Roll Up Your Sleeves for GST

By Bhogavalli Mallikarjuna Gupta

India has a complicated taxation system. This is made even more complex thanks to its federal system with each state having its own taxation rules and regulations. This makes it difficult for business houses and organizations, and very often, the complex tax structures end up having a negative impact on consumers as they end up paying more for goods and services.
The proposed Goods and Services Tax or GST has been in the pipeline for quite some time. Finance Minister Arun Jaitley hopes to pass the bill by April 2016. The author takes us on a journey from the history of taxation in India, to its current practices and the future…if GST is implemented. You can learn about the intricacies, pros and cons of GST in this easy-to-read, pithy book.

• Language: English
• Publisher: Notion Press
• Release date: Jul 27, 2015
• ISBN: 9789352061952

Book preview

ROLL UP YOUR SLEEVES FOR GST

The Impending Tax Reform in India

Bhogavalli Mallikarjuna Gupta

Notion Press

Old No. 38, New No. 6

McNichols Road, Chetpet

Chennai - 600 031

First Published by Notion Press 2015

Copyright © Bhogavalli Mallikarjuna Gupta 2015

All Rights Reserved.

ISBN: 978-93-52061-95-2

This book has been published in good faith that the work of the author is original. All efforts have been taken to make the material error-free. However, the author and the publisher disclaim the responsibility.

No part of this book may be used, reproduced in any manner whatsoever without written permission from the author, except in the case of brief quotations embodied in critical articles and reviews.

Preface

Business, trading, commerce, economy - these are the key elements that indicate progress of an individual, society or nation. However, the flipside of the story is neither the businessman nor the common man is well versed with a most crucial element called TAX, which has always remained confusing. Though they say that we have progressed from pigeons to emails, I believe that where taxation is concerned, almost every Indian is a layman. This is definitely not sarcasm on my side but a worry point, ringing bells all the time in my mind. I felt a responsibility to take up the job to light a candle and spread the glow for a better understanding of the future.

I have tried my best to simplify a few elements like what is a TAX, why we are TAXED, how we are TAXED and how the TAXED amount helps the economy. I have also tried to explain the simplified history of taxation from the ancient ages, pre- medieval period, medieval period, British regime, current taxation and proposed reforms.

Allowing an insight into all the developments towards taxations, I’ve emphasized on the proposed one, called GST. The seeds for GST were sown by former finance minister, Shri Chidambaram way back in 2006. A discussion paper was released in 2009 and the UPA II brought the in a constitutional amendment bill in 2011. However, it did not fructify, may be for political reasons or lack of will. The government changed in 2014 and the Finance Minister Shi Arun Jaitely determined to implement GST at the earliest and reiterated it in the 2015 Budget.

GST, being a major tax reform proposed in India, faces LACK OF AWARENESS and IGNORANCE. Though there is plenty of information available in the secondary media, the common man is not able to access the same and understand what exactly GST is. This book is a comprehensive but simplified study for not only the common man but experienced businessmen as well. I hope you like my illustrations, elaborations and explanations.

Acknowledgement

My heartfelt acknowledgements to my wife Sunita and daughter Harshita; without their support I’m sure I could have not done this at all. I would also like to thank my mother Hemalatha, father B.S.P.Lingam, my brother Rajesh and his family, my sister Visala and family and my first cousins for supporting me even though I barely spoke to anyone while I was in the process of writing this book.

Me? Writing a book? I never thought I would do so until the idea erupted in my mind over a casual discussion on taxation with my friends while driving down from Bangalore. I would also like to thank my friends and colleagues Rama K Reddy, Balaji Kumar Chennupalli, Nitin Goel, Jatin Kuberker, Varaprasad Reddy, Rajiv Ghatage, Kiran Addala, Hari Vissamsetti, Wenceslaus Yesunesun, Viswanadha Satyanarayana, Mahesh Hatti, Anantharaman Sankarasubramanian, Anand Pavan Mandala, Raviteja Madamanchi, Aparna Donekal, Otmar Zewald, Harold Vrieling, Renu Ganotra, Ranga Pothula and my trekking friends Pragati, Pranati, Lalitha, Srividya, Aparajita, Nandhakumar, Santosh Dadi, Santosh and Sachin who had faith in me and supported me while I wrote..

