Over the past few years, GST has been in the news quite often. But what exactly is GST and why is this termed as a game changer as far as Indian economy is concerned ?
Goods and Services Taxes (GST) is a tax which is levied when a consumer buys a good or service. It is meant to be one single comprehensive tax that will subsume all other indirect taxes, levied by state and centre like, excise duty, service tax, VAT etc, thus making India a single market as far as indirect taxes are concerned.
So how is this different from the current indirect tax state ?
The salient features of the current indirect tax structure are as follows :
1. Centre government levies the tax on services, through Service Tax. Eg. When you go out for a dinner at a restaurant, you will notice the Service Tax of 14%(And an additional 0.5% Swach Bharat Cess) levied on your final bill. This is the Service Tax that Central Government collects on the services rendered within India. The state governments have no jurisdiction in taxing the services and have to rely almost exclusively on other areas of the economy to boost their income.
2. Taxes on goods are described as VAT both at the centre and state level. Eg. When you buy a book or a toothpaste, you pay VAT on the final price of the product.
3. VAT has adopted a value-added tax principle according to which you pay tax only on the value that you add to a particular good.
4. VAT also has an input tax credit mechanism so that there is no tax on tax.
5. Most importantly VAT is levied at the point of the manufacturing of a product rather than its consumption.
The problem with this structure is the lack of uniformity as far as the tax on goods is concerned. Different states have different VAT rates. Also, states are prevented from taxing services, which is one of the most buoyant sectors of the economy.
With all these as background, GST was envisaged. Its aim is to unify India as a single market, increase the revenue of the state and centre and remove the cascading effect of the tax on tax.
Some salient features of the proposed GST are as follows :
1. It will subsume all indirect taxes levied by centre and state like excise duty, service tax, VAT, entry tax, luxury tax etc.
2. GST will have a dual structure, with CGST and SGST and IGST(for interstate goods)
3. GST rate will be same for services and goods.
4. Importantly GST will be levied at the point of consumption of a service or good rather than at the manufacture of a good, as prevalent today.
5. GST bill establishes a GST council comprising of Union Finance minister as chairman and finance ministers of all states as members.
6. GST council will decide which tax levied by the centre, state and local bodies will go in the GST and the rates at which GST will be applied.
7. Under the current bill, alcoholic liquor for human consumption is exempted from GST. Also, petroleum products are currently out of GST, and GST council will decide when to bring it within the ambit of GST.
8. The centre has also promised the states to compensate for any revenue loss for the first 5 years of GST.
The government led by Sri Narendra Modi, seem fully committed to the implementation of this landmark taxation reform. As such, Fagnum requests you all to share this blog so that people get educated with the immense advantage of this tax structure both for businesses and the common man.