Will Excise Duty Be Eliminated After the Implementation of GST?

Prologue: GST, or Goods and Services Tax, is poised to revolutionize the tax landscape in India. This comprehensive tax regime, scheduled to replace multiple indirect taxes, aims to streamline the tax structure and enhance the ease of doing business. A key question that arises concerns the future of excise duty, a tax currently levied on manufactured goods. This article aims to elucidate the implications of GST on excise duty and other related indirect taxes.

The Prospective Subsumption of Excise Duty under GST

Comprehensive Reform: Without any doubt, GST stands as a transformative tax system that will assimilate most of the prevalent indirect taxes under its ambit. In this reorganization, excise duty, custom duties, and various state levies will come under the GST umbrella, marking a significant shift in the tax architecture.

Consequences of Excise Duty Subsumption under GST

Elimination of Excise Duty: As part of the broader GST framework, excise duty will be subsumed. This means that the concept of excise duty on manufactured goods will cease to exist under the new tax regime. Each supply under GST will be liable to GST, eliminating the need for separate excise duties.

Customs and IGST: Similarly, the central excise duties (CVD) currently levied under Section 31 of the Customs Act will be replaced by Integrated Goods and Services Tax (IGST). This shift will affect the import of goods into India, contributing to a uniform tax structure across domestic and imported products.

Practical Considerations and Exceptions

BCD - A Residual Tax: However, a pertinent variant of excise duty, the Basic Custom Duty (BCD), will continue under the GST regime, as it is not subsumed under the new system. This exception is crucial for understanding the multifaceted nature of the GST reform and its impact on existing tax structures.

Medical and Toilet Preparation Products: Additionally, it's worth noting that state-level levies on medical and toilet preparation products under excise duty will continue, despite the broader subsumption. This preservation affords states a degree of autonomy while ensuring the overall seamless transition to GST.

Reliance on Custom Duties and Anti-Dumping Measures

Rationale Behind Custom Duties: While excise duty will be eliminated in most sectors, certain exceptions, such as custom duties, will persist. This is due to the need for protection against the influx of goods with artificially low prices (a concept known as dumping). For example, to safeguard domestic manufacturing, the central government may impose anti-dumping duties, which may exceed the maximum GST rate of 18%. Therefore, custom duties remain unaffected by GST.

Justification for BCD and State Levies: The preservation of BCD and state levies on specific products aligns with the broader goals of GST, ensuring a smooth and uninterrupted transition while addressing regional and industry-specific needs.

Impact on Taxation and Compliance

Unified Tax System: The implementation of GST will lead to a unified tax system, simplifying the tax structure and easing compliance for businesses. As both goods and services are taxed under GST, the elimination of excise duty and the integration of other taxes into a single framework will streamline financial processes and reduce administrative burdens.

Targeted Taxes Under GST: GST will primarily target two broad categories of indirect taxes:

Excise duty and all additional duties related to goods, including VAT, custom duties, and octroi.

Service taxes.

These targeted taxes will be succeeded by GST, leading to enhanced ease of compliance and enforcement, thereby fostering a more efficient and transparent tax environment.

Conclusion:

The implementation of GST will significantly reshape the tax landscape in India, gradually eradicating the complexities associated with multiple indirect taxes. While excise duty will be subsumed into GST, certain exceptions and residual taxes will continue. This reform ensures a streamlined and harmonized tax structure, promoting business growth and economic stability.