Contents

Title

Copyright

Preface

Acknowledgement

1. HISTORY OF TAXATION IN INDIA

2. TAXATION IN INDIA:POST-INDEPENDENCE

3. GOODS AND SERVICE TAX

4. SILENT FEATURES OF PROPOSED INDIAN GOODS AND SERVICE TAX

5. WHY IGST?

6 IMPACT ON BUSINESS HOUSES

7. THE ROAD AHEAD

8. THE CONSTITUTION (ONE HUNDRED AND TWENTY-SECOND AMENDMENT) BILL, 2014

9. THE CONSTITUTION (ONE HUNDRED AND FIFTEENTH AMENDMENT) BILL, 2011

10. FIRST DISCUSSION PAPER ON GOODS AND SERVICES TAX IN INDIA

11. A WHITE PAPER ON STATE-LEVEL VALUE ADDED TAX

12. LIST OF GST IMPLEMENTED COUNTRIES

1

History of Taxation in India

Taxation in India is an old subject and Indians are used to paying taxes. In olden days, taxes were collected for maintenance of the army and the taxes collected were direct taxes in nature. They are calculated on the total income earned but not on the sale/purchase of goods. These taxes were paid either in money or in other forms like farm produce, cattle or labour.

1.1 Taxation during the pre-medieval period

There is lot of discussion on the subject of taxation, treasury, reason for collection of taxes along with the method of taxation and rate of taxation in the ancient scriptures/history of India. The first reference to Indirect Taxes in India is found in Kautaliya’s ‘Arthashastra’. It is surprising to find that the date of manufacturing was mentioned on the goods, so that the buyers were aware when they were buying them. Taxes were levied on manufacturing and he believed that lower tax rates would not prompt tax evasion. The book also talks about the ‘Kosha Moolodanda’ which is today’s term for treasury. To quote from the ‘Arthashastra’, Ideally, government should collect taxes like honeybee, which sucks just the right amount of honey from the flower so that both can survive.

*Another important observation is that, Kautaliya preferred goods to be manufactured locally rather than being imported.

Manu, the ancient sage and law-giver, laid down that traders and artisans should pay one-fifth of their profits in silver and gold, while agriculturists, depending upon their circumstances, were to pay one-sixth, one-eighth or one-tenth of their produce. Kalidasa in the ‘Raghuvansha’ says thus of King Dileepa: It was only for the good of his subjects that he collected taxes from them, just as the Sun draws moisture from the Earth to give it back a thousand fold. From these words it is clear that service tax is not something introduced recently, but it is has been there for ages. Even agriculture income was taxed in olden days but now-a- days the income from agriculture is totally exempt.

The learned author, K. B. Sarkar comments in his book ‘Public Finance in Ancient India’, about the taxation system in ancient India: Most of the taxes of Ancient India were highly productive. The admixture of direct taxes with indirect taxes secured elasticity in the tax system, although more emphasis was laid on direct tax. The tax structure was a broad-based one and covered most people within its fold. The taxes were varied and the large variety of taxes reflected the life of a composite population.

1.2 Taxation during the medieval period

In the previous section we looked at taxation during the pre-medieval period. During the medieval period, which is also known as the Delhi Sultanate period, from 1300-1526 AD, the taxation system underwent more changes and became streamlined. The number of taxes increased due to the huge armies raised by the rulers, for the upkeep of their palaces, etc.

The taxes were collected by the mansabdar, who were supposed to supply soldiers for the Mughal emperors initially. A separate department was created by the Mughal ruler, Ala-ud-din Khalji for collection of taxes. Tax exemptions were not an unknown concept during this period; for instance, the Muslims were exempted from certain taxes. There were five types of major taxes during this period and they were:

i.Ushr:

It was a tax on land which was collected from Muslim peasants. It is taxed10 per cent of the produce on the land watered by natural resources and 5 per cent on the land which enjoyed facilities provided by irrigation works.

ii.Kharaj:

This was a land tax charged from non-Muslims and ranged from one third to half of the produce.

iii.Khams:

It was one-fifth of the booty captured during war. Four-fifth of it went to the army which fought war.

iv.Jizya:

It was a religious tax on non-Muslims. According to Islam, a Zimmi (non-Muslim) had no right to live in the kingdom of a Muslim Sultan. But this concession was permitted after payment of the tax called Jizya. Women, children, beggars, priests, Brahmins, etc. and all those who had no source of income were exempted from this tax. However, Firoz Tughlaq levied this tax on Brahmins as well.

v.Zakat:

This was a religious tax which was imposed only on rich Muslims and it was 2 1/2 per cent of their income.

Apart from the above taxes, there were taxes on sale of horses, house tax, mining tax, grazing tax, inheritance