What is GST?
GST refers to “Goods and Services Tax”. It is an indirect tax which is levied on manufacture, sale & consumption of Goods & Services. All the indirect taxes which are levied at the national level will be consolidated in a single tax with a few exceptions.
GST is levied at every stage of the production- distribution chain with set offs in respect of tax paid at earlier stages. It focuses on final consumption by the consumer.
Illustration on Basic Impact: Base price of a Product X is Rs. 1000. Excise duty is @12%. VAT is levied @ 12.5%. CGST & SGST are charged @ 8% each.
Base Price = Rs. 1000
Add: Excise Duty @12% = Rs. 120
Total: = Rs. 1120
Add: VAT @ 12.5% = Rs. 140
Total: = Rs. 1260
Base Price = Rs. 1000
Add: CGST @8% = Rs. 80
Add: SGST @8% = Rs. 80
Total: = Rs. 1160
Value to the consumer is quite low in proposed GST model as compared to present position in India. It has been decreased to Rs. 1160 from current value of Rs. 1260. Both CGST & SGST are levied on the base price only.
GST will give a better competitive advantage to the industry on this front. Obviously consumer is also on the gain side in terms of price paid. This will be a ‘win-win situation’ for both the industry and the end users.
In India, GST will be levied by both tiers of Government concurrently. It will be ‘Dual Concurrent Model’ of GST. Central GST will be administered by the Central Government and State GST by respective State Governments. At present, Centre can levy tax on goods and services (e.g., excise duty on goods manufactured, service tax on services), but state has no power to levy tax on services.
Taxes to be Subsumed in GST
A. CGST will subsume following taxes -:
B. SGST will subsume following taxes -:
Taxes not to be Subsumed in GST
A. In CGST
B. In SGST
Advantages of GST
What is RNR and its importance in GST?
RNR stands for Revenue Neutral Rate. With the introduction of GST, Government’s revenue will decline due to tax credit mechanism and other factors. To bring the proposed revenue at par with present tax structure, suitable adjustment is required in tax rate. This rate is termed as ‘Revenue Neutral Rate’. At RNR, tax revenues will be same as present despite giving credit of duty paid on inputs and other factors.
Factors for Determination of RNR- :
2. Tax base which will be comprehensive in GST
How GST Success Depends upon RNR ?
This is the basic truth that success of GST will largely depend upon fixation of RNR at Central & State levels. RNR will be most workable when it is acceptable to the common man as well as revenue neutral for the Government.
Every effort should be so made that GST rate is set as low as possible. There should be no revenue loss from proposed changes and a normal growth is also maintained. The Finance Ministry of India has asked the Revenue Department to make an advance payment of Rs. 500 Crores to States as a compensation of CST.
Expected GST Rates in India – :
GST rates are expected to be 12 % to 20% for the first year, 12% to 18% for the second year and 16% for the third year and onwards.
|Goods/ Services||Levy||Rate in First Yr.||Rate in Second Yr.||Rate in Third Yr.|
|Goods – Lower
GST implementation will certainly promote Indian growth. It is expected that present value of GST will be half a trillion dollars, meaning gains of nearly 15 billion dollars annually to our economy.
No doubt, implementation of GST is not an easy task for us. Many challenges will have to be faced on various fronts. Every major reform certainly is objected for its drawbacks. Same is the case with GST.
It is a long time for GST from April 1, 2010 till now!!!!!!!! We all are waiting………April1, 2016 deadline seems difficult to achieve since ‘The Constitution Amendment Bill, 2014’got stuck in Rajya Sabha where NDA don’t have majority to pass the bill…………… Hope our government will reach to a consensus in this Winter Session to initiate GST at the earliest.
(Author Details- CA Neha Gupta, B.Com, ACA, AIR (Final) 36, LNG & Associates, Chartered Accountants, Email: firstname.lastname@example.org)