GST Or Goods and Services Tax is an indirect, comprehensive, multi-stage, destination based tax that is levied on every value addition More than 150 countries already have GST. In India, it was first considered by Vajpayee government in 1999 and was implemented on 1 July 2017 after being passed as The Constitution (One hundred and first amendment) Act 2017. It also led to a huge controversy before and after it’s implementation. It has simplified the tax structure to a large degree. One of the main purpose of the GST is to bring uniformity. GST has led to amalgamation of centre and state taxes into one. In the new regime the tax is levied on consumption rather than on taxation. GST is a two-tiered one-country one-tax regime. It is also characterized by subsumption of all other indirect taxes. The system promises more transparency and is free from cascading effect of taxes, thus improving the cost competitiveness of the market. As the tax levied by the government is less, it also leads to lesser price and therefore more consumption. The new regime will also bring composition scheme for small business.
Several international trade firms, businessmen and the opposition in the parliament have also pointed out many limitations of the GST regime. Goldman Sachs, for example, in a note ‘India: Q and A on GST’ said that the “growth impact could be muted” and the model in India will not lead to growth. It also said that it will push up consumer prices inflation and may not result in increased tax revenue collections. Adoption of dual GST instead of a national GST will also lead to complications and the centre will have to coordinate with 29 states and 7 union territories. The rates of taxation are claimed to be double to for times of that in countries like Singapore. The opposition argues that there is no difference between the old and new tax rates and GST has only increased existing rates of common goods of daily usage while on the other hand reduced rates on luxury items.
The GST is levied on each of the stages i.e. purchase of raw material, manufacture, warehousing, sale to the retailer and sale to the customer. Thus it is levied on every value addition. The tax is destination based i.e. entire tax revenue goes to the state that consumes the final product or service. It has a defined treatment for e-commerce. GST has three components:-
CGST (Central Goods and Services Tax)- collected by central government for intra-state sale.
SGST (State Goods and Services Tax)- collected by state government for intra-state sale.
IGST (Integrated Goods and Services Tax)-collected by central government for inter-state sale.
One of the fundamental characteristics of GST is that it eliminates cascading effect of taxes. Earlier the tax was also levied on the cost increased due to the taxation in the previous stage. Ignoring the profit and loss, suppose, a product costs Rs. 200 on one stage and a tax of 10% is levied, the price now is Rs. 220 and it is bought by the person on the next stage where a value of Rs. 30 is added and the product is sold, if again the tax is 10%, the price now becomes Rs. 275 (220+30+10% of 250). Thus, the customer on the next stage pays for the taxation of retailer, wholesaler etc. In GST, a way to claim credit for tax paid in acquiring input is there. An individual can claim credit for his tax at the time of submission of taxes. Therefore, in the previous example, the buyer on the latter stage effectively pays a tax of only Rs. 5(25-20). Thus reducing the final price of the product.
The Goods and Services Tax in India is governed by a GST council with finance minister of India as it’s chairman. The taxation rates are 0%, 5%, 12%, 18% and 28%. There is also a special rate of 0.25% for rough precious and semi precious stones and a rate of 3% on gold. The sale and purchase of securities is still taxed by STT( Security Transaction Tax) and not by GST. The GST was launched on the midnight of 1st July, 2017 by president Pranab Mukherjee. The launch itself was a matter of much clamor and controversy. The new tax has increased prices of hotels, insurance, cinema and food. The overall increase in price led to several protests by business community.
The Goods and Services Tax Network is a not for profit, non-government organization that is to manage IT system of GST. It will also track financial transactions. The network will be maintained for registration, filing taxes and maintaining all the tax details. It’s 49% share is owned by the government and the rest is owned by private sector.