The GST (Goods and Service Tax) bill was passed by Indian Parliament on August 8, 2016. After a few more formalities, the bill will finally become a law. This single tax will replace all the existing indirect taxes. Due to this single tax named GST, the prices of many commodities will decline and it is also expected to increase the GDP (Gross Domestic Product) by 2%. The Government targets to levy this tax across the country from July 1, 2017. In this article, we have tried to elaborate upon the impacts of levying this tax on the prices of various items and the challenges expected to be faced by the Government in levying GST.
What is GST Bill?
GST Bill will be a landmark towards improving the tax structure in India. Goods and Services Tax is an Indirect Tax. GST is a single tax which will be levied on both goods and services. GST Bill will convert India into an integrated market and most of the indirect taxes such as Central Excise, Services tax, Vat, Entertainment, Luxury, Lottery Tax, cess implied on goods and services and surcharge etc. will be subsumed in this single integrated tax. Now onwards, there will be only one indirect tax across whole of the country i.e. GST
Why GST Bill is Important?
According to Indian Constitution, the authority to levy taxes on the sale of commodities lies with the State Government and the authority to levy taxes on production and services lies with the Central Government. According to the taxation structure in vogue, excise is levied on the products produced by a manufacturer and custom duty is levied when they import. When the commodity is sold in Indian market, Sales Tax is levied on the products. In this way, there are multiple taxes at every step in the present system of taxation which means taxes are levied on the taxes itself which is also known as cascading effect. Therefore, Government’s main objective while introducing the Goods and Services Tax is to bring uniformity in the taxation across the country.
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First level: (Manufacturing)
• An industrialist buys leather worth Rs. 100.
• It also includes the indirect tax of Rs. 10.
• He manufactures shoes from this leather. It costs him about Rs. 30.
• He fixes the price of final product i.e. Shoes at Rs. 130. Now a tax is levied on it at the rate of 10%.
• As per the tax rate of 10%, the tax comes to Rs. 13.
• He had already paid Rs. 10 as tax while buying the leather, now he has to pay Rs. 13 - Rs. 10= Rs. 3 as GST.
Second level: (Wholesaler):
• Now the shoes reach the wholesaler who paid Rs. 130 as the price.
• He adds his profit of Rs. 20 to it and decides to sell it at Rs. 150
• Now a 10% tax on Rs. 150 comes to Rs. 15
• Since he has already paid Rs. 13, now he will give only Rs. 15- Rs. 13 = Rs. 2 as GST.
Third Level: (Retailer):-
• Wholesaler sold the shoes to retailer for Rs. 150.
• Retailer does the packaging and adds his profit which is Rs. 10.
• Now the price of the shoes becomes Rs. 160.
• This Rs. 160 cost is taxed at the rate of 10% which sums to Rs. 16.
• Since up to the level of wholesaler, Rs. 15 have already been paid as tax, therefore retailer has to pay only Rs. 16-Rs. 15=Rs. 1 as GST.
Total GST comes to:-
• Total tax levied on the shoes at three different levels=10+3+2+1 =16
• Now the final price of the shoes is fixed at Rs.150 +16= Rs. 166
• Central Excise duty
• Duties of excise (on medicines and other related products)
• Additional duties of excise (On products of special importance)
• Additional duties of excise (Tax on textiles and related products)
• Additional duties of customs
• Service Tax
• Cess and Surcharge levied on Goods and Services
• Central Sales Tax
• Purchase tax
• Luxury Tax
• Entertainment Tax
• Taxes levied on advertisements
• Taxes levied on lottery, Betting and Gambling
• Cess and Surcharge levied on Goods and Services
What will be the impact of GST on consumers? Instead of multiple taxes, there will be a single tax which will cause the prices of commodities to fall. Commodities on which VAT and Excise duty both are levied will also be cheaper. However, commodities on which there is already a single tax such as excise duty or customs duty or Service tax or VAT, may become costlier as the rate at which GST will be levied is about 17-18% which is higher in comparison to the present tax rates. The commodities which will be cheaper after implementation of GST are:-
• Utility vehicles
• Two wheelers
• Movie Tickets
• Fans and Lighting
• Water Heaters
• Air Coolers
• Mobile handsets
Commodities which will have a price surge after implementation of GST are the followings:
• Air Tickets
• Hotel and Restaurants Bills
• Mobile bills
• Train tickets
• Clothing and garments
• Branded Jewellery
• Courier services
• Taxis and cabs
Commodities which will not be covered under the ambit of GST:-
• Cooking gas
• Air fuel
• Natural gas
Impact of GST on Businessmen:-
At present, the businessmen have to pay different types of indirect taxes such as sales tax on trading, service tax on services, excise duty on manufacturing of goods etc. Due to this, the businessmen have to fulfill many taxation parameters which creates hurdle in smooth business.
1. Goods and Services tax will bring uniformity in the tax structure across the country.
2. Through its implementation, GDP will grow by about 2%.
3. It will also help curbing the tax evasion by many.
4. GST will bring transparency in the taxation system as everything will be online.
5. Tax grievances by the business man and general public will be reduced.
6. There will not be the need for many taxation laws and no requirement for the regulators as well.
1. How the revenue deficit to States would be compensated? Whether the States will accept the offered compensation?
2. Who will be authorised to increase or decrease tax rate.
3. The government machinery to implement GST is not ready yet. How the training will be imparted to the employees of tax authorities to implement the tax is yet to be decided.
4. Which commodities are to be kept out of ambit of GST yet to be finalized between the Centre and States?
5. The issue of division of taxes between the Centre and States is yet to be resolved.
1. Question: What will be the benefits of GST?
Answer: At present the same commodity is sold at different prices in different States. The reason behind it is the different kinds of taxes levied in various States and their slabs are different. Now things will change. GST will be levied at the point of manufacturing of goods itself and no taxation such as customs, excise etc, would be levied later. Therefore, prices would be uniform across the country. In States where the tax slabs are very high, commodities will be cheaper by implementation of GST.
2. Question: Through the GST implementation, the command of States over many taxes will lose. Who will compensate the States for the same?
Answer: After implementation of GST, businessman, Producers, shopkeepers and central Government all will be benefitted. However, States may lose some revenue which will be fully compensated by the Central Government during the first three years. In the fourth and fifth year, about 75% and 50 % loss of State Governments would be respectively borne by Centre. The Central Government has agreed to make the desired constitutional provision in this regard. For this purpose, 122nd constitutional amendment is passed by the parliament.
3. Question: How the Government would be benefitted by GST?
Answer: The GDP is expected to increase by 2% with the implementation of GST. This will happen as a result of the suppression of tax evasion. Since there are multiple taxes at present so tax evasion and tax theft is common and easily done. Tax deposit would be easier in GST and therefore the business persons would be more motivated in submission of taxes on time. This will increase the income of Government. Business class would also get rid of multiple taxes and tax related disputes will be less.
4. Question: How the GST would be levied?
Answer: GST will be deposited online. The tax will be levied on a commodity at its manufacturing point only. When the tax is deposited for a commodity, this will be immediately informed to all the GST centers. After this stage, the wholesaler, retailer or consumers need not give any tax on the same product. If the goods are transported from one State to another, then there is no need to pay the octroi on such an item. So the long queues at the borders of States will fade away with the implementation of this tax.
5. Question: Who will decide the slabs of GST?
Answer: GST council is a constitutional body devised to figure out the decisions with regard to Goods and Services Tax. GST council will consist of the representatives of both Centre and State. Finance Minister will head the council. GST council will recommend about the tax slabs, rebate in tax, tax issues, and other provisions therein.