The biggest tax reform since the liberalization and privatization in India “GST” got green signal on 3rd of August by the upper house and finally by the lower house on 8th of August after a long and intense meetings and debates between states, political parties and industry bodies.
The central government is planning to roll out GST in the next financial year commencing from April 1, 2017. The standard GST rate would be 18 % including 1 % additional tax for interstate supply of goods to compensate the losses of state revenue.
Present tax structure complexities
In India, we have Direct (Personal income tax, Wealth tax, Capital tax) and indirect taxation (custom duties, Excise duties of the states and the center, Service tax, VAT) currently in use.
- Multiple tax structure and multiple rates
- Unavailability of input tax credit on taxes like CST and Octroi
- Cascading effects of taxes
- Complexities with multiple tax rates
- Multiple compliance
- Error prone, time and cost consuming
- High rate of tax evasion
GST to transform India one unified common market
The ‘one-nation, one tax system’, GST model will unite and subsume major central and state levies such as excise duty, customs duty, service tax, value added tax (TAX), central sales tax (CST), entry tax, octroi, entertainment tax, luxury tax and others to create one single levy.
GST will bring ease of doing business, improve compliance, boost government revenues and gradually decrease in the market price of goods and service. According to GST there is no divergence between a goods and service whether as an input or as finished product. Under GST, tax paid on input goods can be set off against the tax payable on the output generated.
This input set of operates through the manufacturing and distribution stage of commodity production so the revenue is collected only at the place of consumption. This structure eliminate cascading effect and allow free flow of goods and services across the country. The GST will benefit traders who supply raw material to the companies, distributors with interstate network and manufacturers with facilities in many states. An important feature of the GST is that the central government shall compensate the state governments for any loss of revenue due to GST implementation.