Simplified Laws Guide to Taxation and Legal Concern
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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