As many of us know that our taxation system is divided into two parts
1 Direct Tax
2 Indirect Tax
A direct tax is paid directly by an individual or organization to an important entity as taxpayer, for example Real property tax, personal propertytax, income tax or taxes on assets.
An indirect tax is a tax that is paid to the government by one person/ unit or company through the supply chain, and it is passed on to the consumer as a part of the price of a good or service. The consumer is ultimately paying the tax by paying more for the product. An indirect tax is shifted from one taxpayer to another.
The structure of Indirect Tax is very complex of our country so the Indian government likely to introduced a bill to simplify the indirect tax system so they interduced GST bill or we can say that GST bill is passed to simplify the present structure of our indirect tax.
There are so many types of taxes on goods and services are levied by the Central and State Governments and
the consumers have to pay
- Entertainment Tax for watching a movie.
- Value Added Tax (VAT) on purchasing goods & services.
- Excise duties, Import Duties,
- Luxury Tax,
- Central Sales Tax,
- Service Tax.
Out of these taxs some of these are levied by the Central Government and some are by the State governments.
It is very confusing concept for the consumers as well as for the source of the tax collectors. How nice it will be if there is only one uniform tax system instead of all the taxes?
In this post, I am trying to explain & understand about the GST & let us find out the answers of the following questions.
What is Goods and Services Tax and what is its importance?
What are the benefits of GST Bill for a Corporates, common man and end consumer?
What are the advantages, disadvantages and challenges?
So let us see what is GST?
It has been long pending issue to introduced a "single taxation system" to streamline the indirect tax system in our country. This system is known as GST ( The full form of GST is the Goods & Services Tax). GST is introduce to lavy for both Goods & Services. The main purpose to adopt this system is to abolish all indirect taxes and GST only would be levied.
Before going further it is better to know some history about this bill. GST was first introduced during 2007-08 budget session but the present union cabinet ministry approved the proposal for introduction of GST Constitutional Amendment Bill on 17th December 2014. On 19th of December 2014, the GST bill was presented in Lok sabha.
But it was not tabled at Parliament but on 24 Apr 2015 Finance Minister Arun Jaitely has tabled the GST Bill in Lok Sabha and on 14 June 2016 Ministry of Finance releases the Draft of GST Bill.
It is a good news that on 03 August 2016 Rajya Sabha passes the GST Bill.
Now what happen next?
The enactment of the GST constitutional bill will precede to the setup of the GST council. The council will debate upon the precise of the rates for GST, which will be ratified by the States governments. The final and actual GST Bill will likely be taken up in coming Winter Session of the Parliament.
So what is GST?
GST is a tax structure in which every consumer need to pay on every supply of goods & services or in other words any person, who is providing or supplying goods and services is liable to charge GST.
One more confusion are there how is GST applied?
GST is a consumption based tax. The GST is based on “Destination principle". Means GST is applied on goods and services at the place where final consumption happens. GST is collected on value-added goods and services at each stage of sale or purchase in the supply chain. GST is paid on the procural of goods and services. The manufacturer, wholesaler & retailer will pay the GST as per the applicable rate and there is also a procedure to claim back tax as per the tax credit mechanism.
The end consumer or the last person of the supply chain has to bear this tax and so, because GST is a last-point retail tax and to be collected at point of Sale.
As GST is an indirect tax which means that the tax is passed on till the last stage wherein the customer of the goods and services bears the tax. If we see today's tax structure it is the same, the end user is bear the tax even today also so what is the diffetence. The main difference under the GST is to streamlining of the multiple taxes and the final cost to the customer will come out with lower in compare to present value. This is possible by the elimination of double charging in the present system.
Our Government is opting for Dual System in GST means it has two components and will known as
(CGST) Central Goods and Service Tax
(SGST) State Goods and Service Tax (SGST).
Taxes like Excise duties, service tax, custom duty etc will be included under CGST and Taxes like sales tax, entertainment tax, VAT and other state taxes will be included in SGST.
