New tax regime to give manufacturing a boost: 

New tax regime to give manufacturing a boost:

Context

  • The manufacturing sector will be getting a boost as GST is expected to address long-standing issues like inter-state taxes, high compliance costs, cascading impact of taxes, high logistics costs and to also ensure a level-playing field with respect to imports as GST provides for appropriate countervailing duty.

New developments with new issues

  • Several capital goods are likely to witness a 12-14% drop in cost owing to availability of full input tax credit, it will help spur investments and generate jobs.
  • For automobiles, GST has largely been to the benefit except for certain issues. The higher GST rate for hybrid vehicles will make them unviable for consumers and will result in petrol and diesel variants being sold instead.
  • This is not desirable as hybrids are much more fuel-efficient and environment-friendly vehicles.
  • A levy of tax on used cars at the same rate as for new cars is likely to push this business in the informal sector.
  • This would negate the Centre’s aim of bringing the unregulated part of this business under the regulated mainstream and also lead to the state losing tax revenue in the process.

The dynamic shift

  • The shift in the taxable event from the sale, manufacture, provision of service or import in the past, to the supply of goods and/or services under GST is an important change.
  • The GSTN system matches the details of tax paid by a supplier to the details of credit claimed by the recipient, excess credit claim by the recipient will be disallowed automatically till the time the return is rectified. Thus, the new system motivates recipients to keep a check on suppliers.
  • The GST-compliance rating system for dealers has moved part of the burden of ensuring compliance to the recipient. This, along with technology enablement, will help improve compliance significantly.

Criticism

  • The GST structure has been criticized owing to multiple slabs and high effective peak rate of GST.
  • It has been argued by many that the true spirit of GST has been lost and that a high GST rate will fuel inflation.
  • In the present socio-economic context, it is unrealistic to expect a single or a two-tax slab structure.
  • With better compliance that is expected, the Government may actually achieve enough space in future to consider reducing the number of slabs or lowering the compensation cess.
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