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Goods and Services Tax (GST) is an indirect tax reform which aims to remove tax barriers between states and create a single market. For that to happen the constitution first needs to be amended to remove different layers of governments’ exclusive powers to levy taxes. Once this step is taken, the tax barriers between states, and centre and states will disappear.
Current Scenario –
a) Central Taxes:- Central Excise/Custom Duty, Central Sales Tax on Goods and Service Tax charged on Services, Surcharge & Cess
b) State Taxes:- State Vat, Sales Tax Deducted at Source, WCT, Luxury Tax, Entertainment Tax, Tax on Lottery, Surcharge & Cess
GST Scenario
A dual layered tax system with both Central and State GST levied on same base on all the goods and services except Petroleum ,High Speed Diesel, Motor spirit and Natural Gas to be brought at a later date, subject to recommendation of GST Council.
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Dual system of GST includes :
1.SGST or State GST - collected by State Government.
2.CGST or Central GST - collected by Central Government.
3.IGST or Integrated GST - collected by Central Government.
Will the new GST allow tax cascading benefits?
Many of us are aware that service tax and VAT have cascading benefits, which means you can avail credit of tax paid by you on inputs. For example in case of service tax – you levy service tax on services you sell and while depositing this tax you can take credit of service tax paid by you on services used as inputs.
This cascading benefit shall also be available in case of GST.
One Nation, One Tax?
Though perceived to be a single tax mechanism across the country, India is actually implementing dual GST. In dual GST, all intra-state transactions of goods and services made for a consideration will attract two levies i.e. CGST (Central GST) and SGST (State GST); while an inter-state supply transaction will attract IGST.
For e.g. If you are a trader from Mumbai supplying goods to your customer in Pune, then you will charge CGST and Maharashtra SGST. But if you supply goods to your customer in Ahmedabad (Gujarat), you will charge IGST.
GST should be able to resolve most of the issues in the current tax structure such as classification, valuation, double taxation disputes etc. One key thing to note is that most tax credits that are not available in the current tax regime with VAT, Luxury tax, Entertainment Tax etc. will be available with GST.
Claiming Tax Credit:
To enable the buyer to claim input tax credit, the GST law inter-alia prescribes that the supplier should deposit the GST and file GST returns. Effectively, through this provision, the buyer of goods/ services will have to in turn ensure that all his vendors pay GST and file returns.
Likely rates for GST:
The rate of GST has not been specified in the draft GST law. However, various news reports suggest that the rates will be 0%, 5%, 12%, 18% and 28% (plus cess).
Positive Impact of GST on the Common man:
•A unified tax system removing a bundle of indirect taxes.
•Less tax compliance.
•Removes cascading effect of taxes.
•Manufacturing costs will be reduced, hence prices of consumer goods likely to come down.
•Due to reduced costs some products like cars, FMCG etc. will become cheaper.
•Lower prices will increase demand/consumption. Increased demand will lead to increase supply.Hence, rise in production of goods.
•The increased production will lead to more job opportunities in the long run .But, this can happen only if consumers actually get cheaper goods.
•A unified tax regime will lead to less corruption which will indirectly affect the common man.
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