“The Consumer is the King Today, and With GST we intend to bring uniformity in Taxes.”
These were the words of PM Narendra Modi when the Constitutional Amendment Bill was passed by the Parliament paving the way for the introduction of a whole new and progressive indirect taxation regime which we commonly call as GST. GST, now let’s take a pause and see what is GST, how will it work, how the Indian economy will be benefited from this, and the challenges of implementing a uniform system in a diverse country.
What is GST?
GST (Goods and Services Tax) is an indirect tax that will be levied on goods as well as services. All the existing state and central indirect taxes will be subsumed under these apart from Customs Duties. It will be applicable in throughout the country (except JAMMU and KASHMIR). Under this system, a single product will be taxed at the same rate in every corner of the country meaning that an air conditioner will be taxed the same in Himachal Pradesh as well as Tamil Nadu thus we also refer GST as ONE NATION ONE TAX. However, it does not mean that every item will be charged at the same rate as we cannot charge the same price for AC and salt, food powder. Apparently, the necessities will be levied at a lower rate than the luxuries, but a single luxury product or an individual necessity good will be charged the same rate throughout the country.
GST is expected to be applicable from 1 July 2017.
How will GST work?
GST will be divided into three components the Central Goods and Services Tax(CGST), State Goods and Services Tax(SGST), Inter State GST. The CSGT will subsume the Central indirect taxes like the service tax, excise duty, additional customs duty, additional special excise duty whereas SGST will subsume the State indirect taxes like VAT, entertainment tax, octroi and others. The CGST will be levied by the Central Govt whereas the SGST will be charged by the state government. In the case of an interstate sales transactions, IGST will be collected by the Central Government. GST will allow the Input tax credit for the taxes paid on the purchase of goods and services during a commercial activity and input tax credit of CGST and SGST will be provided by the respective governments.
How will GST effect the country?
GST bill covers the Goods and Services Tax and shall be the biggest indirect tax reform providing a uniform and simplified way of Indirect taxation in India.Once introduced it will replace a number of other taxes like VAT,CST,Service tax,CAD,SAD, Excise,Entry tax,purchase tax etc. The basic idea for introducing GST is converting India into a single market.This might have a positive impact on GDP of India and help to boost the Indian economy.
Main Advantages of GST :
- A unified indirect tax system.
- Reduction in manufacturing cost.
- It will replace a number of other taxes like VAT,CST,Service tax,CAD,SAD, Excise,Entry tax,purchase tax etc.
- Less complex tax system.
Positive Impact of GST :
- A unified tax system removing a bundle of indirect taxes.
- Less tax compliance.
- Removes cascading effect of taxes.
- Manufacturing costs will be reduced, hence prices of consumer goods likely to come down.
- Due to reduced costs some products like cars,FMCG etc.will become cheaper.
- Lower prices will increase demand/consumption.Increased demand will lead to increase supply.Hence,rise in production of goods.The increased production will lead to more job opportunities in the long run.But,this can happen only if consumers actually get cheaper goods.
- A unified tax regime will lead to less corruption which will indirectly affect the common man.
Hence, this is possible only if the benefit is actually passed on to the consumers.There are other factors also like the sellers profit margin that determine the final price of goods.GST alone does not determine the final price of goods.
Negative Impact of GST :
- Services will become expensive.e.g.Telecom, banking, airline etc.
- Being a new tax, it will take some time for the people to understand its implications.
- It is easier said than done.There are always some complications attached. It is a consumption based tax, so in case of services the place where service is provided needs to be determined.
- If actual benefit is not passed to consumer and seller increases his profit margin, the prices of goods can also see a rising trend.
However, GST is a long term strategy and the positive impact shall be seen in the long run.
What are the four bills that were approved by the Union Cabinet?
Central GST Bill: The CGST Bill sets the tax regime for levying and collection of GST on supply of goods and/or services that are happening within the boundaries of a state by the Central Government.
Integrated GST Bill: The IGST bill decides the tax regime for levy and collection of GST on supply of goods and/or services carried out between different states by the Central Government.
Union Territory GST Bill: The UTGST fixes the tax regime for levying and collection of GST on supply of goods and services in the Union Territories without legislature.
The Compensation Bill: The Compensation bill will compensate the states for loss of revenue which will occur due to the implementation of GST for a period of five years.
The GST Rates
The government has kept 81% of items under 18% tax slab. It has categorised 1211 items under various tax slabs. Here is an overview on the tax slab these items would attract:
No tax will be imposed on items like fresh meat, fish chicken, eggs, milk, butter milk, curd, natural honey, fresh fruits and vegetables, flour, besan, bread, prasad, salt, bindi. Sindoor, stamps, judicial papers, printed books, newspapers, bangles, handloom etc.
Items such as fish fillet, cream, skimmed milk powder, branded paneer, frozen vegetables, coffee, tea, spices, pizza bread, rusk, sabudana, kerosene, coal, medicines, stent, lifeboats will attract tax of 5 %.
Frozen meat products , butter, cheese, ghee, dry fruits in packaged form, animal fat, sausage, fruit juices, Bhutia, namkeen, Ayurvedic medicines, tooth powder, agarbatti, colouring books, picture books, umbrella, sewing machine, and cellphones will be under 12 % tax slab.
Flavoured refined sugar, pasta, cornflakes, pastries and cakes, preserved vegetables, jams, sauces, soups, ice cream, instant food mixes, mineral water, tissues, envelopes, tampons, note books, steel products, printed circuits, camera, speakers and monitors.
Chewing gum, molasses, chocolate not containing cocoa, waffles and wafers coated with choclate, pan masala, aerated water, paint, deodorants, shaving creams, after shave, hair shampoo, dye, sunscreen, wallpaper, ceramic tiles, water heater, dishwasher, weighing machine, washing machine, ATM, vending machines, vacuum cleaner, shavers, hair clippers, automobiles, motorcycles, aircraft for personal use, and yachts will attract 28 % tax — the highest under GST system.
So is it good or bad?
All said about GST I believe that GST is an excellent step forward and it will help in the growth of our economy as has been predicted by various agencies. This tax system will not only benefit the consumers but the business houses at the same time and will also improve administrative efficiency of tax authorities. The Govt believes and is confident of rolling out the new system by 1st July 2017 and any delay in doing this will adversely affect the economy’s growth prospects.