What is GST?

GST India – Goods & Service Tax

 Goods and Service Tax is being glorified as a system of taxation by which economy will take an upward swing and further it will ease the trade and industry with respect to the indirect tax system of the country. “Only one” indirect tax has to be paid by the trade and industry and all the other indirect taxes will be subsumed in GST.

What is GST?

GST is a consumption based tax levied on sale, manufacture and consumption on goods & services at a national level. This tax will be substitute for all indirect tax levied by state and central government. Exports and direct tax like income tax, corporate tax and capital gain tax will not be affected by GST. GST would apply to all goods other than crude petroleum, motor spirit, diesel, aviation turbine fuel and natural gas. It would apply to all services barring a few to be specified. With the increase of international trade in services, GST has become a global standard. The proposed tax system will take the form of “dual GST” which is concurrently levied by central and state government. This will comprise of:

• Central GST (CGST) which will be levied by Centre
• State GST (SGST) Which will be levied by State
• Integrated GST (IGST) – which will be levied by Central Government on inter-State supply of goods and services.

Many taxes has been subsumed under GST which are as under

Central Indirect Taxes & Levies	Central Excise Duty
	Additional Excise Duties
	Excise Duty levied under the Medicinal Preparations (Excise Duties) Act, 1955
	Service Tax
	Additional Customs Duty (CVD)
	Special Additional Duty of Customs
	Central Surcharge and Cess
State Indirect Taxes & Levies	VAT / Sales Tax
	Entertainment tax (other than the tax levied by local bodies)
	Central Sales Tax
	Octroi and Entry Tax
	Purchase Tax
	Luxury Tax
	Taxes on Lottery
	Betting and Gambling
	State Cesses and Surcharges

Who will pocket taxes?

• For Intra State Transactions: In case of Intra State transactions, Seller collects both CGST & SGST from the buyer and CGST needs to be deposited with Central Govt. and SGST with State Govt.
• For Inter State Transactions: Integrated Goods and Service Tax (IGST) shall be levied on Inter State transactions of goods and services which are based on destination principle. Tax gets transferred to Importing state. More over it is proposed to levy an additional tax on supply of goods, not exceeding one percent, in the course of inter-state trade or commerce, to be collected by the Central Govt. for a period of two years, and assign to the States where the supply originates. Valuation of stock transfers to be determined. Exports and Supplies to SEZ units will be zero rated.

How to adjust the Credit?

Setoff of IGST, CGST & SGST will be as follows in the below mentioned chronological order only.

Credit of	To be Adjusted with
IGST	1)   IGST
	2)   CGST
	3)   SGST
CGST	1)   CGST
	2)   IGST
SGST	1)   SGST
	2)   IGST

ENROLLMENT & REGISTRATION:

• NSDL has been appointed to incubate the GST Portal and develop its functionality. NSDL has created a pilot portal known as “GST Pilot Portal”
• Here, every tax payer will be issued a 15 digit common identification number which will be called as “Goods & Service Tax Identification Number” (GSTIN) a PAN based number.
• Online application form for dealers will be available to provide their details and upload documents.
• Registration includes basic steps like register themselves on the Enrolment page, and then Login using the given “User ID” and “password”, filling the application form by uploading the requisite documents related to excise, Service Tax, IEC, CIN, Professional Tax number, Shops & Establishment Number and any other state specific registration numbers, contact numbers, postal address & E-mail address of business entity, bank account details including MICR code, place of business, details of goods & services, scanned signed photographs.

Like, every coin has two sides, even this concept of GST has its own positives and negatives, we leave on the reader to decide for them the impact of GST whether on micro or macro level.

