All About GST – Introduction
GST is a single tax on the supply of goods and services. Several economists and experts see this as the most ambitious tax reform since independence. Goods and service tax ( GST ) will eventually replace all indirect taxes levied on goods and services by the central and state governments, and is expected to liberate India of its complex indirect taxation structure.
It is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.
Benefits of Goods and Service Tax –
For Business And Industry :-
- Uniform Tax Rates and structure
- Easy Compliance
- Removes Cascading effect of taxation.
For Government :-
- Higher Revenue collection.
- Better Controls on leakages.
- Simple Administration.
3. For Consumer :-
- Single And Transparent Tax
- Relief in overall Tax Burden.
Now Let’s try To understand how GST will work through the Value Addition Chain. For it lets move to past system how it’s used to work earlier.
Central and State Taxes imposed before Goods and Service Tax –
Earlier Indian tax system was divided in two parts Central and states. Both central and state government has their own way to collect tax as their pre-decided exclusive rates .
a. Central Excise duty
b. Duties of Excise (Medicinal and Toilet Preparations)
c. Additional Duties of Excise (Goods of Special Importance)
d. Additional Duties of Excise (Textiles and Textile Products)
e. Additional Duties of Customs (commonly known as CVD)
f. Special Additional Duty of Customs (SAD)
g. Service Tax
h. Central Surcharges and Cess
a. State VAT
b. Central Sales Tax
c. Luxury Tax
d. Entry Tax
e. Entertainment and Amusement Tax
f. Taxes on advertisements
g. Purchase Tax
h. Taxes on lotteries, betting and gambling
i. State Surcharges and Cess.
And Earlier one has pay tax on tax to due to variety of taxes charged on the same goods or services . And also in the current tax structure, businesses are not allowed to take tax credits, which leads to high probability of double taxation at every step of the supply chain. This not only increases the taxes to as high as 25-27%, but also raises the end cost of the goods or services significantly.
Transformation in the tax system after GST
Now let’s move to see how Goods and Service Tax will Trasform the current Tax System-
GST is an attempt to establish a single market to buy and sell goods and services within the country using a single and transparent tax system and to remove all the barriers .However, the impact of it will not be uniform and will vary from one sector to another. The common man will benefit in two ways: firstly, all the taxes will directly be collected at the point of consumption, and secondly, consumers won’t have to pay a ‘tax’ on ‘tax’.
This way multiple tax points would be removed, cascading tax system would be eliminated and the ultimate tax burden will be reduced .This in turn would lead to reduction in the cost of production and lead to an increase in profits for the businessmen. A part of these benefits will eventually be passed on to the end-consumer as well.
Disclaimer – The post is written by CA Aprajita Mour after studying and evaluating the Accounting and Taxation subjects and prove to be the best of her knowledge. It is written to help CA students and other business enterprises to understand the learning process of GST in a simple manner. If the reader finds any mistake they are sure to advise and feel leave their feedback in the comments below.