The Goods and Services Tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services.
GST is a comprehensive tax levied on manufacture, sale and consumption of goods and services at a national level which in return provides revenue to the government.
The Goods and Services Tax, which has been in the making for over nine years, is undoubtedly the most significant and trans-formative piece of tax reform that India has seen since Independence. GST will be a game changing reform for Indian economy by developing a common Indian market and reducing the cascading effect of tax on the cost of goods and services. It will impact the Tax Structure, Tax Incidence, Tax Computation, Tax Payment, Compliance, Credit Utilization and Reporting leading to a complete overhaul of the current indirect tax system. GST is all set to integrate State economies and boost overall growth.
GST will have a far reaching impact on almost all the aspects of the business operations in the country, for instance, pricing of products and services; supply chain optimization; IT, accounting and tax compliance systems. At the Central level, GST will subsume Central excise duty, countervailing duty, service tax and additional customs duties while at the state level it will include value-added tax, entertainment tax, octroi and entry tax, luxury tax, lottery taxes and electricity duty. The rate for GST is as yet undecided, but it would be in a range that would make exports competitive.
Features of GST
The goods and services tax (GST) is an indirect federal sales tax that is applied to the cost of certain goods and services. GST has two components – Central GST levied by the Centre and State GST levied by the states. Most countries with a GST have a single unified GST system, which means that a single tax rate is applied throughout the country. A country with a unified GST platform merges central taxes (e.g. sales tax excise duty tax, and service tax) with state-level taxes (e.g. entertainment tax, entry tax, transfer tax sin tax, and luxury tax) and collects them as one single tax. These countries tax virtually everything at a single rate.
France was the first country to implement the GST in 1954, and since then an estimated 160 countries have adopted this tax system in some form or another. Some of the countries with GST include Canada, Vietnam, Australia, Singapore, UK, Monaco, Spain, Italy, Nigeria, Brazil, and South Korea. India joined the GST group on July 1, 2017.
Need for GST
India is proposed to have a dual GST set up in 2017, which will be the biggest reform in the country’s tax structure in decades. The main objective of incorporating the GST is to eliminate tax on tax i.e. double taxation which cascades from the manufacturing level to the consumption level. This will simplify India’s tax structure, broaden the tax base, and create a common market across states.
- it is estimated that GST can boost India’s GDPby 1-2 per cent.
- GST will convert the country into unified market, replacing most indirect taxes with one tax.
- GST is expected to provide the benefits of simplification of tax regime, broadening of tax base, elimination of tax cascades, enhancing export competitiveness, ensuring greater regional equity and improvement in transparency.
- GST is a Value added tax, the final consumer will bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
- GST has become a preferred global standard. All OECD countries, except the US, follow this taxation structure.
Products excluded from GST
For the time being, the bill has kept certain goods out of the purview of GST, which have been a point of contention between State governments and the Central government. These products include:
- Petroleum crude
- High speed diesel
- Natural gas
- Aviation turbine fuel
- Alcohol for human consumption
At present, the Constitutional Amendment Bill covers all goods and services, except alcoholic liquor for human consumption. In the case of petroleum and petroleum products, it has been provided that these goods shall not be subject to the levy of GST till a date notified on the recommendation of the Goods and Services Tax Council.
The States’ resistance to the inclusion of these sectors is primarily on account of fear of losing their fiscal autonomy and revenues from these sectors. Historically, the petroleum, alcohol and tobacco sectors have been “cash cows” for government revenues. State exchequers rely heavily on taxing these sectors.
Taxation in India is multilayered where there has been multiple sources of evasion and pilferage. ST Registration brings in uniform tax laws across all the states spanning across diverse industries. Here, the taxes would be divided between the Central and State government based on a predefined and pre-approved formula. The current system with no GST implies that tax is paid on the value of goods and margin at every stage of the production process. This would translate to a higher amount of total taxes paid, which is carried down to the end consumer in the form of higher costs for goods and services. Implementing the GST system in India is therefore, a measure that will be used to reduce inflation in the long run, as prices for goods will be lower.
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