But what is GST?
Goods and Services Tax, also popularly known as GST, literally translates into a tax levied on a good purchased or service availed by a consumer. Originally put forth by the Vajpayee Government in 2000, the GST aims to tackle indirect taxes that riddle the current tax regime. The GST aims to replace them with a single comprehensive tax, bringing them all under a single umbrella. The Government of India is working towards replacing all the indirect taxes levied on goods and services by the Centre and States and implement GST by April 2017.
GST is a game changing reform for the Indian economy as it aims at creating a common Indian market and reducing the cascading effect of tax on the cost of goods and services. It is expected to impact the tax structure, tax incidence, tax computation, tax payment, compliance, credit utilization and reporting, leading to complete overhaul of the current indirect tax system.
What is the cascading effect of taxation?
Cascading effect of taxes happens when state and union governments separately levy different charges. It also known as ‘tax on tax’ since a different tax is levied on the price of the product at each stage of procurement in the supply chain. In the current non-GST regime, the following taxes are levied by the Centre and State separately.
Body of governanceType of TaxStatus after GST is implementedCentreIncome TaxTo be restructuredService TaxTo be subsumedCentral Sales TaxTo be subsumedExcise DutyTo be subsumedSecurity Transaction TaxTo be subsumedStateVAT/Sales TaxTo be subsumedOctroiTo be subsumedState ExciseTo be subsumedEntry TaxTo be subsumedLuxury TaxTo be subsumedEntertainment TaxTo be subsumed
Benefits of GST at a glance
Tax base will get wider, which is necessary for lowering tax rates and eliminating disputes arising from classification
Elimination of tax multiplicity and its cascading effects
Rationalisation of tax structure and simplification of compliance procedures
Coordination between Center and State tax administrations, thus reducing duplication and compliance costs
Automation of compliance procedures
What does GST have in store for the common man?
Uniformity in computing taxes for goods and services: as mentioned above, GST will result in the elimination of multiple excise, CST, VAT, service tax calculations
Uniform tax regime: will reduce confusion in determining what makes up a good or a service
Elimination of double taxation: double taxation is when a consumer pays tax on an item on which the government has already collected tax from the manufacturer
Transparent pricing: the tax % is proposed to be much lesser than the current hidden taxes that push up the taxes on goods to anywhere in the 27% - 32% range
More disposable income: reduced taxes results in more disposable income per household
Aiding GDP growth: Centre and State are likely to earn more tax from GST, thus aiding in a projected 1-2% increase in GDP in the next 3-5 yrs
Putting a lid on black money practices: this will result in more income for the government, which will then be put to use in bettering quality of life of Indians
What may get expensive? Eating out, phone bills, handheld devices, jewellery, e-commerce
What may get cheaper? Readymade garments, motor vehicles, LED TVs
To sum it up, the essence of GST lies in moderate taxation of goods and services. So it’s expected that the burden of GST on common man will be reduced in the long run. However, we must remember that pricing of goods and services is dependent on several factors like credits, competition, profit margin etc. Rate of GST (pegged between 17-19%) is not the only indicator of final price on goods and services.
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