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Goods and Service Tax(GST)

GST is a destination based consumption tax, it is usually levied on import of goods and services while export transactions are zero rated under the GST scheme.

Introduction to GST

GST(Goods and Service Tax) is the biggest Indirect Tax reform in India since 1947.

GST aims to simplify indirect taxation system and also aims to remove multiple tax systems prevailing in the country. Some of key indirect taxes, currently being levied and which will be replaced by GST are:-

CENTER LEVIED TAXESSTATE LEVIED TAXES
Service TaxState Value Added Tax/Sales Tax.
Special Additional Duty of Customs.(SAD)Entertainment Tax (other than the tax levied by the local bodies.)
Central Excise Duty.Central Sales Tax
Preparations (Excise Duties) Act 1955.Purchase Tax.
Excise Duty levied under the Medicinal and ToiletTaxes on lottery. betting and gambling.
Known as Countervailing Duty.Octroi and Entry tax.
Central Surcharges and CessesLuxury Tax.
Additional duties of Custom(CVD)State cesses and

DUAL MODEL OF GST

There will be three(3) types of taxes:

  • CGST – Within State transaction (Similar to VAT)
  • SGST – Within State transaction (Similar to VAT)
  • IGST – Inter State transaction (Similar to CST)

Merits and Demerits of GST

There are many GST models which are in practice in more than (160) counties. Each model has its specific advantages and disadvantages. Below mentioned are some general merits and demeritsof a GST system.

Merits

To the Government:

  • It generates a stable and predictable tax income in both good and weak economicenvironment.
  • It is an efficient tax due to the comparatively lower cost of administration and collection.
  • It allows the Government to lower corporate and personal income taxes, which inturn encourages more foreign direct investment. This leads to overall economic growth.
  • It will speed up the economic union of the various states with the centre.
  • It will lead to better compliance and revenue collection.
  • Overall incidence of taxes on the consumers may fall leading to endearment of the government among the masses.
  • Due to merger of various levies on goods and services into one head, GST take the indirect tax system of our country towards simplicity and transperncy.
  • The tax base of the country will get widened and increased.

To Trade & Commerce:

  • GST registered business gives an indication of established business and also inspires confidence amongst customers.
  • GST subsumes large number of taxes levied on goods & services and reduce cascading effect and brings ease in doing business.
  • GST is a fairer tax system. It taxes the self-employed and wage earners only when they spend their money.
  • GST applies only to consumption and not to savings and investment. This will encourage people to save and invest in productive activities.
  • Cost of doing business is reduced, thereby contributing to lower prices. Businesses do not suffer a tax cost due to the multi-stage credit mechanism since the real taxpayer is the end user.
  • Indian business houses will improve their cost competitiveness in the international market.

Demerits

  • The disadvantage of GST registration is the administrative burden that comes with discharging the duties and responsibilities of GST registration.
  • One must either study the intricacies of GST or pay an accountant to undertake this work which in some cases can be a reasonably high cost.
  • Being GST registered effectively increases selling price. Customers who are not GST registered would not be able to recover the GST. So, although costs are reduced because GST compliant dealers can recover GST, their non-compliant customers might be at the receiving end, thus trying to find ways to avoid GST compliant dealers for their purchases. This may lead to running of parallel economy.
  • GST can be a burden to lower income groups, especially during times of high inflation when the tax is paid on the increasing price of daily essentials.
  • There will be many transitional challenges and issues, since the whole country is used to the existing indirect tax system.
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