Breaking down GST
You have been hearing a lot about the Goods and Services Tax (GST) of late. There is widespread discussion about it in the newspapers and on TV. Finance Minister Arun Jaitley has spoken about it too. He has called it the biggest tax reform ever to happen in independent India. But what is GST and why is it drawing so much attention? Here is a simple ready reckoner that will help you in understanding it.
What is GST and when will it Materialise?
GST is a tax levied when a consumer buys goods or services. It is a single comprehensive tax that subsumes all other taxes levied at present. GST is indeed a major indirect tax reform that the Indian government is trying to put in place. It is in its final stages now. The rollout of GST rules is likely from 1 April 2017. Most developed countries around the world follow this tax regime.
Also Read : GST in India – All your Questions Answered
Understanding the importance of GST
As consumers, we pay taxes to state and the Centre whenever we buy any goods or services. For example, say you are buying a blanket for winter manufactured in West Bengal. The Centre will first collect central excise from the manufacturer. At the retail end, when you pay the bill after purchasing the blanket, you will pay a value-added tax levied by the state government. Suppose the same blanket was manufactured in Punjab and you are buying it in Kolkata. In this case, you will pay an additional central state tax levied by the Punjab government. In other words, you would be paying tax on tax.
This makes it complex. GST aims to address this complex indirect tax structure. It does so by removing the tax barriers between states and the Centre. Under GST, the tax collection happens at a single point. For example, say the blanket is taxed at 18%. This will include both the Centre’s taxes and the state government’s taxes.
Benefits of GST
GST is likely to bring more transparency in the indirect taxation system. It certainly would dismantle the tax-on-tax that consumers pay now. It aims to create a single national market. This may deter state governments from hiking taxes arbitrarily. Such hikes would usuallt attract criticism from people.
GST Rate Structure
India has decided on a five-tier GST rate structure of 0%, 5%, 12%, 18%, and 28%. Essential goods used by the common people will be in the lower bracket. Meanwhile, sin goods (like cigarettes and pan masala) will come under the highest tax slab. Which category of goods and services will attract which slab of taxation is yet to be finalised.
Also Read : GST – A Complete Guide
How will GST affect the Indian Economy?
Economists have big expectations from the introduction of GST. They believe that replacing the present complex indirect tax structure with GST will ease up doing business in India. It will also be a shot in the arm for the government’s ‘Make in India’ campaign.
GST could also boost India’s gross domestic product by 0.9 – 1.7%. On the flip side, there is growing apprehension that service tax rates could be in the 18% bracket. This would mean a hike from the present 15% (including cess). If this comes true, inflation would rise significantly, affecting everyone in the short-term.