Goods and Services Tax (GST)

The Goods and Service Tax (GST) is one of the biggest economic and taxation reforms undertaken in India. The GST aims to streamline the taxation structure in the country and replace a gamut of indirect taxes with a singular GST to simplify the taxation procedure. The system will phase out all indirect taxes and only GST will be applied as an indirect tax. It will apply on both Goods and Services. Taxes like excise duty, VAT, service tax, luxury tax etc will go with GST’s implementation.

Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that will be levied on every value addition. In simple words, GST is an indirect tax levied on the supply of goods and services. GST Law has replaced many indirect tax laws that previously existed in India.

WHAT CHANGES DOES GST BRING IN?

Before GST, tax on tax was calculated and tax was paid by every purchaser including the final consumer. The taxation on tax is called the Cascading Effect of Taxes. GST avoids this cascading effect as tax is calculated only on the value add at each transfer of ownership. GST will improve the collection of taxes as well as boost the development of Indian economy by removing the indirect tax barriers between states and integrating the country through a uniform tax rate.

ADVANTAGES OF GST

1. Removing cascading tax effect

2. Higher threshold for registration

3. Composition scheme for small businesses

4. Simpler online procedure

5. Lesser compliances

6. Defined treatment for e-commerce

7. Increased efficiency in logistics

8. Regulating the unorganised sector.

DISADVANTAGES OF GST

1. Negative impact on the Real-State Market

2. Costlier Service

3. Complexity for the Businessmen

4. Income Tax Credit Mismatch

5. Disability Tax

6. Expensive Banking and Insurance

7. Impact on Discounts

8. Mid-Year Launch

9. Registration in the Many States Required

COMPONENTS OF GST

There are 3 applicable taxes under GST: CGST, SGST & IGST. CGST: Collected by the Central Government on an intra-state sale (Eg: Within Mumbai) SGST: Collected by the State Government on an intra-state sale (Eg: Within Mumbai) IGST: Collected by the Central Government for inter-state sale (Eg: Mumbai to Gujarat)

HOW WILL GST AFFECT THE COMMON MAN?

The impact of the GST on the prices of goods and services will largely depend on the item in question. It will also depend upon the respective State governments and their intervention with respect to controlling prices of essential commodities. Milk, for example, which is likely to see a spike in prices after GST is implemented, can still be sold at cheaper rates, if the State government offers a subsidy on it.

HOW WILL GST HELP IN GETTING RID OF TAX EVASION?

A comprehensive IT system, GSTN, will allot universal GST numbers (similar to PAN) to all manufacturers, traders, stockists, wholesalers and retailers. This will simplify the administration of indirect taxes and plug leakages. The government also plans to incentivise tax compliance by traders.

IS GST GOING TO BENEFIT PEOPLE BELOW THE POVERTY LINE?

With respect to those living below the poverty line, there might not be a direct impact of the GST on them as such since basic necessities like food are unlikely to attract the GST but increased collections of the GST with a larger tax base should provide an impetus to the government to allocate more money for social and poverty alleviation programmes. Thus, the GST should benefit all sections of the society. Additionally, the GST, being a nationwide tax, could lead to possibly higher inflation in the first few years of its introduction but would gradually increase the overall GDP.

WHAT CHANGED AFTER GST?

No more hidden taxes

Taxpayers are anxious about the apparent increase in tax rates after GST rollout. Consumers are apprehensive this would result in increase in prices, despite the government insisting quite the opposite. The consumers do not have to fear as it is the hidden taxes unified under the new tax regime and mentioned in the invoice handed to the buyer.

Check on price rise

GST replaces cascading effect of taxes with input tax credit. Under the new tax regime, the tax paid for inputs is taken off taxes to be paid for the final product, or output. This way more people pay taxes instead of the consumer bearing the burden of taxes levied at every step of manufacturing.

Traders go digital

With the tax return filing process going digital, traders will have to upgrade to electronic means to keep up. Those who used to generate invoices digitally will have to change their IT systems to accommodate changes brought about by GST.

Traders will have to train their employees as well as stakeholders, vendors and any other party involved in your business to sensitise them about the compliance requirements imposed by GST.

Check-posts removed

With GST being a destination-based tax, border check-posts at state limits have become obsolete and were done away with. The first thing it did was do away with the long line of trucks stranded at the state borders waiting to be cleared by these check-posts. Cutting the delay in delivery of goods has helped save crores of rupees in lost time.

Price change of essential commodities

No change was observed in the prices of essential commodities as they were kept in the zero percent tax bracket under GST. Luxury cars made in India saw a decline in their prices, though, as they were categorised in the lower tax bracket under GST.Motorcycles with engines bigger than 350cc were taxed at a higher rate than before under GST. Gold also saw a marginal increase in tax rates it would attract, as did telecom services. The already dearer hybrid cars would also attract more taxes under GST. Critics argue that GST is a value added process similar to VAT (value added tax), but VAT was already there in the Indian economy. So what was the need of implementation of GST?

Under the VAT, rates and regulation vary across different states and there is a tendency that different States cuts their rates to attract more investments which results in lowering govt. revenues. Under GST there will be uniform tax structure where the tax revenue will be divided among states and center according the to the consumption cycle. Moreover VAT was only there for services not for the goods.

The most significant question here is, that why would a government implement such a provision which only decreases its revenue? What could possibly be the logic behind it? Presently the government has long term prospects in their mind, it is clearly a long term strategy which will lead to higher investments, higher output, more employment opportunities, and higher economic growth but during the initial phase of implementation, it is expected that there will be hike in inflation rates, more administrative cost and stiff protest from the opposition.

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