Goods and Service Tax (GST) and its role in Manipur

Dr Mayengbam Lalit Singh *

Manipur Legislative Assembly Building as seen on March 19 2017 :: Pix - Shankar Khangembam

The intense wave of GST originated from the centre (Delhi) is spreading across all the states just like Monsoon. But in the minds of millions people, the big questions flourished are (a) What GST is; (b) How it is different from presently existing tax systems; and (c) How it benefits the country as well as states.

By virtue GST is a uniform tax structure which is to be framed by centre and state. It is also destination based tax. Both centre (CGST) and states (SGST) can levy it simultaneously across the value chain. The distinguishing feature of GST from the previous tax is that it avoids of cascading effect.

Elaborating with small example, a firm manufacturing steel plates buys from steel producers at $100. The plate manufacturer pays Rs 10 (10% of price of steel) as tax and hence the total value of steel is Rs 110. Assuming that plate manufacturer adds Rs 100 in converting steel into plate. Final consumer has to pay Rs 221 (here Rs 21 as tax for Rs 210).

In this system final consumer has maximum tax burden. Under GST regime, there will not be tax in different stages of production. Producers at different stages of production have to be rebated by government when they submit their respective tax.

The expected benefits are: it levies all the economic activities (stages of production) at the same rate; it widens tax slabs; tax becomes narrower. Moreover under GST regime, there will be three slabs of tax structure. The first slab is GST on basic goods (such as medicine, basic food items) which are to be lowered at minimum rate.

GST on standard goods such as clothing, large parts of manufacturing goods, etc are to be fixed at medium rate. GST on luxurious goods (ornaments, costly vehicle, tobacco, etc) have to be taxed at higher rates.

One of the most important benefits is reduction of corruption under GST. Since it is destination based tax, it removes various taxes levied when goods cross state borders on their way to final destination and hence less corruption.

The more interesting outcome of implementation of GST is that it may lead to faster economic growth in India. Removal of multiple check posts boosts the investment in manufacturing sector since there will not be delays in delivering inputs and outputs of this sector across all states.

In a state like Manipur which situates at extreme corner of India, GST is boon to people in the state since GST will evade the multiple taxes on the goods crossing multiple state borders. The state imports a wide range of goods from various and farthest parts of India.

For an example, when Manipur imports steel items from Tamil Nadu, the carrier has to cross borders of six states. In the previous tax regime, the carrier has to pay tax whenever it crosses borders of those states. Hence, the goods arrives at Manipur, there will be value addition of multiple tax which leads to higher price of the goods and huge dead weight loss to consumers’ surplus. However, under GST regime, there will be only one time payment and there will not be further delay in delivering goods also.

GST levies minimum tax on basic commodities due to basic nature of these commodities in day to day life. However, categorisation of such commodities is discretionary to the respective governments of states. More number of goods under this basket yields in welfare of consumers and enables reduction of wage level. For instance, imported dry fish (raw material of fermented fish “Ngari”) has to be levied at minimum tax on its import so that ngari can be considered as basic commodity.

One of the most promising boons of GST is reduction of tax and procedures on the shipments of goods especially raw materials. Manipur is popular for handloom and handicraft items. However, the present nature of customs tax, cost of import and tax on raw materials as well as machines are not encouraging to this sector. Upcoming GST will evade such asymmetries and is expected to boost investment on manufacturing sectors. Another important promise of GST is inclusion of various goods and services under this umbrella. The biggest loophole in Indian economy is exclusion of various goods and services which leads to loss in the collection of revenue. Presently, various traditionally based manufacturing goods are hardly listed by government of Manipur.

State GST has to cover such goods under it so that these goods can be patented and government can adopt policies to boost production. Moreover, government still fails to cover various services sector under organised sector.

For example, shopkeepers, saloons, goldsmith, blacksmith, tailors, carpenters, etc. are out of organised sector which results in reduction of huge revenue to government.

The proposed SGST should include these services which lead to a proper policy for this sector. It is duty of both centre and state governments how to implement GST and what constituents are so that GST will yield in better economic growth, welfare and equity across states, sectors by removing lopsided development under erstwhile VAT, Excise and Customs tax.