After getting assent from the President of India on 8th September, 2016 the Goods and Services Tax (GST) is going to be the biggest tax reform in the multi-layered indirect tax structure of Independent India. And in the true spirit of ‘Make in India’, GST is going to be our own self tailored Act. This Indirect Tax reform is going to be a game changing reform for our economy.
It is geared towards converting the country into a unified and comprehensive market. 17 Indirect taxes were subsumed in one single tax basket gives origin to GST. GST is a tax levied when a consumer buys a good or consumes a service.
In the current taxation structure, there are multiple taxes levied on the goods and services by the central as well as state governments which in turn raises the tax burden on Indian products, making them costly in the domestic market, especially when compared to their counterparts globally. After the GST gets implemented, the exports are going to get a boost contributing significantly to the GDP which is estimated to grow by 2%. GST will have a far-reaching impact on almost all the aspects of the business operations in the country, for instance, pricing of products and services, supply chain optimization, IT, accounting, and tax compliance systems.
The new tax regime will eradicate excessive taxation. Currently, the taxes are calculated not only on the original cost of the product, but also on many other layers which includes excise duty, VAT and surcharge. This levy of taxes on taxes is termed as the ‘Cascading effect of Taxation’. After the introduction of GST tax regime, this Cascading effect will get eradicated.
The GST is set to replace the following taxes at Central and State Government level-
- Central excise duty
- Duties of excise (medicinal and toilet preparations)
- Additional duties of excise (goods of special importance)
- Additional duties of excise (textile and textile products)
- Additional duties of customs (countervailing duty)
- Special Additional Duty of Customs (SAD)
- Service tax
- Cess and surcharge collected by central government
- State VAT
- Central sales tax
- Purchase tax
- Luxury tax
- Entry tax (all forms)
- Entertainment tax (except those levied by local bodies)
- State cess and surcharges
- Taxes on betting, lottery and gambling
- Taxes on advertisement
By eliminating the cascading effect of taxes embedded in the cost of production of goods and services, GST will provide seamless credit throughout the value chain. The sectors which are expected to be the major beneficiaries of this new tax regime are FMCG, pharma, consumer durables, automobiles and engineering goods.
Removal of tax barriers will expand trade and commerce giving a boost to the export industry. These tax barriers have been making the indigenous manufacturing less attractive, but after the introduction of GST it will attract attention and will grow like never before. The GST will facilitate the ease of doing business in India and will work towards making India a market competitive with the developed economies of the world.
Transparent and comprehensive taxation structure will encourage local as well as foreign investment in India, which will end up generating several job opportunities for the youth of India and strengthening the Economy. GST will also ease out the development and growth of start-ups making the scenario more conducive for budding entrepreneurs.
It is also important to note that GST will not subsume all the indirect taxes. Basic Custom duty, Central/State excise duty and VAT will continue to be levied on alcoholic beverages, tobacco and 5 specified petroleum products including crude oil, natural gas, petrol, diesel and aviation turbine fuel. Hence it looks like those sectors where these goods form significant part of input cost will not derive much from GST.
To sum up, the key benefits of the GST regime are
- Indian markets get a much needed and awaited boost
- More tax revenues for government yet lower tax burden on industry
- Reduction in paperwork
- A Contributor to Digital India with online processing of Returns
- Smooth Flow of Input tax Credit Mechanism
- Adding almost 2 to 2.5% to GDP over time
- Investment in Capital goods gets a boost
- Making Make in India more Realistic
Therefore, this simplified tax regime is highly anticipated and much awaited by the Indian citizens because now the time has come for a corruption-free and hassle free development in sync with the global economy.