Why is there so much GST
In India, the Goods and Service Tax was successfully introduced as planned
With the introduction of the sales tax (Goods and Service Tax, GST), which integrates a large number of indirect taxes such as value added tax, service tax and individual product and service-oriented taxes, tax collection, administration and a very much easier expected positive impact on the Indian economy. It is the largest tax reform since the introduction of the first market economy elements in 1991
Experts and companies believe that any tax system is better than the old one. It consisted of a patchwork of taxes, special taxes, fees and special surcharges for a specific purpose, which had to be paid individually to the federal government, the states and also to municipalities. Tax administrations no longer implemented their mechanisms in accordance with the rules and accounting departments barely understood the details. A huge personnel and administrative effort and immense costs were associated with the submission of the respective indirect taxes. With the GST, disputes and many duplications are eliminated. This reduces the administrative effort and simplifies compliance.
The old tax system was very diverse
It is expected that tax collection and administration will be significantly easier, and that it will have a very positive impact on the Indian economy. Experts and companies believe that any tax system is better than the old one. It consisted of a patchwork of taxes, special taxes, fees and special surcharges for a specific purpose, which had to be paid individually to the federal government, the states and also to municipalities. Tax administrations no longer implemented their mechanisms in accordance with the rules and accounting departments barely understood the details. A huge personnel and administrative effort and immense costs were associated with the submission of the respective indirect taxes. With the GST, disputes and many duplications are eliminated. This reduces the administrative effort and simplifies compliance.
The old system had further economic disadvantages. Because the 29 federal states and seven union territories levied different taxes and a sales tax was incurred when crossing the border, taxes and equalization levies had to be paid at the state borders. The movement of goods was not free. Trucks jammed at the border checkpoints and lost a lot of time.
Because input taxes could only be partially and very difficultly offset in the old system, every sale and every border crossing made production more expensive. Companies implement their value chains and their logistics according to tax-optimized models rather than economic ones.
GST uniform across the country despite decentralized collection
Due to the federal structure of India, the GST is further divided into taxes of the central government (Central GST / CGST), the federal states (State GST / SGST) and an overarching tax (Integrated GST / IGST). However, the tax rates are uniform and do not affect the total amount. The tax is target-dependent and thus the place of delivery of goods or the recipient of the service is decisive. For example, if a service is provided within a state, the CGST and SGST are each to be applied at 50%. In the case of a service between two states, the IGST is relevant (see http://www.roedl.de/themen/steuer-lösungen-gst-reform#steuern). When importing goods, as before, customs must also be paid.
Entitlement to deduct input tax
The GST entitles the holder to deduct input tax and therefore it is necessary to receive a correct invoice. In addition, the declared input tax must actually have been paid by the supplier. Taxes are only paid online and the data is compared online. Data from companies that are already registered for tax purposes are automatically transferred to the new system; if this has not yet been done, the taxpayer must register in a database to record the tax payment (https://www.gst.gov.in). Companies with an annual turnover of less than two million iR (approx. 28,500 euros) do not require registration.
Different tax rates on groups of goods, services
There are several tax rates. A GST council set the rates and assignments so that they are roughly at the level of the previous combined tax rates for the respective product groups and services. The tax rate for luxury goods and services is 28%. Various surcharges on this rate apply to luxury cars (15% extra), tobacco products, carbonated beverages and other specialty products. Machines and services are at the second highest standard rate of 18%. Certain mining industries only pay 12%. Everyday goods are taxed at 5%, gold imports at 3%. And goods for the basic supply (e.g. simple groceries) are exempt from the tax (0%). The relevant regulations are available at http://www.cbec.gov.in/htdocs-cbec/gst/index.
Two-month transition period
There are now major delimitation problems in the transition phase. Many companies, especially those that only manufacture domestically and have not provided their goods with an international HS code, do not know exactly which tax group to assign their goods to. Various professional associations have also eagerly committed themselves to the end in order to achieve a classification that is favorable for their members. Lobbyists will continue to campaign for shifts to lower-priced tax groups. In addition, the groupings show many curious phenomena. A restaurant with air conditioning must add 18% GST to the bill; one without air conditioning only pays 12%.
Since there has been uncertainty about the exact time of the entry into force until recently, the companies are faced with short deadlines for implementation. The Indian government has granted a transitional phase of two months during which, at least in the case of negligent violations, no coercive measures are taken.
For German companies that do not have a permanent establishment in India, the introduction of the GST will not make any changes. The GST is not to be shown on invoices for exports to India. The IGST is to be used for the import. The GST levied on services is to be calculated by the Indian customer on the basis of the net invoice and paid by him directly to the tax authorities (reverse-charge procedure). Further information is available on the website of the Central Board of Excise & Customs at http://www.cbec.gov.in/resources//htdocs-cbec/gst/imports-of-GST-onlineversion-07june2017.pdf;jsessionid=62CE625A94DD4DB787C597E4F98E36BA available.
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