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CAclubindiaNews:GST:ThingsyouNeedToKnow

GST:ThingsyouNeedToKnow
OneofthemajorIndirectTaxreformsthatIndiaisgoingtofaceisinformofGoods&ServicesTax
(GST),whichwillreplacethecurrentMultipleIndirectTaxregime.GSTisbeingdebatedoverinIndia
foraboutmorethanadecadeandithasgonethroughvariousmeetingsofFinanceMinisters&related
officials,meetingsofEmpoweredCommitteeofStateFinanceMinistersbuthasbeenpendingforlong
mainlyduetorebelbystategovernmentssayingthattheywillloseamajorsourceoftheirrevenueafter
itsimplementation.

But now, with the Centre and states finally reaching a consensus on the contours of the GST, as the
Centre has agreed to compensate states for period of a 35 years (Not Confirm yet) it is in limelight
again,andeverybodywantstotalkaboutitsPros&Cons,Rateoftax,Proceduresetc.

So,thefirstquestionthatarisesinonesmindisWhatisGST?

GST refers to Goods & Services Tax, which is a comprehensive tax levy on manufacture, sale and
consumptionofgoods&servicesonnationallevel.

GSTisanewtaxregime,afterwhoseimplementation,SingleTaxationsystemwouldcomeintobeing
inIndia.WhichsimplymeansitwouldreplacethecurrentmultipleIndirectTaxstructure.AttheCentral
level,itwillsubsumeCentralExciseduty,Servicetaxandadditionalcustomsdutieswhileatthestate
level it will replace VAT, Entry Tax, Local body Tax, Octroi duty, Luxury Tax, Lottery Tax and
Electricity Duty. Also, the Central Sales Tax (CST) would be completely phased Out. State taxes on
petroleum products will continue for a few years after GST is introduced, as per the deal brokered
betweentheCentreandstates.Statetaxesonalcoholandtobacco,too,wouldremain.

IfseenatGloballevel,around125countrieshadalreadyimplementedGSTandmostofthemhavesingle
taxsystemunlikeIndia.Butassaid,BetterlatethannevernowIndiaisalsogoingtoimplementitsoon.

NeedofGST

Changeinexistingtaxstructureisindispensable.Thereisneedtogetthroughtheolderregimeandadopt
asimpler,better,andmoreeffectivetaxstructureinordertopavewayformoretransparentandefficient
taxstructure.And,itisnotonlydesirablebutalsoimperativeinemergingeconomicenvironment.
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The Present tax regime is so complex and diverse in nature that taxpayers need more administration,
consultationandinturnleadingtoincreasedcost.

GST, being a destination based consumption tax based on VAT Principle, would greatly help in
developmentofcommonnationalmarket.

TaxStructure

GSTwillhave2components,namely

1.CentralGoods&ServicesTax(CGST)
2.StateGoods&ServicesTax(SGST)

Taxes&DutiestobemergedinCGSTare:

1.ServiceTax
2.CustomDuty
3.ExciseDuty

Taxes&DutiestobemergedinSGSTare:

1.VAT
2.EntertainmentTax
3.LotteryTax
4.LuxuryTax
5.SalesTax
6.OtherStateTax&Duties
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CAclubindiaNews:GST:ThingsyouNeedToKnow

TomonitortheInterstatetradeofgoodsandservices,anewmechanismhasbeendevelopedunderGST,
calledInterstateGoods&ServicesTax(IGST).And,letmeclearonethingfirst,thatInterstateGoods
&ServicesTax(IGST)isNotathirdtaxinadditiontoCGST&SGST,itsonlyamechanismtomonitor
the interstate trade and to ensure that SGST goes to ultimate Consumer State. As GST is destination
basedtaxhence,besidesCentretheconsumerstatewillgetthewholeamountofSGSTandtherevenue
outofainterstatetransactiontothesellingstatewillbeZero.

Also,asGSTbeingbasedonVATPrinciple,itwillallowtheentitiestogetfullcreditofinputtaxespaid.

BenefitsofGST

A.SimplerTaxStructure:Asmultipletaxesonaproductorserviceareeliminatedandasingletaxcomes
into place, the tax structure is expected to be much simpler and easier to understand. Paperwork will
become simpler and there will be a reduction in accounting complexities for businesses. A simple
taxationregimecanmakethemanufacturingsectormorecompetitiveandsavebothmoneyandtime.

B.IncreasedRevenueforGovt.Exchequer:Asimplertaxstructurecanbringaboutgreatercompliance,
thusincreasingthenumberoftaxpayersandinturntaxrevenuesfortheGovernment.

C. Competitive Pricing: As it will replace the multiple form of taxes, which effectively mean that in
mostcasesthetaxtobepaidbyultimateconsumerwillcomedown.Thus,loweringthepricesleadingto
increaseinconsumptionwhichwillagainbebeneficialforcompanies.

D. One India One Tax Rate One Market: Currently, rates for various taxes differ from state to state
makingtaxcalculationandadministrationcomplexandalso,goodsarebeingsoldwithintaxorbyillegal
waystootherstatestoavoidCSTandentrytaxwhichisnotgoodfromviewpointofnationalgrowth.
AftertheimplementationofGST,therewillonetaxrateallovertheIndiaandallotherIndirecttaxes
wouldbereplacedmakingacommonnationalmarket.

E. Boosting the Exports: When the cost of production falls in the domestic market, Indian goods and
services will be more pricecompetitive in foreign markets. This can bode well for exporters, who
competewithmanufacturersabroadfacingalowercoststructure.

F.BetterEconomicHealth:AstudybytheNationalCouncilofAppliedEconomicResearchestimated
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CAclubindiaNews:GST:ThingsyouNeedToKnow

that roll out of the tax would boost the GDP growth by anywhere between 0.91.7 percent. A CRISIL
reporthadalsosaidGSTwasthebestwaytomobiliserevenueandreducethefiscaldeficit.Asthereis
not much scope to reduce Government expenditure, increasing tax revenues is the best alternative to
improvethefiscalhealth.

WhatsthereinforConsumers?

Withcascadingtaxesgone,overaperiodoftime,thelowertaxburdenwouldtranslateintolowerprices
forgoods.

Andnow,theMostImportantquestion,i.e.,WhatwouldbetheRateofTax?

TherateforGSTisyetUndecided,butitwouldbeinarangethatwouldmakeexportscompetitive.A
subcommitteeoftheEmpoweredCommitteeofstatefinanceministershadproposedRevenueNeutral
Rates(RNR).Forthosewhodontknow,RevenueNeutralRates(RNR)refertorateoftaxwhereGovt.
cangetatleastsametaxwhichbothCentre&Statearegettingunderpresentsystem,althoughitisvery
difficultastherewillbeNeitherMultiplicityoftaxesnorcascadingeffectinGST,whichispresentin
currentscenario.

RNRproposedbyEmpoweredCommitteefortheCentralandstatecomponentsareat12.77%and13.91
%,respectively,takingtheeffectiveGSTrateto26.88%.However,discussionsarestillgoingonforthe
rateofTaxanditwillbeclearonlyaftertheofficialannouncementbyGovernment.

GSTConstitutionAmendmentBill(No.192of2014)hasbeenpresentedinParliamentinDecember,
2014 to make necessary amendments in Constitution to facilitate the implementation of GST. Also,
Finance Minister Arun Jaitley is expected to present the GST Bill in parliament in Budget session of
2015.

GSTisexpectedtocomeintoforcefromApril,2016.

AbouttheAuthor:
DamandeepSingh
CAIPCCStudent

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Source:Wikipedia,EconomicTimes,PersonalKnowledge

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