GST is being touted as the biggest economic reform to have happened in India since 1947. Why is it so significant ? Let us understand the key provisions of Goods and Service Tax Bill in the simplest of terms (with simple examples wherever possible) :
âž¡ GST will pave the way for uniform taxation on goods and services all over the country.
âž¡ GST will subsume excise duty, service tax, customs, cess, surcharges, VAT, entertainment tax, octroi, Luxury taxes, Purchase taxes and many such taxes that are currently being levied on goods and services at various levels into a single Goods and Service Tax.
âž¡ GST rate has not been capped. It will be decided by the GST Council and will be reviewed from time to time.
âž¡ Suppose the GST rate is 20%, the product cost is Rs. 1000, and the product is being sold from Jamshedpur to Ranchi (within the state), the GST payable will be a flat Rs. 200.
âž¡ GST consists of two parts – CGST (Central GST) + SGST (State GST). So, in the above example, Rs. 100 will be paid as SGST to the Govt of Jharkhand, while Rs. 100 will be paid as CGST to the Government of India.
âž¡ For Inter-state sales, the IGST (Integrated GST), which will be the sum of CGST and SGST will be payable to the Central Government. The Central Government, then will divide the collected tax between Centre and the states (based on the rates decided by GST Council)
âž¡ If a product costing Rs. 1000 is being sold from Ranchi to Mumbai, IGST @ 20% (=Rs. 200) will be collected by Central Government from the importer (in this case, Maharashtra govt). Then, the collected tax will be distributed between Centre, Jharkhand and Maharashtra.
âž¡ SGST totally belongs to the state. Therefore, the consuming state (who is the recipient of SGST will get the total benefit).
For example, a manufacturing state Gujarat exports its goods priced Rs. 1000 to Bihar. Bihar, being an importer, will have the entire SGST @10% = Rs.100 and also the share from centre GST… while Gujarat will only get the share from central GST.
âž¡ It means the poor states which are large consumers such as Bihar, UP, West Bengal, Assam, Odisha, etc. are all set to benefit from GST.
âž¡ Therefore, to compensate the manufacturing states, Parliament shall, by law, provide for compensation to states for any loss of revenues, for a period which may extend to five years (it may be less than 5 years, but not more). This would be based on the recommendations of the GST Council.
âž¡ In case of INTERNATIONAL imports, IGST (CGST+SGST) will be collected by the state importing the goods or service. This will then be sent to the central govt, which will distribute it between the state (the state will receive its full SGST) and the share of CGST (the rate will be decided by GST Council)
âž¡ For example, if a product priced Rs. 10,000 is imported by Ranchi, Jharkhand govt will collect IGST @20% = Rs. 2000. This will then be sent to central govt, which will distribute Jharkhand its SGST+ share of Jharkhand in the CGST , i.e. Rs. 1000 of SGST + some fraction of CGST.
âž¡ GST Council to be formed within 60 days of the commencement of GST Act. GST Council will have following members :
a) Union Minister of Finance as the chairman,
b) Union Minister of State in charge of Finance as member
c) Finance/revenue ministers of each state government as members.
âž¡ The government of India will CONTINUE to charge central excise duty on all petroleum & natural gas products, tobacco and opium products. GST on above products will be applicable at a later stage, which will be decided by GST Council.
âž¡ ONLY one product has been kept out of purview of GST and that is alcohol for human consumption, which means all central and state taxes will continue to apply for alcohol. The state and centre reserve full rights to increase or decrease VAT or any form of taxes on alcoholic beverages.
âž¡ GST will provide uniform market, make taxation simple, efficient, transparent and hassle-free. GST will also drastically increase the ambit of taxation and improve tax compliance.
âž¡ Most of the essential goods will become cheaper, since currently we pay about 26-28% of tax while GST will be much lesser. Government has also planned to keep the GST rate for “extremely important commodities” lower than the normal GST rate.
âž¡ The reduced tax burden on companies will decrease the price of goods, will lower the production cost and improve exports. Implementation of GST, in long run, will create a large number of jobs and hence, it is rightly considered as the biggest economic reform in the history of independent India.
– Kshitij Mohan Singh