Goods and Services Tax in India
The present structure of Indirect Taxes are very complex in India. There are so many types of taxes that are levied by the Central and State Governments on Goods & Services.
We have to pay ‘Entertainment Tax’ for watching a movie. We have to pay Value Added Tax (VAT) on purchasing goods & services. And there are Excise duties, Import Duties, Luxury Tax, Central Sales Tax, Service Tax etc...
As of today some of these taxes are levied by the Central Government and some are by the State governments. How nice will it be if there is only one unified tax
rate instead of all these taxes?
Let us understand – what is Goods and Services Tax and its importance. What are the benefits of GST, disadvantages and challenges?
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What is GST?
GST is the abbreviated form of Goods & Services Tax, It has been long pending issue to streamline all the different types of indirect taxes and implement a “single taxation” system, this system is called as GST.
The main expectation from this system is to abolish all indirect taxes and only
GST would be levied. As the name suggests, the GST will be levied both on Goods and Services.
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GST is a tax that we need to pay on supply of goods & services. Any person, who is providing or supplying goods and services is liable to charge GST.
How is GST applied?
GST is a consumption based tax/levy. It is based on the “Destination principle.”
GST is applied on goods and services at the place where final/actual consumption happens.
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The last person in the supply chain, the end consumer has to bear this tax and so, in many respects, GST is like a last-point retail tax. GST is going to be collected at point of Sale
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GST Rate Structure A four-tier GST tax slabs:
i) Zero Tax rate : There won’t be any tax on almost 50 % of items in the Consumer Price Index basket, including grains used by the common man.
ii) 5% Tax slab : This is applicable on items of mass consumption used by common people
iii) There would be two standard rates of 12% and 18% under the GST regime.
iv) All the items (especially luxury items) which are now taxed at around 30% will fall under 28% GST rate slab.
Note: An additional cess would also be levied on luxury cars, tobacco products & aerated drinks besides the highest tax rate (28%).
The present structure of Indirect Taxes are very complex in India. There are so many types of taxes that are levied by the Central and State Governments on Goods & Services.
We have to pay ‘Entertainment Tax’ for watching a movie. We have to pay Value Added Tax (VAT) on purchasing goods & services. And there are Excise duties, Import Duties, Luxury Tax, Central Sales Tax, Service Tax etc...
As of today some of these taxes are levied by the Central Government and some are by the State governments. How nice will it be if there is only one unified tax
rate instead of all these taxes?
Let us understand – what is Goods and Services Tax and its importance. What are the benefits of GST, disadvantages and challenges?
------------------------------------
What is GST?
GST is the abbreviated form of Goods & Services Tax, It has been long pending issue to streamline all the different types of indirect taxes and implement a “single taxation” system, this system is called as GST.
The main expectation from this system is to abolish all indirect taxes and only
GST would be levied. As the name suggests, the GST will be levied both on Goods and Services.
---------------------------------------------------------
GST is a tax that we need to pay on supply of goods & services. Any person, who is providing or supplying goods and services is liable to charge GST.
How is GST applied?
GST is a consumption based tax/levy. It is based on the “Destination principle.”
GST is applied on goods and services at the place where final/actual consumption happens.
---------------------------------------------------------
The last person in the supply chain, the end consumer has to bear this tax and so, in many respects, GST is like a last-point retail tax. GST is going to be collected at point of Sale
---------------------------------------------------------
i) Zero Tax rate : There won’t be any tax on almost 50 % of items in the Consumer Price Index basket, including grains used by the common man.
ii) 5% Tax slab : This is applicable on items of mass consumption used by common people
iii) There would be two standard rates of 12% and 18% under the GST regime.
iv) All the items (especially luxury items) which are now taxed at around 30% will fall under 28% GST rate slab.
Note: An additional cess would also be levied on luxury cars, tobacco products & aerated drinks besides the highest tax rate (28%).
-------------------------------------------------------------
Advantages of Goods and Services Tax (GST):
> GST is a single taxation system that will reduce the number of indirect taxes. From now, a single taxation term would cover all of those indirect taxes.
> The Prices of products and services would reduce , thus this system would prove to be beneficial for the people who are fed up of paying high prices.
> This would reduce the burden from the state and the central government. With the introduction of GST, all indirect taxes would come under a single roof.
> GST would not be charged at every point of sale like other indirect taxes so in this way, market would be developed.
> Corruption-free taxation system. GST would introduce corruption-free taxation system.
-------------------------------------------------------------
The opposition is to the way it is being implemented. It’s complex nature of compliance.
GST was supposed to Simplify taxation and make taxation easier. Is this happening?
Multiplicity of Tax Slabs
Instead of having a single or two slabs, we have 5 Slabs in GST - 0%, 5%, 12%, 18%, 28%
It does not end there. There are items which don’t fall under GST. And there is Cess.
Multiplicity of GST
Center(CGST), State(SGST), Inter-State(IGST). Ideally there should be only one.
Compliance
You need to file returns 3 times a month for every state in which you operate. That means at least 36 filings in a year per state.
If you have trade even in 25 states in India, then number of times you file returns are: 36 x 25= 900.
This is fine for large companies with army of accountants. Small Traders, and upcoming companies with meagre resources will not find this easy.
Computer Based
Most small traders are barely computer literate, and do not have IT infrastructure. They would be dependent on ‘others’ to do this return filing on their behalf. Move towards computerization is great - but are small businesses ready for it?
Most importantly
When rules and regulations are Simple - people tend to understand what they are doing and there is high compliance.
When rules are complex - people have to depend on ‘experts’, they barely understand what they are doing, and it gives rise to red-tape.
Advantages of Goods and Services Tax (GST):
> GST is a single taxation system that will reduce the number of indirect taxes. From now, a single taxation term would cover all of those indirect taxes.
> The Prices of products and services would reduce , thus this system would prove to be beneficial for the people who are fed up of paying high prices.
> This would reduce the burden from the state and the central government. With the introduction of GST, all indirect taxes would come under a single roof.
> GST would not be charged at every point of sale like other indirect taxes so in this way, market would be developed.
> Corruption-free taxation system. GST would introduce corruption-free taxation system.
-------------------------------------------------------------
Disadvantages of Goods and Services Tax (GST):
The opposition is to the way it is being implemented. It’s complex nature of compliance.
GST was supposed to Simplify taxation and make taxation easier. Is this happening?
Multiplicity of Tax Slabs
Instead of having a single or two slabs, we have 5 Slabs in GST - 0%, 5%, 12%, 18%, 28%
It does not end there. There are items which don’t fall under GST. And there is Cess.
Multiplicity of GST
Center(CGST), State(SGST), Inter-State(IGST). Ideally there should be only one.
Compliance
You need to file returns 3 times a month for every state in which you operate. That means at least 36 filings in a year per state.
If you have trade even in 25 states in India, then number of times you file returns are: 36 x 25= 900.
This is fine for large companies with army of accountants. Small Traders, and upcoming companies with meagre resources will not find this easy.
Computer Based
Most small traders are barely computer literate, and do not have IT infrastructure. They would be dependent on ‘others’ to do this return filing on their behalf. Move towards computerization is great - but are small businesses ready for it?
Most importantly
When rules and regulations are Simple - people tend to understand what they are doing and there is high compliance.
When rules are complex - people have to depend on ‘experts’, they barely understand what they are doing, and it gives rise to red-tape.
Resources:
- http://www.gcreddy.com/2017/07/introduction-to-gst.html
- http://www.cbec.gov.in/htdocs-cbec/gst
- https://cleartax.in/s/gst-law-goods-and-services-tax
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