How GST Works :-
A product has to go through different stages before it reaches the end consumer, and there are different taxes applicable throughout this process. However, this situation will change in the GST. As we have read about the basic About Goods And Service Tax Introductioin.
In this post we will learn about the working of GST and its implications in real life.
Here’s how GST works :-
GST is a single tax on the supply of goods and services. That means the end consumer will only bear the GST charged by the last dealer in the supply chain. Several economists and experts see this as the most ambitious tax reform since independence. 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.
Let’s try and understand how GST will function throughout the value chain:
How did indirect taxes functioned earlier?
India’s constitution has divided the current taxation power fairly between the central and states. Both enjoy their own share and exclusivity on respective taxes. Most goods attract a wide range of taxes including:
1. Central Taxes:
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
2. State Taxes:
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
To add to that, one has to pay a “tax” on “tax” throughout the value chain as well. However, in the current tax structure, businesses are not allowed to take tax credits, which leads to a high probability of double taxation at every step of the supply chain. This not only increases the taxes to as high as 24-27%, but also raises the end cost of the goods or services significantly.
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 then they are sure to advise and leave their feedback in the comments below.