GST has been trending for quite sometime and time has come for us to accept and move forward with it. Before moving on to the basic of GST and 10 important things, let me first define GST and then talk about the 10 facts.
What is GST
GST will be a comprehensive indirect tax on consumption of goods and services pan India, that will replace taxes levied by the central and state governments. The new tax structure is based on International standard and is simplified for easier administration and enforcement. This will result in better tax compliance, getting rid of existing multiple layer of complex tax system.
Consumers will benefit from this by a reduction in the overall tax burden on goods, which is currently estimated at 27%-32%. This will also allow free movement of goods from one state to another without stopping at state borders for hours for payment of state tax or entry tax. It will also lead to reduction in paperwork to a large extent. Overall system efficiency will improve a lot and economy will benefit by faster pace.
How does GST differ from VAT or how the next structure would be different from the existing structure?
In the current system there are multiple agencies and multiple layers of taxation. This has resulted in the overburdening and excessive taxation by implying cascading effect of Tax. It can be classified under 2 types of taxes
- Goods under VAT system (27%-32%) and
- Services under service tax (15%)which takes care of services rendered.
However, GST will be applicable for both goods and services, and will have a uniform pricing. GST is essentially riding on the VAT calculation but with uniform taxation across goods and services. This will lead to multiple entry and collection points in a simplified form. From a sales tax push system to self-discipline input based pull system will bring transparency, complete document trail and benefit for all.
10 things to know about GST
- GST is an International taxation system adopted by most of the developed countries.
- It was conceptualized in the early 1960s and has grown phenomenally to be adopted in almost 165 countries.
- Of the 34 member of OECD, 33 countries are GST compliant.
- It helps
- Preserve neutrality by taxing the value added at each point,
- Expects consumption tax to be much larger and stable source of revenue and
- Is practically self-enforcing in nature.
- India started the work on GST in 2000 under Shri AB Vajpaee, however has taken 17 years to formalize and get it implemented. This will be rolled out from 1st July 2017.
- GST in India will have 2 structure CGST (Central- GST) and SGST/IGST (State-GST)
- GST is an extensive tax system where both the central and state taxes is collected at the time of the sales.
- There will be 4 tax slabs in GST
- 0%- Basics- grains etc
- 5%- Commodity
- 12-18%- Normal items
- 28%- Luxury tax
- There are few items exempted from GST
- Items – Petrol, Alcohol, tobacco etc and
- Taxes – Stamp duty, Property tax electricity duty etc
- GST will allow free movement of goods and services across various states and will do away with the current state entry taxes.
It is expected that with a better world class taxation system will bring in high level of operational efficiency and will lead to benefits for all. GST long term benefits would are listed below
- A seamless economy with no barriers
- Indian manufacturing will become highly competitive
- The make in India will make more sense and will benefit every sector
- Better system efficiency resulting in long term benefits to all.