INTRODUCTIONGST is a type of indirect tax levied on the manufacturing, sales and consumption of any good or service across India that entails to put whole of India under one tax structure, without any cascading effect of taxes. Currently indirect taxes are imposed on goods and services, these include excise duty, sales tax, service tax, octroi, customs etc. GST is expected to:
a) Broaden tax base;
b) Increase tax compliance;
c) Reduce economic distortions caused by intra state variation in taxes;
Under the present scenario one of the major problem faced by our tax structure is the cascading effect of taxes. Though the problem was addressed to certain extent by value added tax (VAT) , but yet certain problems remained as several central and state taxes were not included in the ambit of VAT, thereby leading to double taxation.
SCOPE OF GST a) GST is applicable to all goods and services;
b) Alcoholic liquor for human consumption is exempt from tax;
c) Initially GST will not be levied on a) petroleum crude; (b) high speed diesel; (c) motor spirit; (d) natural gas; (e) aviation turbine fuel. GST council will decide the date on which GST will be levied on them.
LEVY OF GSTa) Both parliament and state legislature shall have power to make laws on the taxation of goods and services.
b) The Central Government will have the exclusive power to levy and collect GST in the course of interstate trade and commerce or imports. This will be known as Integrated GST (IGST)
FEATURES OF GSTa) Taxation on destination based consumption principles;
b) Taxable event of “supply” as against manufacture (excise), sales (VAT) and services (service tax);
c) Dual GST structure i.e., Central GST (CGST) and State GST (SGST) to apply on all goods and services;
d) Integrated GST (IGST) on interstate transactions, including stock transfer;
e) No set off of CGST and IGST is allowed against each other;
COMPARISION OF TAX IMPACT UNDER GST AND NON GST REGIMELets take a simple example where the cost of raw material is Rs. 100. Value added by manufacturer and retailer is Rs.20 each. Tax rate assumed is 10%.
Current tax regime: Both excise and sales tax are indirect taxes but the set off for the same is not allowed against each other, therefore sales tax is applicable on the excise duty paid. Thus tax paid is 12 (excise) plus 15.2 (sales tax). Note the ‘tax on tax’ effect where the final selling price not only has two taxes, but also tax on tax.
GST Regime: There is a single tax with input credit. This means that each person pays tax only the value added by him. Consequently the total tax is less, resulting in lower price of goods.
FEATURES AND IMPACT OF THE CURRENT SYSTEM WITH THE IDEAL GST REGIME
TRANSITIONAL PROVISIONSa) Input tax creditClosing balance of credit as per earlier law to be carried forward and allowed only when the credit is allowed under both earlier law and GST law.
b) Pending LitigationPending litigations would get assessed as per the provisions of earlier law.
c) Periodic Supply of ServicesGST is not payable if supply of services has already been completed before the appointed date and tax has already been paid under the earlier law.
d) Price RevisionAny tax payable or tax reduction on account of upward or downward revision of prices shall be considered under GST.
GST, over a period, could free India from the complex indirect tax laws and usher in a new era of a rational tax system in line with the international regime and which is conducive to growth and prosperity.
Guest Author
Sakshi Agarwal is the Founder of Finfit. She is a qualified company secretary and a qualified Lawyer. She has an experience of more than 7 years in catering the needs of various kinds of entities such as Companies, LLP’s, Partnership Firms etc. in complying with various laws applicable and other services which are necessary for the overall governance of an entity, including the services to existing entities and for setting up of the new business.
