GST or Uniform Vat...that is the Question

Most of the partners from across the country prefer a GST implementation

Parliament has been debating GST in the  past week that seeks to transform the country into a common market, but experts said compromises made to enlist the support of states risked diluting the impact of the biggest tax reform in decades.”

VAT which is followed in various parts of the country on varied rates has raised the question whether it really creates ambiguity in the process or discrimination in market? Somehow, yes. Parliament has been debating GST in the  past week that seeks to transform the country into a common market, but experts said compromises made to enlist the support of states risked diluting the impact of the biggest tax reform in decades.”

How?

A value-added tax (VAT) is a fee assessed against businesses at each step of the production and distribution process, usually whenever a product is resold or value is added to it. A VAT is levied on the difference between the purchase cost of an asset and the price at which it can be sold (i.e., the amount of value added to it). Producers and distributors typically pass the cost of the VAT on to the final consumer in the form of increase in price. Tax is added to a product’s price each time it changes hands until delivery to the customer takes place, when the final tax is paid.

“VAT on products in Delhi NCR is 5% to 12.5% which creates the difference in cost price of products from state to state. The proposed GST would harmonize a mosaic of state and central levies into a national sales tax which business and policy makers hope would boost manufacturing and reduce corruption” said Swarn Singh, secretary of ADCTA, Delhi.

Finance minister Arun Jaitley in one of his speeches told MP’s , “GST is going to lead to a win-win situation as far as the centre and states are concerned; it’s going to up India’s GDP and it is going to up India’s revenues too.”

VAT assessment process is somewhere a lengthy structure which falls under the general category of a consumption tax, meaning taxes on what people buy rather than on their earnings, savings, or investments. “VAT has also been referred to as a sort of national sales tax, though it functions very differently. Sales tax is imposed on the total retail price of the item sold, while VAT tax is imposed on the value added at each stage of production and distribution. Though more complicated than sales tax, value-added tax systems have more checks against tax fraud because the tax is assessed at more than one point in the distribution process, ” added Swarn Singh.

In theory, value-added tax systems with a uniform rate are neutral to all forms of productive input. However, states across the India have had to modify the VAT system with multiple rates and exemptions to meet political, economic, and social needs. But according to channel partners VAT should be uniform as it will resolve the price variation issue on same product between different states. An ideal tax system collects taxes at various stages of production, supply and retail. It is based on the value that the producers, suppliers and retailers individually add to the product. However, the current tax regime is unfairly skewed against most producers.

So many levels of taxes not only disturbs the business records but it also puts the burden on end customers too. Chain of taxes creates trouble in maintaining records which also consumes time, energy and money. “One time tax should be in lined not only nationally but internationally to create uniformity on cost price of products. GST will be welcomed open heartily by everyone whether its a consumer, trader, retailer or any business person. The tax procedure should be simple to do in tax monitoring not only on businessmen but also on governmentm,” stated Dushyant Mehta of Mediaman (Maharashtra). Payment for tax at one stage will create unified price for consumers also.

Recently 0% VAT was removed from Jammu which was implemented for the benefit of citizens of the state but it was affecting the market in other ways. Like people from neighboring states started purchasing products without from Jammu which led to unethical pricing of the same product in markets of  Punjab, Himachal Pradesh, etc. Partners who were doing business with proper billing system observed huge drop down as Punjab has 6% VAT on IT products which was ignored by the people who were involved in unethical commercial transactions.

Gurpreet Singh of Netline (Punjab) said, “As government has imposed tax in Jammu from 1 April 2015 it has pushed businesses on track in neighboring states and reduced unethical practices. Discrimination in VAT creates an imbalance in selling of the same product of a particular brand. ” Working together at uniform VAT, channel partners would be able to enjoy a more balanced as well as ethical business.

GST still in waiting list...

GST framework is one of the important discussions on tax reform which has attracted the interest of partners and their believe that it would make the tax procedures more fair, transparent and efficient

What is the reason behind the need for GST when we are already following VAT system? Will it be able to simplify the tax framework on IT products? Questions and questions along with market challenges.

As per Shiv Shankar Singh of Stek System (Uttar Pradesh) expressed, “There is a tendency, as has been observed, that states may resort to undercutting of rates to attract more investors. This generally leads to a loss of revenue to both the state and centre and based on the same there is a need for GST to be introduced. Also, it would be easier to supply goods and services uniformly across the country, as no additional taxes would have to be paid across different states.”

Consumers lose the benefit to avail goods at cheaper price. As VAT is distributed across the chain, the market retail price is likely to raise, to maintain the current tax revenue levels. The government has justified this by saying that it would provide tax cuts across  the brackets.

Implementation of GST, would lead to higher output, more employment opportunities and economic inclusion. Initially however, it is likely to cause high inflation rates, administrative costs and face stiff oppositions from states due to loss of autonomy.

Rajkumar Dugar of RajHans Electronics (Banglore) in a happy mode said that whether its VAT or GST requirement is uniformity and execution of tax in a proper way. If we get it right it will improve business models as well as online model.

GST will be replacing all indirect taxes and unifying them into single unified tax, which has a dual structure -- centre and state-level.

According to Pawan Jajodia from Kolkata, “With cascading taxes gone, over a period of time the lower tax burden, it would translate into lower prices for goods, which is of course is dependent on what the GST rate would be. But this reduction in prices would lead to the increase in revenue trickling down to the distributors as the dealers pass on the benefits of the reduced tax.”

There is still a wait for GST to be implemented, as it is still in discussion, which will be able to cut steps which VAT added. On the other hand, uniformity in VAT is based on national level approach as discripency is not a matter of single state.