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GST is the biggest tax reform in India. Read to know the basics

 

GST means Goods and Service Tax. It is an indirect tax levied on sale of goods and services. The reformists believe that GST is one of the most awaited law which upon introduced will boost the economic growth in the country. This law if passed by the parliament may come into force from April 2016. As everyone is talking about it now, let’s get into the basics of the proposed law in this article.

 

Present system – This can be better explained through an example. Suppose you buy soap for Rs.50 per piece, it includes Excise Duty, VAT or CST, Customs duty on the imported raw materials, etc. So, currently you will have to pay multiple taxes on the same product. Let’s take another example; the food you buy at hotels will have VAT as well as Service Tax.

 

Complexities in the present system – The taxes are levied by central government as well as state governments. So, the businessman has to maintain accounts which will comply with all the applicable laws. It is perceived to be a complex system. Hence, worldwide over 150 countries have adopted GST,  a simple tax system. Though it is late, India is catching up with the global trends.

 

GST will replace multiple taxes – Once GST is introduced, VAT, CST, Octroi, Entry Tax, Excise Duty, Service Tax, etc will be a history. One single tax GST is levied on both goods and services. But the proposed GST won’t be that simple as projected. They are making Central GST, State GST and Interstate GST. We will come to know the simplicity or complexity of the Act when it is enacted. Our experience says that the government is compelled to make things complicated, though the intention is to make things easy and simple!

 

Eliminating cascading effect of taxes – For example, the trader will sell a product, say Cibaca tooth paste worth Rs.100000 and collect Rs.15000 (GST at 15%) from the consumer in a month. While paying this amount to the government, he will reduce the taxes already paid by him towards purchase of goods and services by him. He would have bought the product from the manufacturer (Colgate) for Rs.80000, paying (at 15% GST) Rs.12000. He would have also spent Rs.10000/- on professional charges, paying (at 15% GST) Rs.1500.  So, he will remit Rs.1500 to the government (i.e., Rs.15000 collected from the consumer MINUS Rs.12000 MINUS Rs.1500). Thus the end product will become cheaper.

 

Is it easy to implement in India? Not really. Today states have autonomy in collecting state taxes. They have the feeling of losing their rights! They want liquor, fuel to be out of GST tax system. They are also worried about Central government sharing GST revenue with the states. If India becomes one common market, then the states will have to share their powers of taxing with the union government. (Which means states can’t increase the taxes as and when, as much as they want)

 

If the GST bill is passed; will it come into effect immediately? NO. The earliest day we can see GST in India will be in April 2016. Again implementation depends upon the initiative and involvement of state governments. Some of the states may act quickly and some of them may take time to implement.

 

GST Rate- Today, one pays Excise Duty of 12%, VAT of 14% on goods (totaling to 26%). 12% service tax on services. So, the rates may be anywhere between 12% and 26%. The average worldwide GST rate is around 18%

 

Some of the advantages of GST

  • Will bring in more transparency in the tax system
  • May be simpler compared to the present system
  • Check post harassment may come down (means corruption may be reduced)
  • Cost  of goods may come down

 

Thought for the day

Just taught my kids about taxes by eating 38% of their ice cream” – Canon O’Brien

 

Download

If you want to read more about Goods and Service Tax (GST) you can visit this link and download Background Material on Goods & Service Tax (GST) issued by ICAI

 

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CA Prasad Chartered Accountant
CA Prasad is a practicing Chartered Accountant and partner in Bangalore -based CA Firm. For further information or query, please email it to [email protected]
  • Pingback: Status of Goods and Service Tax (GST) in India as of December 2014 | Simplified Laws()

  • http://simplifiedlaws.com admin

    Silent feature of the constituent amendment Bill on Goods and Service Tax placed in Lok Sabha

    Article 246A – confer simultaneous power to Union and State legislatures to legislate on GST.

    Article 279A – creation of a Goods & Services Tax Council which will be a joint forum of the Center and the States. This Council would function under the Chairmanship of the Union Finance Minister and will have Ministers in charge of Finance/Taxation or Minister nominated by each of the States & UTs with Legislatures, as members. The Council will make recommendations to the Union and the States on important issues like tax rates, exemptions, threshold limits, dispute resolution modalities etc.

    • Do away with the concept of ‘declared goods of special importance’ under the Constitution.

    • Centre will compensate States for loss of revenue arising on account of implementation of the GST for a period up to five years.

    • Central taxes like Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty (CVD) and Special Additional Duty of Customs (SAD), etc. will be subsumed in GST.

    • At the State level, taxes like VAT/Sales Tax, Central Sales Tax, Entertainment Tax, Octroi and Entry Tax, Purchase Tax and Luxury Tax, etc. would be subsumed in GST.

    • All goods and services, except alcoholic liquor for human consumption, will be brought under the purview of GST. Petroleum and petroleum products have also been Constitutionally brought under GST. However, it has also been provided that petroleum and petroleum products shall not be subject to the levy of GST till notified at a future date on the recommendation of the GST Council. The present taxes levied by the States and the Centre on petroleum and petroleum products, i.e., Sales Tax/VAT, CST and Excise duty only, will continue to be levied in the interim period.

    • Both Centre and States will simultaneously levy GST across the value chain. Centre would levy and collect Central Goods and Services Tax (CGST), and States would levy and collect the State Goods and Services Tax (SGST) on all transactions within a State.

    • The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on all inter-State supply of goods and services. There will be seamless flow of input tax credit from one State to another. Proceeds of IGST will be apportioned among the States.

    • GST is a destination-based tax. All SGST on the final product will ordinarily accrue to the consuming State.

    • GST rates will be uniform across the country. However, there will a provision of a narrow tax band over and above the floor rates of CGST and SGST.

    • It is proposed to levy a non-vatable additional tax of not more than 1% on supply of goods in the course of inter-State trade or commerce. This tax will be for a period not exceeding 2 years, or further such period as recommended by the GST Council. This additional tax on supply of goods shall be assigned to the States from where such supplies originate.

    • The term “Services” is proposed to be exclusively defined as “anything other than goods”

    Copy of the GST constitutional Amendment Bill can be accessed from the below link

    http://www.prsindia.org/uploads/media/Constitution%20122nd/Constitution%20122nd%20Bill.pdf

  • simplifiedlaws

    GST unlikely by April 2016

    The legal process for imposing GST is as follows.

    The Constitution Amendment Bill will need to be passed with two-thirds majority in each House of Parliament and then be ratified by at least 15 state legislatures before getting the assent of the President. This would enable GST to be introduced.

    Following this, Parliament and state legislatures will need to pass GST Bills that impose central and state GSTs.

    The Standing Committee has examined the earlier Constitution Amendment Bill but may re-examine the new Bill if it is significantly different. It may also examine the subsequent GST Bill. Given this long process, implementing GST by April 2016 is an ambitious target.

    http://www.prsindia.org/media/articles-by-prs-team/gst-unlikely-by-april-2016-3461/