The Goods and Services Tax is an indirect tax. It aims to simplify the present tax structure in India. GST subsumes most of the taxes which include Central indirect taxes like Service Tax, Additional Customs Duty, Special Additional Customs Duty, Central Excise Duty, Cess and Surcharge, and Countervailing Duty, and State indirect taxes such as Sales Tax, Value Added Tax (VAT), Tax on Inter-state Sale, Local Tax, Entertainment Tax, Purchase Tax, Mandi Tax/Other State-Specific Local Levies, Luxury Tax, Taxes on Lottery and Betting, and Octroi/Entry Tax.
It is applicable to all goods and services, but tobacco and alcohol for human consumption have been excluded under the Bill. Petroleum Products like naphtha, kerosene and LPG will be under the ambit of GST. However, the other five items, viz. diesel, natural gas, crude oil, petrol aviation fuel, and have been excluded during the initial years. In the current system, taxes are imposed separately on goods and services which complicate the tax structure and impose a lot of additional taxes.
The GST is a non-additional consolidated tax meant to bring uniformity in rate for both goods and services and it is structured to be payable at each stage of sale and purchase in the supply chain through a tax-credit mechanism, although in reality, the end the consumer, being the last person in the supply chain, will bear the taxes.
This is the biggest taxation reform in India so far. The main objective of this taxing system is to create a single, comprehensive, uniform, cooperative and undivided Indian market to eliminate cascading effect of taxes on production and distribution prices, eliminate corruption in tax administration, to do away with Gordian knot of multiple taxes to reduce burden on common man, to do away with multilayered policies, breaking tax barriers between states.
Benefits Of GST For Centre and State Government
- Full input tax credit under GST means a 12 to 14% drop in the cost of capital goods. A 6% rise in the capital goods investment, while 2% overall.
- GST also helps in reducing the cost of collection of tax revenue of the government and thereby leading to higher revenue efficiency.
- As GST promotes exports, it raises employment and boosts economic growth in India.
- State restriction and imposition of taxes made it difficult for e-commerce to function, but this has stopped with the entry of GST.
Benefits Of GST For Businesses
The benefits of GST on small, medium and corporate businesses in India are as follows:
- One of the Govt.’s recent initiatives -‘Digital India’ aims at digitizing India. Hence, services such as payments, returns, registrations, etc. are now easily available online, and thereby made compliance easy for the taxpayers.
- Lower prices of goods and services have further led to more consumption and more consumption means better products which help the growth of the companies and businesses.
- Both centre and state are charged on the manufacturing cost of the goods and services which benefit the individuals as the prices of the goods have come down.
- There are no hidden taxes, and the process of GST is transparent, lowering the cost of doing business. It helps in improving competitiveness for the trade and industry.
- Manufacturing is more competitive as GST addresses cascading of tax, inter-state tax, high logistics costs and fragmented market.
- Increased protection from imports as GST provides for appropriate countervailing duty.
- Under the old taxation regime, if a developer constructed a housing complex and gave the apartments on rent, the developer could not set off the CENVAT credit which was available on the construction against the service tax which the developer was supposed to pay on the rental income. However, in the present GST regime, the CENVAT credit can be availed as GST if the free flow of credit has been encouraged. On the other hand, the imposition of high GST rates like 25-27% has substantially reduced the incremental benefits of the free flow of credit.
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There are numerous benefits of GST that are applicable over consumers as well, These include:
- Customers now know exactly as to the amount of tax they are paying on the product they bought or the services they consumed.
- Efficiency gains and prevention of leakages reduce the overall tax burden on most commodities, which helps consumers in availing the tax benefits efficiently.
- Under the GST regime, any construction activity or work contracts or pre-completion sales are covered under the purview of ‘supply of services’. If this is the case, then the tax will be levied on a contractual base, doing away the overlapping of VAT and service tax on a certain portion of such contracts like under the existing regime. This will reduce the tax costs. As has been discussed before that this system will encourage the free flow of credits; several indirect taxes like excise duty, octroi, CST, entry tax, which are paid on the procurement of construction materials, will no longer exist as an additional cost on the developer. It will instead be available as a credit for the contractor and developer at the time of the procurement stage. This will also reduce the contract price and the resultant impact will be on the buyers because it will substantially reduce the overall prices.
GST will benefit the industries, agricultural sector, businesses and trade as the prices of goods and services will reduce which will further lead to more consumption, and ultimately production will increase. The transparent chain of taxes will further result in expanding the tax base which will lead to a reduction of the tax burden on the industries, agriculture, businesses and trade.
Also, the exclusion of petroleum in GST is a boon for the oil companies, which goes to the private corporation. Companies, who did not reduce the cost when the international price of crude fell, cannot be expected to reduce the cost by such a small change. Let the things not go worse for the common man who is already suffering a lot with the high price rate.