Empowered Committee on November 19, 2007.
This report was then discussed in detail in the meeting of
Empowered Committee on November 28, 2007.
On the basis of this discussion and the written observations
of the states, certain modifications were made, and a final
version of the views of Empowered Committee at that stage
was prepared and was sent to the Government of India(April
30, 2008).
The comments of the Government of India were received on
December 12, 2008 and were duly considered by the
Empowered Committee (December 16, 2008).

Centre Includes Compensation in

GST Amendment Bill
The Centre has included in the Goods and Services
Tax (GST) Constitutional Amendment Bill the
compensation which will be paid to states for
revenue loss on account of rolling out the new
indirect tax regime.
The Bill was introduced in the Lok Sabha on
December 19.
While liquor has been completely kept out of the
GST, petroleum products like petrol and diesel will
be part of the new regime from a date to be decided
at a future date by the GST Council, which will have
two-third of its members from states.

India's GST structure is complex,

says IMF
Report says the proposed GST structure will
require the Centre to coordinate with 30 states,
which is an administrative challenge.
Even as the International Monetary Fund (IMF) says the
proposedgoods and services tax(GST) will improve tax
compliance and enhance economic growth by 1-1.5 per
cent over time, it finds the structure of the indirect tax
regime in India complex.
TheGSTdesign being contemplated is... fairly complex,
with a dual administration arrangement that involves
the tax authorities of both the Centre and states
separately taxing a single transaction, says the Fund in
a report on India.

Analysis on Budget 2015 - 2016

Excise Duty & Service Tax
1. Rise in Excise Duty & Service tax(ST
increased to 14% from 12.36%) was seen
making it getting sync with the GST rates
of 27%.
2. This is because the GST rate would not
be felt as a burden when it is adopted
3. Also, this would fund the CG as it
requires compensation payment to the
states

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