Harmonised Tax Regime: GST

“GST will benefit the state from Day 1, especially the consumer states”- Arun Jaitley

Nearly debated for over a decade, India is ready to move towards a comprehensive tax regime, with GST implemented from 1 April,2016.

Acronym for ‘Goods and Service Tax’, GST is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level.

The system allows the set off of GST paid on procurement of goods and services against the GST which is payable on the supply of goods and services. However, the end consumer bears this tax as he is the last person in the supply chain. But with the cascading taxes gone, over a period of time the lower tax burden would translate into lower prices of goods.

According to Mr. Jaitley, “GST can change the way people do business. If it is properly administered it will increase the GDP rate by 1 to 1.5%, tax-GDP ratio upto 2% and reduce the cost of indigenous goods upto 10%.”

If this is taken care of, a massive change in the way of conducting business can take place. It will lead to consolidation of manufacturing to get economy of scale without any tax disadvantage and efficiency in supply chain.

Q. Why GST when we already have VAT?

A. GST is not simply VAT plus service tax, but a major improvement over the previous system of VAT and disjointed service tax- a justified step forward.

The state VAT still has some degree of  incompleteness. The CENVAT load on the good has not been removed and the cascading effect of that part of burden has remained unrelieved. GST will reduce this multiplicity of taxes and bring down the compliance cost.

Thus, under GST the taxation burden will be divied equally between manufacturing and services, through a lower tax rate by increasing the tax base and minimising exemptions.

Click here for government certification in Accounting, Banking & Finance