Positive Aspects

1. The main reason to implement GST is to abolish the cascading effect on tax. A product on which excise duty is paid can also be liable for VAT. Suppose a product A is manufactured in a factory. As soon as it releases from factory, excise duty has to be paid to central government. When that product A is sold in same state then VAT has to be paid to state government. Also no credit on excise duty paid can be taken against output VAT. This is termed as cascading effect since double tax is levied on same product.
2. The GST is being introduced to create a common market across states, not only to avoid enfeebled effect of indirect tax but also to improve tax compliance.
3. GST will lead a more transparent and neutral manner to raise revenue.
4. Price reduction as credit of input tax is available against output tax.
5. Simplified and cost saving system as procedural cost reduces due to uniform accounting for all types of taxes. Only three accounts; CGST, SGST, IGST have to be maintained.
6. GST is structured to simplify the current indirect system. It is a long term strategy leading to a higher output, more employment opportunities, and economic boom.
7. GST is beneficial for both economy and corporations. The reduced tax burden on companies will reduce production cost making exporters more competitive.

Negative Aspects

1. GST is being referred as a single taxation system but in reality it is a dual tax in which state and centre both collects separate tax on a single transaction of sale and service.
2. At present the main Indirect tax system of central Government is central excise. All the goods and commodities are not covered by the central excise and further there is an exemption limit of Rs. 1.50 Crores in the central excise and further traders are not liable to pay central excise. The central excise is payable up to the stage of Manufacturing but now GST is payable up to the stage of sale.
3. Majority of dealers are not covered with the central excise but are only paying VAT in the state. Now all the Vat dealers will be required to pay “Central Goods and service tax”.
4. The calculation of RNR (Revenue Neutral Rate) is very difficult and further Govt. wants to enhance its revenue hence rate of Tax will be a problem. As per the News reports the proposed rate for State GST is 12% and Central GST is 14% Plus Govt. wants to impose 1% CST at the initial stage of GST on the interstate sale of Goods and services. So the normal rate of overall tax will be 26%. This rate is very high comparing to the fact that small and medium Industries are at present not covered by the central excise and most of the Goods such as agricultural products are out of the preview of the Central Excise.
5. Improvement in the Manufacturing and distribution of Goods and service, increase in exports, various reforms, check on corruption, less Government control are some of the factors which are responsible for the economic growth of the country. A tax system can make a revolution in the economy of the country is “rarest of the rare” thing.

How will GST work?

A product has to go through different stages before it reaches the end consumer, and there are several taxes applicable throughout this process. However, this situation will change in the GST regime. Here’s an illustration to understand how:

Stage 1: Manufacturing

Take apparel manufacturing as an example and 10% as the GST applicable.

The manufacturer buys raw material worth INR 500 that is inclusive of the GST of INR 50(10% of 500).

He then adds his own value of INR 50 to the materials during the manufacturing process. This brings the gross value of the product to INR 550.

Now, the total tax amount on the output of the apparel comes to INR 55 (10% of 550) In the current tax system, the manufacturer would be required to pay a tax of INR 55; however, under GST he can set some of his tax off as he has already paid it while purchasing the raw materials. Therefore, the final GST that the manufacturer will incur will be of INR 5 (total tax amount till now minus the tax he has already paid) i.e. INR 5(55-50)

Stage 2: Wholesale

Here, the apparel is passed from the manufacturer to the wholesaler at a gross value of INR 550 that is inclusive of the GST of INR 55 (10% of 550). The wholesaler then adds his value (his margin) of INR 50 making the total INR 600 (550 + 50). This brings the total tax amount on the final to INR 60 (10% of 600). Like the manufacturer, the wholesaler too can set off this tax amount with the tax that he has already paid for while purchasing the goods from the manufacturer. Thus, the final GST for the wholesaler would be INR 5 (60 – 55)

Stage 3: Retailer

In this final step, the retailer buys the apparel from the wholesaler at a gross value of INR 600 that is inclusive of the GST of INR 60 (10% of 600). He then adds his value or margin of INR 50 making the total cost of the goods INR 650. The GST applicable here is INR 65(10% of 650), but since the retailer has already paid a tax while purchasing the goods, he can set it off. Thus, the final GST incidence for the retailer would be INR 5 (65 – 60).

At the end, since the retailer will sell the product at INR 650, the GST paid by the customer would be INR 65(10% of 650) only. This number would have been much higher in our current tax structure.

Thus GST can be a win-win scenario that will benefit the entire value chain and make it easier for both businesses and consumers. To know more about GST, check our other articles in the series.