The Goods & Services Tax : A Revolution

By Falguni Supekar (XII F) : The government of India launched The Goods and Services Tax or GST on the 1st of July, and it revolutionized the way we do our taxes. Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that will be levied on every value addition. Goods and Services Tax is levied on each of stages that include Buying of raw materials, Manufacture, Sale to wholesaler/warehousing, Sale to Retailer and finally Sale to the consumer which makes it a multi-stage tax.For example: a manufacturer wants to make a shirt. For this he must buy yarn. This gets turned into a shirt after manufacture. So, the value of the yarn is increased when it gets woven into a shirt. Then, the manufacturer sells it to the warehousing agent who attaches labels and tags to each shirt. That is another addition of value after which the warehouse sells it to the retailer who packages each shirt separately and invests in marketing of the shirt thus increasing its value. GST will be levied on these value additions – the monetary worth added at each stage to achieve the final sale to the end customer. Currently, the Indian tax structure is divided into two – Direct and Indirect Taxes. Direct Taxes are levies where the liability cannot be passed on to someone else.

An example of this is Income Tax where you earn the income and you alone are liable to pay the tax on it.In the case of Indirect Taxes, the liability of the tax can be passed on to someone else. This means that when the shopkeeper must pay VAT on his sale, he can pass on the liability to the customer. So, in effect, the customer pays the price of the item as well as the VAT on it so the shopkeeper can deposit the VAT to the government. This means that the customer must pay not just the price of the product, but he also pays the tax liability, and therefore, he has a higher outlay when he buys an item. Goods and Services Tax will address this issue after it is implemented. It has a system of Input Tax Credit which will allow sellers to claim the tax already paid, so that the final liability on the end consumer is decreased.

According to experts, these items could become costlier:

 

  • Cigarette prices likely to go up as GST rate for tobacco will be higher than current duties
  • Commercial vehicles such as trucks will become costlier
  • Mobile phone calls may get costlier as service tax will go up
  • Textile and branded jewellery may become costlier

And these could become cheaper:

  • Auto: Prices of entry-level cars, two wheelers, SUVs may fall
  • Car batteries likely to get cheaper
  • Paint, cement prices likely to fall
  • Movie ticket prices likely to fall as entertainment tax will come down
  • Electronics items like fans, lighting, water heaters, air coolers, etc. will get cheaper

Therefore, the idea behind having one consolidated indirect tax to subsume multiple currently existing indirect taxes is to benefit the Indian economy in a number of ways:

It will help the country’s businesses gain a level playing field

It will put us on par with foreign nations who have a more structured tax system

It will also translate into gains for the end consumer who not has to pay cascading taxes any more

There will now be a single tax on goods and services

India will become a single unified market.

The Goods and Services Tax Law aims at streamlining the indirect taxation regime. GST will subsume all indirect taxes levied on goods and services, including State and Central level taxes. The GST bill mechanism is advancement on the VAT system, the idea being that a unified GST Law will create a seamless nationwide market. It is also expected that Goods and Services Tax will improve the collection of taxes as well as boost the development of Indian economy by removing the indirect tax barriers between states and integrating the country through a uniform tax rate.

Although, the new system of GST is posing some jeopardizes to the citizens of the country especially to the traders and making them indulge in riots and strikes but like demonetization we need to understand that change is important and sometimes that is what we actually need. A perquisite of development is to believe and accept the idea that we must be the change we wish to see in the world.

By : Falguni Supekar

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