Goods and Services Tax (GST) is an indirect tax throughout India to replace taxes levied by the central and state governments. It was introduced as The Constitution (One Hundred and Twenty Second Amendment) Act 2017, following the passage of Constitution 122nd Amendment Bill..
The GST is basically an indirect tax that’s brings most of the taxes imposed on goods and services , on manufacture , sale , and the final consumption of goods and services under a single domain at the national level . In the current situation taxes are levied separately on goods and services . The GST is based on a uniform rate of tax fixed for both goods and services and it is payable only at the time of consumption. During the each stage of purchase and sale process in the supply chain, the tax is collected on value-added goods and services, through a tax credit mechanism.
The introduction of GST Plan in the emerging environment of the Indian Economy is very beneficial to the public in general through a number of ways which are as follows –
1. Simplicity - There is no doubt that process of production and distribution of goods and services are increasingly used or consumed and vice versa. Separate taxes for goods and services, which is the present taxation system, requires a complex division of transaction values into value of goods and services for taxation, leading to greater complications, administration, including compliances costs. In the GST system, when all the taxes are incorporated, it would make possible the taxation burden to be split equitably between manufacturing and services.
2. Lesser Burden - GST will be levied only at the final destination of consumption based on VAT principle and not at various points (from manufacturing to retail outlets). This will help in removing economic distortions and bring about development of a common national market.
3. Corruption – Free - It will also help to build a transparent and corruption-free tax administration. Presently, a tax is levied on when a finished product moves out from a factory, which is paid by the manufacturer, and it is again levied at the retail outlet when sold.
According to expert economists , by implementing the GST Bill the Indian economy will gain approximately $ 15 billion a year , this is because the Indian Government will be able to promote its export , create more employment opportunities , and boost the growth rate of the Indian Economy. It will help to divide the burden of taxation between manufacturing and services.
In the GST system, taxes for both Centre and State will be collected at the point of sale. Both will be charged on the manufacturing cost. Individuals will be benefited by this as prices are likely to come down and lower prices mean more consumption, and more consumption means more production, thereby helping in the growth of the companies.
The Introduction of the GST system in the Indian Economy may also create many unfavorable situations in the Indian economy which are as follows –
1. High Rate Of Tax Burden for Manufacturing SMEs - Small businesses in the manufacturing sector will bear most of the brunt of GST implementation. Under the existing excise laws, only manufacturing business with a turnover more than Rs. 1.50 crores have to pay excise duty. However, under GST the turnover limit has been reduced to Rs. 20 lakh thus increasing the tax burden for many manufacturing SMEs.
2. Alteration in Business Software - Most businesses use accounting software or ERPs for filing tax returns which have excise, VAT, and service tax already incorporated in them. The change to GST will require them to change their ERPs, too, leading to increased costs of purchasing new software and training employees
3. Enhanced taxes will increase the prices - Currently, some sectors like the textile industry are exempted from taxes or pay low tax. GST has only 4 proposed tax rates of 5%,12%,18%, 28%. Thus, for many sectors the tax burden will increase which in turn will increase the price of the final goods.
4. Harms faced by E-Commerce - Nowadays, many SMEs operate through their own online shopping websites or through third party websites to sell to different parts of India. Under GST, they will be required to register for all the states. Not only that, they will not be eligible for composition scheme and will be required to pay taxes like any large organization. E-commerce facilitators are now required to collect TCS under GST which will lead to increased complications and compliances.
5. Unavailability of Composition Scheme for Every Business – Composition scheme is available for only businesses selling goods. It is not available to service providers or for online sellers. This sets SMEs at par with large organizations in an unfair move.
With the implementation of GST in India, the indirect taxes would be streamlined and standardized. Under GST regime, businesses would no longer have to obtain multiple tax registration in different States or obtain a separate VAT and Service Tax registration. A single GST registration would be sufficient across India for selling or purchasing goods or providing services.
subsumes various other taxes like Central Sales Tax, Additional Customs Duty, Purchase Tax, Luxury Tax, etc., Hence, under GST, many of the taxes in existence today would be subsumed and made into one tax. This would make tax collection and compliance easy for businesses across the country.
Currently in some states under the VAT regime, businesses are required to comply with VAT regulations once they cross an annual turnover of Rs.10 lakhs. Under GST regime, GST liability accrues only if an entity crosses an annual turnover of Rs.10 lakhs in northeast or hill states, whereas for rest of India, the threshold is set at Rs.20 lakhs
Currently, many businesses like restaurants, computer sales and services businesses have to comply with both VAT and Service Tax regulations. This creates a compliance burden on the business, as they have to calculate taxes for the transaction based on different rates for different items. Under GST, the distinction between goods and services will be gone – making doing business easy.
GST is expected to increase the tax base in India significantly. Hence, the overall tax liability for businesses is expected to reduce overtime, as more and more businesses become compliant. Further, GST will use the latest in technology, including data from Aadhaar database, PAN database, etc., to make GST registration and GST return filing process, as seamless as possible.