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.
MAJOR CHANGES WITH THE INTRODUCTION OF THE GST :
1) Central taxes such as Central Excise duty, Additional Excise duty, Service tax, Additional Custom duty and Special Additional duty as well as state-level taxes such as VAT or sales tax, Central Sales tax, Entertainment tax, Entry tax, Purchase tax, Luxury tax and Octroi will subsume in GST.
2) Provision will be made for removing imposition of entry tax /Octroi across India.
3) Entertainment tax, imposed by states on movie, theatre, etc., will be subsumed in GST, but taxes on entertainment at panchayat, municipality or district level will continue.
4) Stamp duties, typically imposed on legal agreements by states, will continue to be levied.
5) The GST structure would follow the destination principle. Accordingly, imports would be subject to GST, while exports would be zero-rated. In the case of inter-state transactions within India, State tax would apply in the state of destination as opposed to that of origin.
6) The GST regime should have a dual rate structure – low GST rate of approximately 12 per cent on merit goods (e.g. essential commodities), and standard GST rate of approximately 18 per cent on other goods. That apart, it is expected that there may be a higher GST rate of approximately 40 per cent on a few demerit goods (like tobacco, aerated beverages, etc.), lower GST rate of approximately 2 per cent on billions, and exemption from GST on a few select goods.
7) With GST, there will be a significant shift from origin-based taxation to a destination-based tax structure impacting not only the operating business models but also the revenues of the centre/states.
8) Company Registration under GST would replace most indirect taxes currently in place such as:
Central Excise Duty [including additional excise duties, excise duty under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955]
Additional Customs Duty (CVD)
Special Additional Duty of Customs (SAD)
Central Sales Tax ( levied by the Centre and collected by the States)
Central surcharges and cesses ( relating to supply of goods and services)
Octroi and Entry tax
Purchase tax and Luxury tax
Taxes on lottery, betting and gambling
State cesses and surcharges
Entertainment tax (other than the tax levied by the local bodies)
Central Sales tax ( levied by the Centre and collected by states)
HOW WILL GST HELP INDIAN ECONOMY?
1) GST Registered would help in lesser corruption and with Increased Tax Revenue.
2) Better and improved economy with single taxation will make it easier to identify the tax defaulters.
3) Goods Service Tax Registration will lead to the creation of a unified market, which would facilitate seamless movement of goods across states and reduce the transaction cost of businesses.
4) Tax evasion will be reduced with lower tax and lower cost will result in better investments in manufacturing industry.
5) One tax instead of so many different taxes will make tax compliance’s easier.
6) Increased investments in manufacturing industries and lower cost will result in increased volume of exports.
7) Divination of burden of tax between goods & service industries.
HOW WILL GST HELP CONSUMER?
Today consumers have no idea about the extent of taxes they pay on goods. If you get a bill after buying merchandise which gives the extent of VAT you have paid, it is an understatement of the actual tax you have paid. Remember, well before merchandise reached the retail outlet, the central government has collected excise duty. The extent of excise duty is not mentioned in the bill.
1) GST includes goods as well as service tax. Presently, service tax is 15% and taxes applicable to manufactured goods as sales tax, CST, VAT, Excise etc. if applicable amount to 24—25%. After implementation of GST, it is recommended that tax will be flat @18%.
2) Price of services may go high. Elimination of multiplicity of taxes and their cascading effects.
3) Price of goods may go down with the less complexity in tax structure.
4) Imported goods may become more expensive as CVD & VAT @12.8%, while after application of GST tax rate will be @18%.
5) Manufacturers can avail tax credit, which will result in reduction of cost, and consumers will get goods at fair price.
The country is eagerly looking out for the roll-out of GST from April 2017, as the regime focuses on creating one single market for all and introduces destination based taxation. GST will attract more investments from foreign investors as the country shall be more industry- friendly. Also, this shall result in generating more employment opportunities. Therefore, it is imperative that the government makes efforts to make the law clear and industry friendly so that the industry and the economy benefits as a whole.
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