GST Bill

A Study on India and

Malaysia

Prepared by:
Tushar Arora

Section c 2nd year

What is GST?
The GST is basically an indirect tax that brings
most of the taxes imposed on most goods and
services, on manufacture, sale and consumption of
goods and services, under a single domain at the
national level. In the present system, taxes are
levied separately on goods and services. The GST
is a consolidated tax based on a uniform rate of tax
fixed for both goods and services and it is payable
at the final point of consumption. At each stage of
sale or purchase in the supply chain, this tax is
collected on value-added goods and services,
through a tax credit mechanism.
The proposed model of GST and the rate
A dual GST system is planned to be implemented in
India as proposed by the Empowered Committee
under which the GST will be divided into two parts:
State Goods and Services Tax (SGST)
Central Goods and Services Tax (CGST)
Both SGST and CGST will be levied on the taxable
value of a transaction. All goods and services,
leaving aside a few, will be brought into the GST

and there will be no difference between goods and

services. The GST system will combine Central
excise duty, additional excise duty, services tax,
State VAT entertainment tax etc. under one banner.
The GST rate is expected to be around 14-16 per
cent. After the combined GST rate is fixed, the
States and the Centre will decide on the SGST and
CGST rates. At present, 10 per cent is levied on
services and the indirect taxes on most goods is
around 20 per cent.

Status of implementation of GST

To be fully viable by law in all the States, the GST
Bill needs to be passed by a two-thirds majority in
both Houses of Parliament and by the legislatures
of half of the 29 States. In December 2014, Finance
Minister Arun Jaitley introduced the constitutional
amendment Bill of the GST in the Lok Sabha. He
announced that the GST would be a major reform
in Indias taxation system since 1947, which would
reduce transaction costs for business and boost the
economy.
Earlier, the Bill was rejected by a few States saying
that it does not include the issues of compensation,

entry tax and the tax on petroleum products.

Jaitley while introducing the Bill said that all efforts
have been taken to make sure that the States do
not suffer any loss of revenue with the
implementation of the GST. The States will receive
Rs 11,000 crore this fiscal year so that it would
compensate the losses suffered by them for
decline in Central sales tax (CST) and subsequently
financial assistance would be provided for a fiveyear period.
All said and done, the GST Bill which was conceived
way back in the year 2000 has not seen the light of
the day as yet. If everything goes well, most likely
the Bill will be legislated by April 2016. According
to a study by the National Council of Applied
Economic Research (NCAER), full implementation
of the GST could expand Indias growth of gross
domestic product by 0.9-1.7 percentage points. By
removing the system of multiple Central and State
taxes, the GST can help in reducing taxation and
filing costs and expand business profitability,
thereby attracting investments and promoting GDP
growth. Simplification of tax norms can help in
improving tax compliance and increasing tax
revenues.

Indias textile industry

The textile industry has 9 broad categories for the
purpose of taxation. The current taxes vary from
4% to 12% based on there categories. Further,
textile sector is dominated by unorganized players
who are given tax exemptions on the basis of size
of their operations.
Differential taxation for cotton and manmade fibre:
Zero duty for cotton fibre as compared to high
excise duty structure of nearly 12.5% on manmade
fibre segment Composite mills are taxed at a
higher rate than the power looms discouraging
integration of production
With the implementation of GST, there will be a
uniform rate of tax which will result in: Blocked
input taxes will be eliminated as GST is a
consumption tax
Zero rating on exports under GST will boost
exports further without the need for explicit
subsidy schemes
Level-playing field will be provided to all textile
segments Integration of production will be
encouraged resulting in increased efficiency
Goods movement within the states will also be
much easier as lot of local state taxes which are

levied on the borders of states which inhibit free

movement of goods will be removed.

Malaysian textile industry

1.Malaysia is one of the last countries in the world
to implement a full fledged value-added tax. The
only countries of note that have yet to
implement a VAT are the United States, Hong
Kong, Brunei, and the countries under the Gulf
Cooperation Council (GCC). Everybody else either
has it, or are implementing it.
2.Malaysia currently levies two forms of
consumption tax sales tax and service tax
(henceforth SST).
3.Sales tax is levied on all goods sold or
produced in Malaysia, with the exception of
petroleum and exports. The current standard
rate is 10%, but a lower rate of 5% is applicable
to fruits, certain foodstuffs, timber, building
materials, cigarettes and tobacco, and liquor and
alcohol.
4.Service tax is applicable to restaurants, hotels,
parking lots, golf courses, clubs, discoes,
insurance agents, phone companies, professional

services like accountants, lawyers and

consultants, and many more at a rate of 6%.
Some of these services require a minimum
corporate income threshold before the tax is
levied. Credit cards are also subject to a service
tax, but in this case its a flat fee levied on
principal and supplementary cards.
5.GST is going to replace both these two taxes
(with the possible exception of credit cards), and
from which certain essential goods will continue
to be excluded i.e. zero-rated (exports, petrol and
basic foods for instance).

Conclusion
The GST taxation laws will put an end to multiple
taxes like excise, CST, VAT, service tax etc., which
are levied on different products, starting from the
source of manufacturing, till reaching the end
consumer. It will also stop distinguishing a goods
from a service and will tax both equally.
For consumers, GST will help bring in the following
benefits

1.Uniformity in Computing Taxes for

Goods and ServiceGST will lead to the elimination of multiple
excise, CST, VAT, service tax calculations.
2.Uniform Tax RegimeFor both goods and services and less
confusion in determining what constitutes a
good or what is a service.
3.Elimination of Double TaxationDouble taxation means the consumer pays
tax on an item, on which already
government has collected tax from the
manufacturer under some other head.
4.More Transparent PricingCurrently hidden taxes actually push up the
taxes on a majority of goods to anywhere in
the 27% to 32% range. But with GST coming
in, the % tax number is proposed to be
much lesser - however the number has not
been finalized yet.