CA Shalaka Chawla

WHAT IS GOODS AND SERVICE TAX  (GST)?

One of the biggest and the much awaited tax reforms of the country. A move to grease the wheels of the ‘ease of doing business’ initiative in India. The Goods and Service Tax is all set to integrate the states and uplift the strapped Indian Economy.

GST is an all-inclusive levy on the event of supply of goods and services. It is a blanket indirect tax that will embrace all indirect taxes that presently exist at the central level such as Excise Duty, Service Tax, countervailing duties and at the state level like VAT, octroi, Entry tax and luxury tax. This means, that, all goods and services shall be taxed at one uniform rate of GST, thereby making no demarcation between goods and services on taxation front.

WHY IS ‘GST’ IMPERATIVE FOR INDIA?

1. SIMPLER TAX STRUCTURE:

At present, the Indian indirect tax system is wedged in its complexity of taxing goods and services at different points of a supply chain, at different levels of the government and at different rates. Implementation of GST will streamline this complexity, as there would be a single rate for all goods and services.

2. ELIMINATION OF CASCADING EFFECT OF TAX:

The GST would cart off the cascading effect of tax (Tax on Tax) as, the final consumer shall bear the GST charged by the last dealer in the supply chain, with set off benefits available in previous stages.

3. BOOST TO TAX REVENUES:

A simpler tax structure would result in increased compliance. This would mean higher number of tax payers and greater revenue to the government. Increasing revenue is the only way when expenditures cannot be controlled much.

4. BOOST TO EXPORTS:

GST would lead to competitive pricing by eliminating all other forms of indirect taxes. As a consequence, the cost of production would be much lower than what is incurred in the present tax regime thereby making domestic products more price-competitive with the foreign goods.

HOW WILL IT WORK?

a) CONCEPTUAL FUNCTIONALITY

The basic functioning of GST is explained with the help of given below pictorial representation:

GST Shalaka 1Let us assume GST rate to be 10%. In the above case, the manufacturer adds up value of Rs. 30/- to the material purchased and sells it to the whole seller for Rs. 130/-. The manufacturer shall pay net GST of Rs. 3/- to the government as he shall be able to take the credit of input GST paid of Rs. 10/- on raw material.

GST Shalaka 2In the above case, the wholeseller adds up value of Rs. 20/- to the goods purchased from the manufacturer and sells it to the retailer for Rs. 150/-. The Wholeseller shall pay net GST of Rs. 2/- to the government as he shall be able to take the credit of the input GST paid of Rs. 13/- on goods.

GST Shalaka 3Now, when the retailer sells it to the ultimate consumer for Rs. 160/-, he shall pay net GST of Rs. 1/- to the government due to input GST credit of Rs. 15/-.

b) ADMINISTRATIVE FUNCTIONALITY (GST MODEL):

India is a federal country where both the Centre and the States have been assigned the powers to levy and collect taxes through appropriate legislation. Both the levels of Government have distinct responsibilities to perform according to the division of powers prescribed in the Constitution for which they need to raise resources. A dual GST will, therefore, be in keeping with the Constitutional requirement of fiscal federalism. Under this model, GST will have two components viz. the Central GST to be levied and collected by the Centre and the State GST to be levied and collected by the respective States.

ITS NON-APPLICABILITY:

Following are the products that are kept outside the ambit of GST:

a) Petroleum Products. Crude Oil, Natural Gas, Petrol, Diesel and Jet fuel.

b) Alcohol for Human Consumption.

 c) Tobaco

TAXES SUBSUMED BY THE GST:

GST Shalaka 4TAXES WHICH MAY NOT BE SUBSUMED:

a) Basic Customs Duty

b) Stamp Duty

c) Vehicle Tax

d) Electricity Duty

e) Other Entry Taxes.

CURRENT STATUS OF GST IN PARLIAMENT:

The Union Finance Minister, Shri. Arun Jaitley has been caught between the tensions of stiff political opposition to the GST bill. The bill has received the assent from the Lok Sabha but is pending for approval at the Rajya Sabha where the government party represents minority. However, the NDA led government is pragmatic for its launch by April 2016.

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