By: Vashistha Ray
There has been an inordinate delay in moving towards a new era of indirect –tax regime. The new indirect –tax system, called GST, is expected to open a window of opportunity of growth and prosperity.
The introduction of the GST would be a milestone in the field of indirect tax reforms in India. By subsuming a large number of central and state taxes into a single tax, it would mitigatecascading or double taxation in a major way and pave the way for a common national market.
From the consumer’s point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods and services. For instance, if we go to a restaurant now, we bear the burden of sales tax (VAT) as well as service tax. After the introduction of GST we would be required to pay a single -rate GST.
Introduction of the GST is also expected to make Indian products competitive in domestic and international markets. Studies show that this would instantly spur aggregatedemand and economic growth. Because of its transparent character, it is expected that the GST would be easier to administer.
The broad features of the proposed GST model are as follows:
(i) GST would be applicable on supply of goods or services as against the present concept of tax on the manufacture (Exciseduty) or on sale of goods ( Sales Tax) or on provision of services( ServiceTax).
(ii) GST would be a destination-based tax as against the present concept of origin-based tax.
(iii) It would be a dual GST with the centre and the states simultaneously levying it on a common base. The GST to be levied by the centre would be called central GST (CGST) and that to be levied by the states would be called state GST (SGST).
(iv) An integrated GST(IGST) would be levied on inter-state supply (including stock transfers) of goods or services. This wouldbe collected by the centre so that the credit chain is not disrupted.
(v) Import of goods or services would be treated as inter-state supplies and would be subject to IGST in addition to the applicable custom duties.
(vi) A non-vatable additional tax, notexceeding 1 percent on inter-state supply of goods would be levied by thecentre and retained by the originating state at least for a period of two years.
(vii) CGST, SGST, and IGST would be levied at rates to be recommended by the Goods and Services Tax Council (GSTC) which will be chaired by the Union Finance Minister and will have Finance Ministers of states as its members.
(viii) GST would apply to all goods and services except alcohol for human consumption.
(ix) GST on petroleum products would be applicable from a date to be recommended by the GST Council.
(x) Tobacco and tobacco products would be subject to the GST. In addition, the centre could continue to levy central excise duty.
(xi) A common threshold exemption would apply to both CGST and SGST. Taxpayers with a turnover below would be exempt from GST. A compounding option (i.e. to pay tax at a flat rate on turnover without credits would be available to small taxpayers below a certain threshold.However, a taxable person falling within the limit of threshold or compoundingcould opt to pay tax at the normal rate in order to be part of the input taxcredit chain.
(xii) The list of exempted goods and services would be kept to a minimum and it would be harmonized for the centre and statesas far as possible.
(xiii Exports would be zero-rated.
(xiv)Credit of CGST paid on inputs may be usedonly for paying CGST on the output and the credit of SGST paid on input may beused only for paying SGST. In other words, the two streams of input tax credit(ITC) cannot be cross utilized, except in specified circumstances ofinter-state supplies, for payment of (IGST).
Over the past four decades, the value added tax (VAT) has been an important instrument of indirect taxation, with 130 countries having adopted it, resulting in one-fifth of theworld’s tax revenue. Tax reform in many of the developing countries has focused on moving to VAT. FEDERAL COUNTRIES LIKE Canada, New Zealand, and Australia have successfully adopted the GST into their structure. Implementation of a comprehensive GST in India is expected, ceteris paribus, to lead to efficientallocation of factors of production thus bringing about gain in GDP andexports. This would translate into enhanced economic welfare and higher returns to the factors of production, viz. land, labour, and capital. However, in the near term, as GST replaces a number of state-level and central taxes, revenue gains may not be significant.
There has been an inordinate delay in moving towards a new era of indirect –tax regime. The new indirect –tax system, called GST, is expected to open a window of opportunity of growth and prosperity.
The introduction of the GST would be a milestone in the field of indirect tax reforms in India. By subsuming a large number of central and state taxes into a single tax, it would mitigatecascading or double taxation in a major way and pave the way for a common national market.
From the consumer’s point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods and services. For instance, if we go to a restaurant now, we bear the burden of sales tax (VAT) as well as service tax. After the introduction of GST we would be required to pay a single -rate GST.
Introduction of the GST is also expected to make Indian products competitive in domestic and international markets. Studies show that this would instantly spur aggregatedemand and economic growth. Because of its transparent character, it is expected that the GST would be easier to administer.
The broad features of the proposed GST model are as follows:
(i) GST would be applicable on supply of goods or services as against the present concept of tax on the manufacture (Exciseduty) or on sale of goods ( Sales Tax) or on provision of services( ServiceTax).
(ii) GST would be a destination-based tax as against the present concept of origin-based tax.
(iii) It would be a dual GST with the centre and the states simultaneously levying it on a common base. The GST to be levied by the centre would be called central GST (CGST) and that to be levied by the states would be called state GST (SGST).
(iv) An integrated GST(IGST) would be levied on inter-state supply (including stock transfers) of goods or services. This wouldbe collected by the centre so that the credit chain is not disrupted.
(v) Import of goods or services would be treated as inter-state supplies and would be subject to IGST in addition to the applicable custom duties.
(vi) A non-vatable additional tax, notexceeding 1 percent on inter-state supply of goods would be levied by thecentre and retained by the originating state at least for a period of two years.
(vii) CGST, SGST, and IGST would be levied at rates to be recommended by the Goods and Services Tax Council (GSTC) which will be chaired by the Union Finance Minister and will have Finance Ministers of states as its members.
(viii) GST would apply to all goods and services except alcohol for human consumption.
(ix) GST on petroleum products would be applicable from a date to be recommended by the GST Council.
(x) Tobacco and tobacco products would be subject to the GST. In addition, the centre could continue to levy central excise duty.
(xi) A common threshold exemption would apply to both CGST and SGST. Taxpayers with a turnover below would be exempt from GST. A compounding option (i.e. to pay tax at a flat rate on turnover without credits would be available to small taxpayers below a certain threshold.However, a taxable person falling within the limit of threshold or compoundingcould opt to pay tax at the normal rate in order to be part of the input taxcredit chain.
(xii) The list of exempted goods and services would be kept to a minimum and it would be harmonized for the centre and statesas far as possible.
(xiii Exports would be zero-rated.
(xiv)Credit of CGST paid on inputs may be usedonly for paying CGST on the output and the credit of SGST paid on input may beused only for paying SGST. In other words, the two streams of input tax credit(ITC) cannot be cross utilized, except in specified circumstances ofinter-state supplies, for payment of (IGST).
Over the past four decades, the value added tax (VAT) has been an important instrument of indirect taxation, with 130 countries having adopted it, resulting in one-fifth of theworld’s tax revenue. Tax reform in many of the developing countries has focused on moving to VAT. FEDERAL COUNTRIES LIKE Canada, New Zealand, and Australia have successfully adopted the GST into their structure. Implementation of a comprehensive GST in India is expected, ceteris paribus, to lead to efficientallocation of factors of production thus bringing about gain in GDP andexports. This would translate into enhanced economic welfare and higher returns to the factors of production, viz. land, labour, and capital. However, in the near term, as GST replaces a number of state-level and central taxes, revenue gains may not be significant.
Thanks for sharing a wonderful detail regarding the GST Bill that is biggest reform of India. But in this article, you have not described the impacts of GST on the Indian Economic, Companies and Individuals. You can see the all benefits, advantage or disadvantage of GST by following this link GTS's Advantage of Disadvantage
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