GST Largest Revolution in Indirect Taxation – One Country One tax, The word GST has been known to each and every person in India as it has been in headlines for many days. Non commerce students have also now curiosity to know what the Tax is all about and why all the members of parliament of ruling party are in favour of passing the bill. GST has been one of the taxes which have been universally accepted and so does the India want to accept. A journey towards the passing the bill and implementing the same in the real life would be the crucial one. The next session of parliament would be very important as if implemented it would be last chance the government if they want to implement it from the next financial year. This tax has been introduced with the motive of “One Country-One tax”
GST Largest Revolution in Indirect Taxation
What is GST? How it is different from previous taxes?
GST stands for Goods and Service Tax which would be charged in place of indirect taxes which are charged on manufacture, sale and consumption of goods and also on the services. The main objective of the Act is to combine all the taxes and make it one and charge so that the compliance procedure becomes simple and remove the limitations of the current tax structure.
The present indirect tax structure have lot of shortcomings and loopholes left holes which helps the person to take the advantage of the same and run out of the tax liability. Shifting to the GST would lead to transparency in the system and reduce the corruption. Now the question comes that how is it possible to get such advantages. The answer to it is explained through an example:-
Example – Let us assume that there is a product which has a price of Rs. 100. Now there is an excise duty which needs to be paid on such amount @ 12%. VAT is required to be paid @12.5%. Assuming the rates of CGST and SGST as 10%. Now the tax as per the present tax structure would be Rs 100+12+14 = Rs. 126. While in case of GST it would be Rs. 100+10+10 = Rs. 120. Now here the basic and the most important difference are described. In present tax structure, we pay VAT on the total amount including Excise duty. But in the GST, it would be on the basic amount only and not on tax. So the biggest advantage is that it would remove cascading effect/double taxation.
Characteristics of GST
GST as being adopted from the Canadian value added tax; it is very comprehensive tax where the all the goods and services are taxed at uniform rate so as to avoid the complexity. Some of the features of GST are mentioned below:
- Number of floor rates would be as less as 2 rates only. There would be no confusion regarding the applicability of which rate.
- GST is to be applied at the point of consumption or at the time of sale of goods to the final customer and not at the time of manufacture.
- The rate prescribed would be direct rate. There would be no cess, additional tax, etc.
- The collection of the taxes would be from two governments – some part to the central government and other to the state government (Rates for the same would be prescribed)
- The responsibility for the collection would be divided to the state and central for their respective collection and so there would be no dispute for the collection.
- The capital goods would be taxed at lower rates so that the cost of production would be reduced and resulting the final price of the product to be lower.
- A common indirect tax throughout the country would lead to less complexity and would be easy for the people to adopt it.
- The tax credits for both the type of taxes (CGST & SGST) would be different and no internal credit would be allowed. Credit of CGST to be used against the payable amount of CGST only and credit of SGST to be used against the payable amount of SGST only.
Must Read –
- List of Taxes Included in GST and Benefits of GST
- GST Impacts on Various Industries – Complete Analysis
- Filing of GST Returns, Revision of return, Short Filing of Return
Challenges for GST
Whenever any Bill is to become Act, in between there are always many challenges which come in forward. Some of the challenges are mentioned here:-
- “BILL TO ACT” – The biggest challenge for the government is to pass the GST bill in both the houses of parliament so as to make it statue and compliance of the same can be made.
- The financial challenge in the hands of government is the loss of revenue. Deciding the revenue neutral rate would keep the revenue as it is.
- Applicability of the Act would be very much relevant, as it would take time to the individual to know about the act and how to interpret it in the right way.
- Training would have to be given to the staff regarding the new act taking place which would incur huge cost.
- The consent from the states is very much important as every state needs to accept the proposal because GST would lead to loss of revenue.
- Rate should be such fixed that it do not become burden for the tax payer and would be affordable.
- Technological changes such as software for calculating GST, for return filing etc need to be made so that the tax payer does not have to face any difficulty while complying with the Act.
- GST council needs to make the GST draft within 30 days from the date of passing the GST bill which would be difficult as they have to take many factors into consideration such as rates, services and goods which should be exempt etc.
There are basically three models of GST. They are:-
- Central GST
- State GST
- Dual GST
The GST model adopted by India is “Dual GST” which says that the GST is to be levied by Centre and the States concurrently. Centre will charge CGST on goods and services and States will charge SGST on goods and services but importantly both will be charged on the basic amount of transaction only and not total amount.
Must Read –
- Key components of GSTR-1, GSTR-2 and GSTR-3
- Why GST For India – Challenges for Success in India
- GST Current Tax Structure and proposed GST Regime
- GST Definition, Objective, Framework, Action Plan & Scope
Advantages (Pros) of GST:
- Reduces Compliances Cost – It has been the largest advantage as there would be only one tax for the whole system and there would be only one registration required for the whole process, due to which the complexity would be reduced.
- Removes Cascading Effect – The another best benefit in implementing would be removing the double taxation form the system, as in the present structure there is lot of double taxation which would effect the normal people paying more tax which is not good for the country’s development.
- Single point taxation – As in GST would be applied on “sale” rather than “manufacture” so there would not be many intermediaries paying the tax and only the final consumer or the customer pays the tax.
- Reduces tax burden – Importantly GST would reduce the tax liability to the customer as it removes the cascading effect and due to which the customer will need to pay less and save more.
- Increased revenue of government – It is likely that there would be increased revenue to the department of indirect taxes as there would reduce in the compliance cost which would further increase the scope of the government to make the tax structure simpler.
- Transparent system – As there would be single point taxation, the system would become more transparent and resulting into reduced corruption which would extend the scope for a better corruption free country.
- Boost Exports – As the cost of production reduces in the domestic market, due to the price competitiveness the product would be accepted by the foreign market and there can be huge increase in the exports resulting in the development of the country.
Disadvantages (Cons) of GST:
- Centre becoming more powerful – As the final decision as to what rate would be applicable, when it would be applicable, what would be consequences of not doing so and all other matters would be decided by centre itself so there would be huge loss of revenue on the part of states.
- Disputes between centre and state – Due to the loss of revenue, states might not accept the proposal and so there can be disputes between the states and centre resulting in common man being suffered by them.
- Increase cost of homes – It has been said by many of the experts that due to the GST being implemented the cost of homes or the houses would go up and due to which the demand of the new houses would be reduced which would stop the country being developed.
- Some critics also say that the elements of GST such as CGST, SGST, and IGST are not other than Excise, VAT and CST and they all are the same as the present structure so there is no meaning to bring new law.
- It has been said by the experts that the GST would inflate the country and the inflation rate would increase to as much as 2 % which would affect the development of the country.