What is the applicable rate of GST?
The rate or percentage of GST is not yet decided. As it is already mentioned above that GST is the combination of CGST, SGST so It is believed that there will be 2 or 3 rates based on the importance of goods. For example the rates can be lower for essential goods and could be high for precious & luxury items.
If GST come into existance what are the benefits?
The tax structure will be made simple.
The entire Indian market will be an integrated market which may transform the economy into lower business costs.
This can provide a seamless movement of goods across states and reduce the transaction costs.
This tax system is good for export oriented businesses because it is not applied for goods & services which are made for export.
In the long run, the lower tax burden could translate into lower prices on goods for consumers.
The Suppliers, manufacturers, wholesalers and retailers are able to recover GST incurred on input costs as tax credits. It help reduces the cost for doing business, and help to provide a cheap & fair prices for consumers. It can bring more transparency and better compliance.
It also help to reduce the number of tax departments which may lead to less corruption.
More & more business houses including companies under unorganized sector will come under the tax system and also help to broaden the tax base, also help to accumulate better and more tax revenue with lesser cost.
Challenges or difficulties may occurs while implementing Goods & Services Tax system.
The bill is yet to be passed in the Parliament if the bill cleared by the Parliament To implement the bill there has to be lot changes at
Administration level,
Consolidations of Information Technology has to happen,
Sound IT infrastructure is needed,
The state governments has to be compensated for any loss of revenues if occurs
The new GST bill being a consumption-based tax system
The co-operation from state governments would be one of the key factors for the successfully implementation of GST because state government has the better source of revenues form goods and services.
The GST is going to replace the existing complexed tax structure and the common man may be benefited after implementation. But it all depends on the rate the GST is going to be fixed.
Nearly 140 countries are following this tax system and France was the first country to introduce and implement the tax system. So we can say that GST could be the next biggest tax reform for our country. To see the impect of this tax reform we need to wait few more months for more details on Goods & Services Tax system.
1 Direct Tax
2 Indirect Tax
A direct tax is paid directly by an individual or organization to an important entity as taxpayer, for example Real property tax, personal propertytax, income tax or taxes on assets.
An indirect tax is a tax that is paid to the government by one person/ unit or company through the supply chain, and it is passed on to the consumer as a part of the price of a good or service. The consumer is ultimately paying the tax by paying more for the product. An indirect tax is shifted from one taxpayer to another.
The structure of Indirect Tax is very complex of our country so the Indian government likely to introduced a bill to simplify the indirect tax system so they interduced GST bill or we can say that GST bill is passed to simplify the present structure of our indirect tax.
There are so many types of taxes on goods and services are levied by the Central and State Governments and
the consumers have to pay
- Entertainment Tax for watching a movie.
- Value Added Tax (VAT) on purchasing goods & services.
- Excise duties, Import Duties,
- Luxury Tax,
- Central Sales Tax,
- Service Tax.
Out of these taxs some of these are levied by the Central Government and some are by the State governments.
It is very confusing concept for the consumers as well as for the source of the tax collectors. How nice it will be if there is only one uniform tax system instead of all the taxes?
In this post, I am trying to explain & understand about the GST & let us find out the answers of the following questions.
What is Goods and Services Tax and what is its importance?
What are the benefits of GST Bill for a Corporates, common man and end consumer?
What are the advantages, disadvantages and challenges?
So let us see what is GST?
It has been long pending issue to introduced a "single taxation system" to streamline the indirect tax system in our country. This system is known as GST ( The full form of GST is the Goods & Services Tax). GST is introduce to lavy for both Goods & Services. The main purpose to adopt this system is to abolish all indirect taxes and GST only would be levied.
Before going further it is better to know some history about this bill. GST was first introduced during 2007-08 budget session but the present union cabinet ministry approved the proposal for introduction of GST Constitutional Amendment Bill on 17th December 2014. On 19th of December 2014, the GST bill was presented in Lok sabha.
