Goods and Services Tax (GST) is an indirect tax throughout India to replace taxes levied by the central and state governments. It was introduced as The Constitution (One Hundred and Twenty Second Amendment) Act 2017, following the passage of Constitution 122nd Amendment Bill. The GST is governed by GST Council and its Chairman is Union Finance Minister of India – Arun Jaitley. Under GST, goods and services will be taxed at the following rates, 0%, 5%, 12%, 18%, 28%. There is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold.There will be additional cess on sin goods like cigarettes.
To understand this, we need to understand the concepts under this definition. Let us start with the term ‘Multi-stage’. Now, there are multiple steps an item goes through from manufacture or production to the final sale. Buying of raw materials is the first stage. The second stage is production or manufacture. Then, there is the warehousing of materials. Next, comes the sale of the product to the retailer. And in the final stage, the retailer sells you – the end consumer – the product, completing its life cycle.
So, if we had to look at a pictorial description of the various stages, it would look like:
Which taxes at the Centre and State level are being subsumed into GST?
Goods
and services tax (GST) will subsume various indirect taxes including central
excise duty, services tax, additional customs duty, surcharges, state-level value
added tax and Octroi. Other levies which are currently applicable on
inter-state transportation of goods are also likely to be done away with in GST
regime.
The following taxes will be bound together by the GST:-
The following taxes will be bound together by the GST:-
• Central Excise Duty
• Service Tax
• Commercial Tax
• Value Added Tax (VAT)
• Food Tax
• Central Sales Tax (CST)
• Octroi
• Entertainment Tax
• Entry Tax
• Purchase Tax
• Luxury Tax
• Advertisement taxes
• Taxes
applicable on lotteriesGST is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of goods and/or services. India will adopt a dual GST model, meaning that taxation is administered by both the Union and State Governments. Transactions made within a single state will be levied with Central GST (CGST) by the Central Government and State GST (SGST) by the government of that state. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government. GST is a consumption based tax, therefore, taxes are paid to the state which the goods or services are consumed not the state in which they were produced. IGST complicates tax collection for State Governments by disabling them to collect the tax owed to them directly from the Central Government. Under the previous system, a state would have to only deal with a single government in order to collect tax revenue.
What are the benefits of GST?
1. For business and industry-
A. Easy
compliance: A robust and comprehensive IT system would be the foundation of the
GST regime in India. Therefore, all tax payer services such as registrations,
returns, payments, etc. would be available to the taxpayers online, which would
make compliance easy and transparent.
B.Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are common across the country, thereby increasing certainty and ease of doing business. In other words, GST would make doing business in the country tax neutral, irrespective of the choice of place of doing business.
C.Removal of cascading: A system of seamless tax-credits throughout the value-chain, and across boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden costs of doing business.
D.Improved competitiveness: Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for the trade and industry.
E.Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.
2.For Central and State Governments
A.Simple
and easy to administer: Multiple indirect taxes at the Central and State levels
are being replaced by GST. Backed with a robust end-to-end IT system, GST would
be simpler and easier to administer than all other indirect taxes of the Centre
and State levied so far.
B.Better controls on leakage: GST will result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of GST that would incentivize tax compliance by traders.
C.Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of the Government, and will therefore, lead to higher revenue efficiency.
3.For the consumer
A.Single and transparent tax proportionate to the value of goods and services: Due to multiple indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at progressive stages of value addition, the cost of most goods and services in the country today are laden with many hidden taxes. Under GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer.
B.Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit consumers.
Why is Goods and Services Tax so Important?
So,
now that we have defined GST, let us talk about why it will play such a
significant role in transforming the current tax structure, and therefore, the
economy.
Currently,
the Indian tax structure is divided into two – Direct and Indirect Taxes.
Direct Taxes are levies where the liability cannot be passed on to someone
else. An example of this is Income Tax where you earn the income and you alone
are liable to pay the tax on it.
In
the case of Indirect Taxes, the liability of the tax can be passed on to
someone else. This means that when the shopkeeper must pay VAT on his sale, he
can pass on the liability to the customer. So, in effect, the customer pays the
price of the item as well as the VAT on it so the shopkeeper can deposit the
VAT to the government. This means that the customer must pay not just the price
of the product, but he also pays the tax liability, and therefore, he has a
higher outlay when he buys an item.
This
happens because the shopkeeper has paid a tax when he bought the item from the
wholesaler. To recover that amount, as well as to make up for the VAT he must
pay to the government, he passes the liability to the customer who has to pay
the additional amount. There is currently no other way for the shopkeeper to
recover whatever he pays from his own pocket during transactions and therefore,
he has no choice but to pass on the liability to the customer.
Goods and Services Tax will address this issue
after it is implemented. It has a system of Input Tax Credit which will allow
sellers to claim the tax already paid, so that the final liability on the end
consumer is decreased. 
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Click here for commentsPoint me to an instance where tax has been beneficial and I'll show you a lie
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