Understanding GST- Goods & service tax in india

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Given the passage of the Constitution (122nd) Amendment Bill, 2014 for Goods and Services Tax (GST) in the Lok Sabha on 6th May, 2015, the Government of India seems committed to replace all the indirect taxes levied on goods and services by the Centre and States and implement GST by 2016. With GST, it is anticipated that the tax base will be comprehensive, as virtually all goods and services will be taxable, with minimum exemptions.

GST the game changer: GST will be a game changing reform for Indian economy by developing a common Indian market and reducing the cascading effect of tax on the cost of goods and services. It will impact the Tax Structure, Tax Incidence, Tax Computation, Tax Payment, Compliance, Credit Utilization and Reporting leading to a complete overhaul of the current indirect tax system.

GST will have a far reaching impact on almost all the aspects of the business operations in the country, for instance, pricing of products and services; supply chain optimization; IT, accounting and tax compliance systems.

What is Goods and Services Tax?

The Goods and Services Tax(GST) is a tax we have to pay every time we buy goods or services. In this system, the consumer pays the final tax but an efficient input tax credit system ensures that there is no cascading of taxes — tax on tax paid on inputs that go into manufacture of goods. Put simply, GST is levied only on the value-added at every stage of production. The price of any input going into production will have a cost and a tax component. The system ensure that when the final tax is calculated, the tax paid on input is taken out and the tax is levied only on the cost of the good produced. It is therefore, also known as value added tax in some countries and trade blocks.

What is the GST model India plans to adopt?

Most countries have a unified GST system. India, however, has opted for a dual GST system prevalent in Brazil and Canada. Under the dual GST model, both the centre and states, have the right to levy and collect tax on the sale of goods. Consultations are on between the centre and the state government through the empowered committee of state finance ministers to finalise the detailed structural framework of the tax.

Why is it considered a better system than the current one?

Currently there are a multiple of indirect taxes -- central taxes such as excise duty, service tax, countervailing duty, special additional duty on customs, all cesses and surcharges and state taxes including value added tax(VAT), sales tax, entertainment tax, luxury tax, tax on lottery, betting and gambling, entry tax and state cesses and surcharges. This causes effective tax rate to be high and the differences across states fragments the national market along state boundaries. GST will replace all these taxes with a simple levy, lowering effective tax on goods and creating a national market in goods and services.

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