Updated: Oct 2, 2019
GST popularly know as Goods and Service tax has been much of the talk of the town. The day when GST bill was passed in Lok Sabha, it has created lot of havoc and complexities in life of small business man, normal traders and for Chartered Accountants as well.
GST was introduced to reduce ambiguity and remove dual tax structure. GST simplified and integrated the state and central taxes into one and is primarily applied on sale and purchase of goods and services. Previously we had excise duty for production of goods and VAT for value added tax to goods and services. GST now combines all of this in one umbrella making it more consistent and easy for suppliers , traders, businesses and government. Though transition to GST in India has been complicated and took a toll on people getting impacted by the same, it has been one of the great reforms by our government and has its own advantages and implications to the Indian economy in the long run.
GST previously has been adopted by major countries like UK and Canada ,the main advantage of GST is that it removes the double taxation structure of the country and reduces the administrative procedures of the government.
One of the biggest criticisms of GST is the number of tax rates it has. It was intended that GST would reduce the number of tax rates than before, so now GST has five standard rates 0%,5%,12%,18% and 28% and 0.25% for rough diamonds, 3% for gold, and 1% for under construction affordable houses. Having eight different GST tax rates make India's GST system one of the most complex in the world.
1. Goods become cheaper - 80% of the goods in India in GST regime are covered under 12.5% tax rate, 55% state goods are covered under 14.5% tax rate, the wighted average of both state and central comes to 30%, making it cheaper. Though the tax rates on individual goods and services can be more in case of GST, but there is overall advantage of GST in terms of average tax rate.
2. Removal of Tax on Tax - Under existing tax system of Excise and VAT, if the assessable value of a good is Rs 100, excise duty would be 10% making the value of goods as 110, VAT would then be applied on that 110 since excise duty is added as a part of cost of production of goods and services. In case of GST, if the assessable value of goods and services is 100, then SGST (State goos and service tax) would be applied at the rate of 10% and CGST (Central goods and service tax) would also be applied at the rate of 10%, making the total value to 120, (100+10+10), thus saving from paying taxes on taxes.
3.One Nation, One Market - Due to introduction of GST there has been more standardisation in the tax rates of country. The previous tax structure (i.e State taxes like VAT) had different rates in different states. GST makes sure that no state has more or less tax rate but follows one nation rule for all people, giving it an unbiased factor in the economy.
4. GST will gradually reduce black money - GST registration is a mandatory and stringnet process, any start up or a trader or a businessman is required to register as per the GST act, the registration process requires Aadhar card, PAN card and bank account details of such people. Since it is a transparent system now, it would be difficult to evade taxes. Also Input tax credit would only be available if the trader is actually registered under GST act, hence it would be really difficult to evade taxes due to such interlinked procedures and formalities. GST is more online based tax assessment and therefore there are very less chances of corruption.
5.Gold becomes cheaper - With introduction of GST, the special rate on gold and jewelry is 3%, special rate on job work is 5%, and there is no GST on old gold or jewelry purchased from household sector.
6.Benefit to Manufacturers - Manufacturers can take full tax credit of the stock lying with them, manufacturers can get full exemption of up to Rs 20 lacs, they are also eligible for composition scheme up to Rs 75 lakhs at 2%.
7. Benefit to Corporates - The tax structure becomes much more simplified as against multiple tax structures like VAT, Excise or sales tax. Seamless credit regime are also available if companies are GST compliant.
In brief, GST is simplified and removes the multiple layers of tax structure and indemnifies the users from ambiguity by bringing one simple concept of tax. In the medium to long-term, GST should put downward pressure on inflation through efficiency gains, reduction in supply chain rigidities and lower transportation cost.