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Goods & Service Tax System in India…

The Goods and Services Tax or GST is scheduled to be launched on the 1st of July, and it is set to revolutionize the way we do our taxes. GST is an indirect taxation wherein most of the existing taxes will be merged into a single taxation system. It will be the biggest tax reform since Independence. The major flaws in the current tax system such as cascading of taxes,multiplicity of law and taxes, non-fungibility of credits between goods and services and various distortions existing may be removed by this destination based tax system.

GST in India is a comprehensive, multi-stage, destination-based tax that will be levied on every value addition. The introduction of GST is part of the Government’s tax reform programmed to enhance the efficiency and effectiveness of the existing taxation system. GST is proposed to replace the current consumption tax i.e. the present principle of origin based taxation. Under this , there will be tax only on value addition at each stage, with the producer/seller at every stage able to set off his taxes against the central/state GST paid on his purchases. The end-consumer will bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

The current multi-staged tax structure has charges from the State and Union governments separately, leading to cascading effect of taxes. GST brings in uniform tax laws across all the states spanning across diverse industries. The central taxes that would now be replaced by GST are; service tax, special additional duties of customs (SAD), Additional Duties of Excise (goods of special importance), Central Excise Duty, Additional Duties of Customs (commonly known as CVD), Duties of Excise (medicinal and toilet preparations), Additional Duties of Excise (textiles and textile products) and Cesses and surcharges in so far as they relate to supply of goods or services. On the state level that taxes that GST will subsume include: State cesses and surcharges, luxury tax, state VAT, purchase tax, central sales tax, taxes on advertisements, entertainment tax (not levied by local bodies), entry tax (all forms) and taxes on lotteries, betting and gambling.

GST rates on goods and services have been broadly classified into four tax rates: 5 per cent, 12 per cent, 18 per cent and 28 per cent. Some goods and services would be exempt. Precious metals like gold will attract a separate tax rate of 3 per cent. A cess will be levied over the peak rate of 28 per cent on specified luxury and sin goods. Under GST, businesses are required to file returns each month. But the government has let companies file late returns for the first two months so that they can adapt to a new online filing system. Petroleum products such as petrol, diesel and aviation turbine fuel have been kept out of GST as of now. The GST Council will take a decision on it at a later date. Alcohol has also been kept out of GST.

GST will basically have three kinds of taxes namely Central, State and integrated GST . The GST to be levied by the Centre would be called Central GST (CGST) and that to be levied by the States (including Union territories with legislature) would be called State GST (SGST). An Integrated GST (IGST) would be levied on inter-State supply (including stock transfers) of goods or services. This would be collected by the Centre. Import of goods would be treated as inter-State supplies and would be subject to IGST in addition to the applicable customs duties. Exports will be treated as zero-rated supplies which means no tax will be payable on exports of goods or services. However, exporters can claim input tax credit.

GST is a better and more efficient method of revenue collection for the government. More funds can be channeled into nation-building projects for progress towards achieving a high income nation. GST will ensure a complete, comprehensive and continuous mechanism of tax credits.

GST is proven to be a better tax system as it is more effective, corruption-free tax administration, efficient, transparent and business friendly and could spur economic growth as well as increase competitiveness in the global market. I think GST will be a game changer which will turn India as a unified market to business owners and brings a lot of black money back into the mainstream economy. Being a consumption based tax, tax collection will go to the states in which the goods are consumed, and not where they are manufactured. Hope that GST will disincentivise tax evasion,that means, if you don’t pay tax on what you sell, you don’t get credit for taxes on your inputs.