GST which is also known as the goods and services tax was introduced first in the Budget Speech that was presented on 28th February 2006. It laid the establishment for reform in India’s indirect tax system. Goods and services tax (GST) was finally implemented on the 1st of July. After that, the indirect tax system went through some amendments since its founding. With the help of this new tax reform, the goods and services tax replaced many indirect taxes that were being applied to a lot of goods and services. The Central Board of Indirect Taxes and Customs (CBIC) is the only governing body responsible for all the amendments and changes regarding this tax.
GST – meaning and scope
Goods and services tax (GST) is a multi-stage, comprehensive, and destination-based tax that is levied at each step of value addition. It has helped the Indian government a lot in achieving its “One Nation One Tax” agenda by replacing all the indirect taxes in the country. This tax applies to all the goods and services that the merchants are selling within the country’s domestic boundary for consumption. It has been implemented by a lot of countries with their respective customizations. This tax is successful in simplifying India’s indirect taxation structure.
GST applies to the final market price of all the goods and services that the people manufacture internally, therefore, it reflects its maximum retail price. The customers need to pay this tax when they purchase the goods and services as an inclusion in their final price. The seller collects it and pays it to the government thus implying the secondary incidence.
The rates of this tax are uniformly applied to different goods and services across the country. However, the goods and services have been categorized under various slab rates for the tax payment. All the luxury and the comfort goods come under the higher slabs. However, the necessities come under lower slabs or nil slab rates. The goal of this classification was to ensure the uniform distribution of wealth among the citizens of India.
Benefits of GST
There are different benefits for different categories and they are as follows:
For business and industry:
- All the taxpayer services such as payments, registrations, returns, etc are available online to the taxpayers. This makes compliance transparent and easy.
- GST ensures that the tax rates and structures are common across the whole country. It increases the ease and certainty of doing business.
- There is minimal cascading of taxes after GST. This reduces all the hidden costs of doing business.
- There is an improvement in the competitiveness of the industry and trade because of the reduction in the transaction costs of doing business.
- There is a reduction in the cost of locally produced goods and services. This has increased the competitiveness of Indian goods and services in the international market thus giving a boost to Indian exports.
For central and state governments:
- GST reduces the cost of collection of tax revenues of the government which leads to a higher revenue efficiency.
- It has an end-to-end robust IT system. Thus, it is simple and easy to administer if we compare it to the other indirect taxes of the center and the state.
- Because of a consistent transfer of an input tax credit from one stage to another stage in the cycle of value addition, there is an in-built mechanism present in the GST design that incentivizes the tax compliance by the traders.
For the consumer:
- The consumers benefit a lot from it as the overall tax burdens will come down on most of the commodities because of the prevention of leakages as well as the gain in efficiency.
- Last, after the implication of GST, now there is only one tax from the manufacturer to the consumer. It leads to transparency of taxes paid.
Taxes subsumed after GST
GST was introduced as an indirect tax structure in India. With this, the main goal of the Indian government was to consolidate all the indirect taxes under one roof. Thus, these goods and services tax was a success in replacing the indirect taxes except the custom duty that is applicable to the import of goods and services. The GST system has helped overcome the limitations of the indirect tax structure regarding its implementation. It has also reduced the inefficiency in the collection process.
Following is a list of all the taxes that the GST contains:
Indirect taxes imposed by the central government:
- Special Additional Customs Duties
- Central Sales Tax
- Countervailing Duty or Additional Customs Duty
- Service Tax
- Excise Duty (Additional)
- Central Excise Duty
Indirect taxes imposed by the state government:
- Tax on betting, lottery, and gambling.
- State VAT
- Purchase Tax
- Entry Tax and Octroi Duty
- Goods and services related to surcharges
- Luxury Tax
- Taxes on Advertisements
- Amusement and Entertainment Tax
Dual Structure of GST
Unlike an integrated structure where the government collects the taxes and distributes it to all the states, this dual tax structure allows both the state and the center to levy and collect those taxes. The goods and services tax (GST) has this same dual structure. This is why it has two components, both state and central levy. This dual structure applies to all the transactions that are related to goods and services. Through this federal structure, the tax will be levied on each supply of different kinds of goods and services.
Centre would impose and collect all the central goods and services tax whereas the state would impose and collect the state goods and services tax on all the transactions that are taking place within the state. The input tax credit of central goods and services tax would be accessible for discharging the CGST liability on the outputs at each step. In the same way, the credit of SGST that is paid on the inputs would be allowed for paying the state goods and services tax on the output. There will be no permission for cross-utilization of credit.