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December 14, 2016

GST - How will it Work in India?

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Goods and Service Tax (GST)

Overview
  • What is GST ? 
  • Central taxes replaced by GST Bill and state taxes subsumed by it
  • The Lok Sabha passed the GST Bill
  • Provisions of the Bill
  • Benefits of GST
    • For Industries and Businesses
    • For Central and State Governments
    • For the Consumers
Goods and Services Tax (GST) is an indirect tax levied when a consumer buys a good or service. India's current tax scenario is riddled with various indirect taxes which the GST aims to subsume with a single pan India comprehensive tax, by bringing all such taxes under a single umbrella. The aims of bill to eliminate the cascading effect of taxes on production and distribution prices on goods and services.

Cascading effect of taxes is caused due to levy of different charges by State and Union Governments separately. This tax structure raises the tax-burden on Indian products, affecting their prices, and as a result, sales in the international market. The new tax regime will therefore, help boost exports. In the changed scenario, the following taxes under Centre and States will be subsumed in GST.

Central Taxes replaced by GST Bill Central Excise Duty, Additional Duties of Excise and Customs, Special Additional Duty of Customs (SAD), Service Tax and Cess and Surcharges on supply of goods and services

State Taxes Subsumed in the GST Bill VAT, Central Sales Tax, Purchase Tax, Luxury Tax, Entry Tax, Entertainment Tax, Taxes on advertisements, lotteries, betting, gambling and State Cess and Surcharge.

The Lok Sabha passed The Constitution (122nd Amendment) (GST) Bill, 2014 on 8th August, 2016. The bill was passed by two-third majority, with 443 members voting in its favour and none against in the final vote. Introduced in Lok Sabha in May 2015, the Bill was passed by Rajya Sabha on 3rd August, 2016 with 203 votes in favour and none against. The passage of this historic GST Bill has now paved the way for the concept of one nation, one tax.

The Union Government has set the ambitious target to roll out of the Goods and Services Tax, (GST) from 1st April, 2017. It was announced by Union Finance Minister Arun Jaitley after unveiling a detailed road map for GST implementation. This announcement was made after Rajya Sabha had passed The Constitution (122nd Amendment) (GST) Bill, 2014.

Provisions of the Bill 

  • The GST will have two components keeping in mind the federal structure of India: the Central GST (CGST) and the State GST (SGST). 
  • For goods and services that pass through several states or imports, the Centre will levy another tax, the Integrated GST (IGST). 
  • Alcohol for human consumption has been kept out of the purview of GST. 
  • It empowers the centre to impose an additional tax of upto 1% on the inter-state supply of goods for two years or more. This tax will accrue to states from where the supply originates.
  • Initially, GST will not apply to some products such as petroleum crude, high speed diesel, motor spirit (petrol), natural gas and aviation turbine fuel. The GST Council will decide when GST will be levied on them. 
  • Tobacco and tobacco products will be subject to GST. The centre may also impose excise duty on tobacco.
  • Parliament may provide for compensation to states for revenue losses arising out of the implementation of GST for upto 5 years, based on the recommendations of the GST Council.

Benefits of GST

For Industries and Businesses

  • There will be uniformity of tax rates and structures across the country. It will increase certainty and ease of doing business i.e. make it tax neutral, irrespective of the choice of place of doing business in the country. 
  • Due to removal of cascading, it will have a system of seamless tax-credits throughout the value-chain, and across boundaries of States. It will help to reduce hidden costs of doing business. 
  • It would make compliance easy and transparent. The GST regime will have a robust and comprehensive IT system. Therefore, all tax payer services such as registrations, payments, returns, etc will be available to the taxpayers online.
  • It will reduce transaction costs of doing business that will eventually lead to an improved competitiveness for the trade and industry.
  • The subsuming of major Central and State indirect taxes in GST would reduce the cost of locally manufactured goods and services. It will 1.0 increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports.

For Central and State Governments 

  • GST backed with a robust end-to-end IT system will be simpler and easier to administer than all other indirect taxes of the Centre and State levied so far. 
  • The robust IT infrastructure of GST regime will result in better tax compliance that will curb leakages and incentivise tax compliance by traders.
  • GST will lead to higher revenue efficiency as it is expected to decrease the cost of collection of tax revenues of the government. 

For the Consumers 

  • Due to single and transparent tax proportionate to the value of goods, and services: it will remove many hidden taxes leading to transparency of taxes paid to the final consumer.
  • The overall tax burden on most commodities will come down because of efficiency gains and prevention of leakages which will benefit consumers.
Goods and Services Tax has all the ingredients of a modern, seamless taxation system. But its success will depend on taking onboard all the stakeholders and eliminating all the irritants which goes against the principles of GST. Goods and Services Tax will also contribute towards a robust macro-economic parametre, thereby increasing investor sentiment. Finally, the consumers will be ultimate beneficiary as it would eliminate the cascading effect of tax.

Difficult Words with Meanings :
  • Levied an amount of money, such as tax
  • Riddled something or someone difficult to understand
  • Subsume to included something or someone as part of a larger group
  • Cascading a large of number of things that happen quickly in a series
  • Regime a system of management
  • Unveiling to show or reveal
  • Robust strongly formed or built
  • Curb to control or limit something
  • Stakeholders a person or business that has invested money in something. 
shared by Nisheeta Mirchandani 
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