Business awareness

assignment

Goods and services tax

Submitted to :Prof. b. sunil

Saxena

by :monika
Prn

- 16021141064

Goods and Services Tax

(GST)
GST stands for "Goods and Services Tax", and is proposed to be a comprehensive
indirect tax levy on manufacture, sale and consumption of goods as well as
services at the national level. It will replace all indirect taxes levied on goods and
services by the Indian Central and State governments.
In the current multi-staged tax-structure, the following taxes are levied by the
centre and state separately:
Taxes levied by the Centre include: Income tax, service tax, central sales tax,
excise duty and security transaction tax.
Tax levied by the state include :-VAT/Sales tax , octroi , state excise
,property tax agriculture tax and entry tax
.
What is the problem with this arrangement?
There are two important problems with the current arrangement.
First, keep in mind that some good such as a shirt has to first be manufactured
before it is consumed. The central government, therefore, levies its indirect tax
called central excise at the factory gate. Subsequently, a shirt reaches a retail outlet
and is bought by a consumer. The state government, at this stage, levies a tax on
consumption dubbed value added tax (VAT). So, we have a tax at the factory gate
which adds to the cost of the shirt and another tax on the final price.
Since states have their exclusive domain on consumption tax within their borders,
they treat goods coming from other states as imports. For example, if a shirt
maker in Uttar Pradesh buys dye in Bihar, he would have paid central excise and
Bihars state taxes on the product. On this cost, Uttar Pradesh government would

levy its tax if the shirt is sold in the state. If the shirt is sent across Uttar Pradeshs
border and sold in Delhi, an export tax called central sales tax is collected by UP.
As the example suggests, India is politically one country, but economically it is
fragmented. There are multiple taxes when there is commerce across state borders.
Consequently, it increases costs for everyone and makes economic activity within
India for Indians complicated.

The proposed model of GST and the rate

A dual GST system is planned to be implemented in India as

proposed by the Empowered Committee under which the GST will
be divided into two parts:
State Goods and Services Tax (SGST)
Central Goods and Services Tax (CGST)
Both SGST and CGST will be levied on the taxable value of a
transaction. All goods and services, leaving aside a few, will be
brought into the GST and there will be no difference between
goods and services. The GST system will combine Central excise
duty, additional excise duty, services tax, State VAT
entertainment tax etc. under one banner.
The GST rate is expected to be around 14-16 per cent. After the
combined GST rate is fixed, the States and the Centre will decide
on the SGST and CGST rates. At present, 10 per cent is levied on
services and the indirect taxes on most goods is around 20 per
cent.

Items not under GST

 Alcohol,
tobacco,
petroleum products

How will GST help consumers?

Today consumers have no idea about the extent of taxes they pay on goods. If you
get a bill after buying merchandise which gives the extent of VAT you have paid, it
is an understatement of the actual tax you have paid. Remember, well before
merchandise reached the retail outlet, the central government has collected excise
duty. The extent of excise duty is not mentioned in the bill.
Therefore, today it is reasonable to assume we pay well over 20% tax for most
merchandise we buy.
In GST, consumers should benefit in two ways.
First, all taxes will be collected at the point of consumption. It means that if a shirt
is taxed at 18%, it will include both central governments taxes and state
governments taxes. Transparency in taxation should deter governments from
indiscriminately increasing taxes as there is bound to be public backlash.
Second, once barriers between states are removed, we as consumers will not end
up paying tax on tax which is what happens when goods move across state
borders.