GOODS AND SERVICES TAX (GST)

Goods and Services Tax (GST) is a single tax rate levied on the manufacture, sale and consumption of goods and services at a national level. GOODS AND SERVICES TAX

In this system, GST is levied only on the value-added at every stage of production. This will ensure that there is no cascading effect of taxes (tax on tax paid) on inputs that are used in manufacturing of goods.

GOODS AND SERVICES TAX For example: If a tax of 15% is levied on Rs. 2 lakhs at the first stage, the tax outflow would be Rs. 30,000. At the next stage when the same goods are sold for Rs. 2.5 lakhs the tax would have been Rs. 37,500 (Rs. 2.5 Lakhs x 15%) but since there is a set off of Rs. 30,000 available, the actual tax at that stage will be Rs. 7,500 (Rs. 37,500 – Rs. 30,000).

Simply put, when the final tax is calculated, the tax already paid on input / raw material is deducted and then tax is levied only on the cost of the goods produced. GOODS AND SERVICES TAX

How is the GST different from current system?

GOODS AND SERVICES TAX CurrentGST Nature of Regime A Combination of value added tax (VAT) which is a destination-based tax and origin- based taxes such as excise duties etc. Tax incidence at the point of sale Tax Base Goods & Services are taxed separately, subject to some exemptions Comprehensive base of goods & services included Multiplicity of tax rates Multiple tax ratesSingle tax rate Tax Cascading Incomplete set off mechanism for tax paid in the supply chain (e.g. no set off available for VAT against service tax or excise duty) Complete set-off should be available in the entire chain of production and distribution to eliminate tax cascading effect

Why is it considered a better system? GOODS AND SERVICES TAX

 Currently, there are multiple indirect taxes — Central taxes such as excise duty, service tax and countervailing duty, and State taxes, such as VAT, entertainment tax and luxury tax. This results in high tax rates. Accordingly, GST seeks to eliminate multiplicity of taxes, rates, exemptions and such exceptions to achieve uniformity of taxes across the country. Further, it would provide greater certainty and transparency of taxes.  Also, the differences across states fragment the national market along state boundaries. GST is likely to replace all these taxes with a simple levy, lowering effective tax on goods and creating a national market in goods and services.

What is the GST model India plans to adopt?

 Most countries have a unified GST system. However, India has opted for a dual GST system prevalent in Brazil and Canada. Under this model, both the Centre and states have the right to levy and collect tax on the sale of goods and services. GOODS AND SERVICES TAX

What are the key benefits of implementing a GST?

 GST will simplify India's tax structure, broaden the tax base, and create a common market across states. This will lead to increased compliance and will support India's GDP growth.  It will be beneficial for India Inc. as the average tax burden on companies will fall due to transparent set-off mechanism and elimination of cascading taxes leading to reduced production costs and increased export competitiveness. GOODS AND SERVICES TAX

 Implementation of GST may lead to a fall in costs in many cases making several products competitive leading to benefits for the manufacturers and also making some of them competitive on the world stage. Over a period of time the consumer will reap the benefits of the process through lower costs. GOODS AND SERVICES TAX

Let us see the formula of the Current Account Balance (CAB) CAB = X - M + NI + NCT X = Exports of goods and services M = Imports of goods and services NI = Net income abroad [Salaries paid or received, credit / debit of income from FII & FDI etc. ] NCT = Net current transfers [Workers' Remittances (unilateral), Donations, Aids & Grants, Official, Assistance and Pensions etc] CURRENT ACCOUNT DEFICIT Hope you have now understood the concept of Goods and Services Tax. GOODS AND SERVICES TAX

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