The Goods and Services Tax (GST) is a comprehensive tax reform that eliminates cascading of taxes and brings the concept of ‘one nation, one tax’ to light. Implemented from 1st July 2017, GST is considered to be a major tax reform in the Indian economy.
What is GST?
The Goods and Services Tax is nothing but an indirect tax which is levied on goods and services, at each point of sale or service rendered; thus, eliminating cascading taxes levied by Central and State Governments. Instead of a of the excise duty (levied on goods) and service tax (levied on services rendered), GST is one single indirect tax levied combined on goods and services. This value-added tax is paid by the customer but is remitted to the government by business owners dealing in rendering services or selling of goods.
Objectives of GST
• One of the major reasons for implementation of GST is to eliminate cascading of taxes that had an effect on the sale of goods and services.
• This elimination will help to improve the competitiveness of goods and services, from a pricing point of view, thus, helping the nation’s GDP.
• Due to the cascading of taxes by State and Central Governments, there was a lot of disparity in the tax system across the country and created a lot of confusion amongst the tax payers.
• Due to the single tax system, there will be a reduction in tax compliances.
• This will also increase the tax to GDP ratio and increase revenue surplus.
GST across the World
Though this tax reform has been recently implemented in India, in about 150 countries across the globe, GST has been implemented in some form or the other. In Singapore and New Zealand, there is virtually a single tax rate whereas in Indonesia there is zero rate with 5 positive rates having 30 categories of exemptions. In China though, GST is applicable only on goods and there’s a provision of repairs, replacement, and processing services.
During the implementation of GST, it was made very clear that India would adopt a Dual GST model. In this model, a CGST (Central Goods and Services Tax) and SGST (State Goods and Services Tax) will be applicable on every transaction of goods and services. It is expected that there will be decrease in the effective tax rates for many goods and also reduction in the transactional costs paid by the taxpayers.
The GST rates have been fixed at 5%, 12%, 18% and 28% with special rates for precious metals and a list of exempted items.
|Lassi||Children’s Drawing & Colouring Books|
|Unpacked Foodgrains||Unbranded Atta|
|Unpacked Paneer||Unbranded Maida|
|Unbranded Natural Honey||Prasad|
|Fresh Vegetables||Palmyra Jaggery|
|Salt||Phool Bhari Jhadoo|
|Domestic LPG||Roasted Coffee Beans|
|PDS Kerosene||Skimmed Milk Powder|
|Cashew Nuts||Footwear (< Rs.500)|
|Milk Food for Babies||Apparels (< Rs.1000)|
|Fabric||Coir Mats, Matting & Floor Covering|
|Coal||Mishti/Mithai (Indian Sweets)|
|Life-saving drugs||Coffee (except instant)|
|Fruit Juice||Preparations of Vegetables, Fruits, Nuts or other parts of Plants including Pickle Murabba, Chutney, Jam, Jelly|
|Packed Coconut Water||Umbrella|
|18%||Hair Oil||Capital goods|
|28%||Small cars (+1% or 3% cess)||High-end motorcycles (+15% cess)|
|Consumer durables such as AC and fridge||Beedis are NOT included here|
|Luxury & sin items like BMWs, cigarettes and aerated drinks (+15% cess)|
GST seems to be the logical step taken towards improving the tax system in the country and bringing a tax reform.