“Tax by a manufacturer + tax by a wholesaler +tax by retailer = GST “
This simple equation gives a coarse structure of India’s business reforming taxation model – the GST. The Parliament recently passed the Constitution -122nd Amendment bill, 2014 after it was unanimously passed by the Lok Sabha, approving all the amendments made by the Rajya Sabha.
As the concept of one tax in the federal system has created chaos throughout the country, a thorough knowledge of the same becomes imperative.
What is GST?
GST is a form of Value Added Tax, a single indirect tax for the whole nation, which will make India one unified common market. It is a single tax on the supply of goods and services, right from the manufacturer to the consumer.
To elucidate the concept of one tax, we need to understand the current taxation system in India. Broadly, there are two types of taxes: the direct taxes and the indirect taxes.
The direct tax– A tax, such as the income tax, which is levied on the income or profits of the person who pays it.
The indirect tax-A tax levied on goods and services, which we pay to the retailer and the retailer pays to the government
The GST revolves around the indirect taxes. It has no connection with the direct taxes. There are about 18 types of indirect taxes including the sales tax, luxury tax, central excise duty, professional tax, customs duty, entertainment tax, interstate tax etc. These taxes vary from state to state and product to product having different percentages from 1-15 %.
When we use any service, we need to pay the taxes – In some cases to the State Government, in the others to the Central Government, and in some to both the State and the central govt.
The cost of the product increases with the increase in the number of taxes levied on it.On an average, the Indians pay almost 30-35 % of the product value as tax when we buy a product. With GST at our disposal, we would need to pay a single tax the central government.
GST is essentially a tax on value addition at each stage i.e credits of input taxes paid at each stage will be available in the subsequent stages of value addition. Thus, the final consumer will bear only one tax in the supply chain charged by the last dealer with set-off benefits at all the previous stages.
GST has a broadly agreeable purpose. It aims to bring uniform indirect tax regime throughout the country by subsuming central and state indirect taxes into a single indirect tax. It also seeks to enhance fiscal federalism by removing indirect tax barriers across states and integrate the country into a common market, boosting government revenue and reducing business costs.
Which indirect taxes will subsume into GST?
At the central level: central excise duty, additional excise duty, service tax, additional customs duty, special additional duty of customs
At the state level: state value added tax (VAT), octroi and entry tax, purchase tax, luxury tax, taxes on the lottery, betting and gambling, entertainment tax, central sales tax.
The GST will have two components keeping in mind the federal structure of India: the central GST and the state GST. For goods and services that pass through several states, or imports the center will levy another tax, the integrated GST.
Alcohol for human consumption has been kept out of the GST. Tobacco and tobacco products will be a subject to GST.Initially, GST will not apply to petroleum, high-speed diesel, motor gas, natural gas, and aviation turbine fuel. The GST council will decide when GST will be levied on them.
Parliament may provide a compensation to states for revenue losses arising out of the implementation of GST for up to 5 years based on the recommendations of the GST council.
We hope GST may fulfill its aim by bringing the economic and educational empowerment of the poor.