But it was not tabled at Parliament but on 24 Apr 2015 Finance Minister Arun Jaitely has tabled the GST Bill in Lok Sabha and on 14 June 2016 Ministry of Finance releases the Draft of GST Bill.
It is a good news that on 03 August 2016 Rajya Sabha passes the GST Bill.
Now what happen next?
The enactment of the GST constitutional bill will precede to the setup of the GST council. The council will debate upon the precise of the rates for GST, which will be ratified by the States governments. The final and actual GST Bill will likely be taken up in coming Winter Session of the Parliament.
So what is GST?
GST is a tax structure in which every consumer need to pay on every supply of goods & services or in other words any person, who is providing or supplying goods and services is liable to charge GST.
One more confusion are there how is GST applied?
GST is a consumption based tax. The GST is based on “Destination principle". Means GST is applied on goods and services at the place where final consumption happens. GST is collected on value-added goods and services at each stage of sale or purchase in the supply chain. GST is paid on the procural of goods and services. The manufacturer, wholesaler & retailer will pay the GST as per the applicable rate and there is also a procedure to claim back tax as per the tax credit mechanism.
The end consumer or the last person of the supply chain has to bear this tax and so, because GST is a last-point retail tax and to be collected at point of Sale.
As GST is an indirect tax which means that the tax is passed on till the last stage wherein the customer of the goods and services bears the tax. If we see today's tax structure it is the same, the end user is bear the tax even today also so what is the diffetence. The main difference under the GST is to streamlining of the multiple taxes and the final cost to the customer will come out with lower in compare to present value. This is possible by the elimination of double charging in the present system.
Our Government is opting for Dual System in GST means it has two components and will known as
(CGST) Central Goods and Service Tax
(SGST) State Goods and Service Tax (SGST).
Taxes like Excise duties, service tax, custom duty etc will be included under CGST and Taxes like sales tax, entertainment tax, VAT and other state taxes will be included in SGST.
What is the applicable rate of GST?
The rate or percentage of GST is not yet decided. As it is already mentioned above that GST is the combination of CGST, SGST so It is believed that there will be 2 or 3 rates based on the importance of goods. For example the rates can be lower for essential goods and could be high for precious & luxury items.
If GST come into existance what are the benefits?
The tax structure will be made simple.
The entire Indian market will be an integrated market which may transform the economy into lower business costs.
This can provide a seamless movement of goods across states and reduce the transaction costs.
This tax system is good for export oriented businesses because it is not applied for goods & services which are made for export.
In the long run, the lower tax burden could translate into lower prices on goods for consumers.
The Suppliers, manufacturers, wholesalers and retailers are able to recover GST incurred on input costs as tax credits. It help reduces the cost for doing business, and help to provide a cheap & fair prices for consumers. It can bring more transparency and better compliance.
It also help to reduce the number of tax departments which may lead to less corruption.
More & more business houses including companies under unorganized sector will come under the tax system and also help to broaden the tax base, also help to accumulate better and more tax revenue with lesser cost.
Challenges or difficulties may occurs while implementing Goods & Services Tax system.
The bill is yet to be passed in the Parliament if the bill cleared by the Parliament To implement the bill there has to be lot changes at
Administration level,
Consolidations of Information Technology has to happen,
Sound IT infrastructure is needed,
The state governments has to be compensated for any loss of revenues if occurs
The new GST bill being a consumption-based tax system
The co-operation from state governments would be one of the key factors for the successfully implementation of GST because state government has the better source of revenues form goods and services.
The GST is going to replace the existing complexed tax structure and the common man may be benefited after implementation. But it all depends on the rate the GST is going to be fixed.
Nearly 140 countries are following this tax system and France was the first country to introduce and implement the tax system. So we can say that GST could be the next biggest tax reform for our country. To see the impect of this tax reform we need to wait few more months for more details on Goods & Services Tax system.
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