GST is the New Black - The Shadows Of Life #13

What is GST? Are you confused? This Shadows of Life post will explain everything you need to know about GST.

GST stands from Goods and Service Tax; the unique selling proposition of GST is that it will merge many of Indirect tax system prevailing in India in to one consolidated tax system.

What will get Cheaper?
For manufactured consumer goods, the current tax regime means the consumer pays approximately 25-26% more than the cost of production due to excise duty and value added tax. With the GST rate expected at 18%, most goods are expected to become cheaper.

What will be Costlier?
The effective service tax rate at present is 15% and it applies to almost all services other than essential ones such as ambulance services, cultural activities, certain pilgrimages and sports events. If GST is implemented, this rate will increase to 18% making services more expensive. Consequently, eating out, staying at hotels and air travel will turn costlier. Similarly, insurance premiums and investment management which attract a service tax currently, will also become costlier with the higher rate of GST.

Why do we need GST in India?
First, the GST will greatly increase the revenues available at the states’ and centre’s disposal by expanding the tax base. More importantly, the resources of the poorer states (or consumer states) like, Uttar Pradesh, Bihar and Madhya Pradesh will increase substantially.
Second, the GST will facilitate ‘Make in India’ by converting the geographical landscape of the country into a single market. Despite being one country, India is a union of 30 or more markets. Too many taxes in the current system like the Central Sales Tax (CST) on inter-state sales of goods; numerous intra-state taxes; and the extensive nature of countervailing duty exemptions, favour imports over domestic production. GST would get rid of the CST and subsume most of the other taxes. And since, it will also be applicable on imports, the major tax factor working against ‘making in India’ will disappear, greatly boosting the production and in turn exports. This will ultimately help bridge the current account deficit.
Third, the GST would improve tax governance in two ways. One, like the value added tax (VAT), it is a self-collecting and self-enforcing tax. What it essentially means it that the companies buying supplies from outside parties will insist on tax payment on goods supplied as without this they can’t get setoffs on their own final product sales. Two, due to the dual monitoring structure of the GST – one by the states and another by the Centre – it is difficult to evade tax. Even if one set of tax authorities overlooks or fails to detect evasion, there is the possibility that the other overseeing authority may not.

We have attached a video to explain the concept in a visual form.

Leo Rahul Narula,
Member Of Leo Club Of Juhu.