India's current indirect tax system is complex and it isn't very easy to navigate. In fact, it is one of the trickiest aspects of running a business in India. To resolve this issue , faced by almost every new or existing businessman, the government has decided to implement a simpler more universally accepted 'Goods & Services Tax' (GST). GST would be one indirect tax meant to create and maintain a unified indirect taxation system across the country.
France was the first nation to implement GST, and since then 159 more countries have replaced their taxation system with GST. A few countries still continue to use VAT, but their VAT based tax systems are very similar to the concept of GST.
Which all taxes will GST replace?
GST will replace a number of central and state government taxes, such as:
- Service Tax
- Central Excise Duty
- Countervailing Duty
- Central Sales Tax (CST)
- Purchase Tax
- Taxes applicable on lotteries
- Special Countervailing Duty
- Value Added Tax (VAT)
- Entertainment Tax
- Luxury Tax
- Entry Tax
- Advertisement taxes
The advantages of GST
With one unified tax system, the complex matrix of the existing system will be dissolved and it would result in several benefits, listed below:
- Easier Compliance: GST will be an online taxation system, with a strong and stable IT infrastructure supporting it. This will ensure better accessibility to the tax system, taxpayer services, easier calculation and as a result better compliance and higher transparency.
- Uniform Tax Rates & Structure: With the advent of GST, the complex matrix of various central and state taxes would be replaced with a far simpler and easier to comprehend taxation system. Which would ensure neutral taxation, regardless of the region/ state in which the business is being conducted.
- Removal of Cascading Taxes: GST would also bring in a tax credit-based system, which would ensure minimal cascading of taxes thereby reducing costs, and reducing the end pricing for consumers.
- Greater Competitiveness: Increased certainty, simpler tax rules, and improved transparency would help in boosting economic resilience, because of which businesses would become more aggressive/ competitive and as a result consumers would benefit by way better prices, and greater value.
- Reduced Leakage: GST is expected to minimise leakage and ensure that a greater share of collected taxes reach the government. Currently, some businesses collect the mandatory government taxes, but they don't deposit the same with the government. With GST however, they would be compelled to do so as otherwise their vendors and suppliers won't be able to claim their tax credits.
Types of GST:
There are primarily three types of GST in India:
- CGST (Central Goods and Services Tax): CGST full form is Central Goods and Services Tax. It is collected by the central government on intra-state supplies of goods and services.
- SGST (State Goods and Services Tax): SGST full form is State Goods and Services Tax. It is collected by the state government on intra-state supplies of goods and services.
- IGST (Integrated Goods and Services Tax): IGST stands for Integrated Goods and Services Tax. It is collected by the central government on inter-state supplies of goods and services, and it is then distributed to the respective states.
These types of GST ensure a uniform tax structure across India while facilitating both intra-state and inter-state transactions.
GST slab rates and their impact
After multiple discussion and various debates, the GST council has finalised on 4 tax slabs: 5%, 12%, 18%, and 28%. Locally manufactured goods and small goods are supposed to fall in the lowest slab, however luxury goods and negative items like alcohol, tobacco will fall in the highest slab.
GST impact on everyday life
GST would affect businesses and individuals differently, the key impact for both would be:
- Individuals: The tax component of any purchase will be more transparent and there would a single tax instead of multiple taxes charged by the centre and state. This will result in a change in pricing, and most items are expected to become cheaper or in the long run.
- Businesses: The IT infrastructure supporting GST will make life simpler for businessmen and aid in better legal compliance. The transition phase would be tough, but the long term benefits would be many. Initially there may be doubts and confusion with regard to the processes and implementation, but the overall business environment will become more conducive in the long run.
While it is difficult to predict the exact impact of GST, it can be said with certainty that it's a step in the right direction and benefits derived from it would benefit all citizens of India.
To know more about GST, read our earlier blog here: Gst Decoded: What it Means for India and the Common Man
Frequently Asked Questions
What are the uses of GSTR 2A and GSTR 2B?
GSTR 2A and 2B are crucial for GST compliance, facilitating input tax credit verification and reconciliation with supplier invoices for accurate tax filing and compliance.
