What is GST?
The goods and services tax (GST) is a comprehensive value-added tax (VAT) on goods and services. Through a tax credit mechanism, GST is collected on value-added goods and services at each stage of sale or purchase in the supply chain.
GST paid on the procurement of goods and services can be set off against that payable on the supply of goods or services. There should be no distinction between raw materials and capital goods in allowing input tax credit. But being the last person in the supply chain, the end consumer has to bear this tax and so, in many respects, GST is like a last-point retail tax.
How it will work in India?
Many countries have a unified GST system. However in India, a dual GST is being proposed wherein a central goods and services tax (CGST) and a state goods and services tax (SGST) will be levied on the taxable value of a transaction.
Why Dual GST?
Since we have federal system of Governance and the states have also the right to tax hence it is not possible to have a single and National Level GST hence the only possibility is dual GST which is explained above.
Will this be an extra tax?
No. It is proposed that the CGST will subsume central excise duty (Cenvat), service tax, and additional duties of customs (CVD) at the Central level; and SGST will subsume value-added tax, central sales tax, entertainment tax, luxury tax, octroi, lottery taxes, electricity duty, state surcharges related to supply of goods and services and purchase tax at the state level.
Will cross utilization of input tax credit between CGST and SGST be permitted?
The CGST and SGST should be credited to the accounts of the Centre and the States separately. Since the CGST and SGST are to be treated separately, taxes paid against the CGST should be allowed to be taken as input tax credit (ITC) for the CGST and could be utilized against the payment of CGST. The same principle will be applicable for the SGST. Cross utilization of input tax credit between the CGST and SGST should not be allowed.
What will be the rate of GST?
The combined GST rate is currently being discussed by the Centre and the EC. The rate is expected to be in the range of 14-16 %. Once the total GST rate is determined, the states and the Centre have to agree on the CGST and SGST rates. Today, services are taxed at 10% and the combined incidence of indirect taxes on most goods is around 20%.
What are the implications of GST on imports and exports?
Imports would be subject to GST and the tax paid on imports can be set off against the final sale or provision of the service. Exports, however, will be zero-rated, meaning exporters of goods and services need not pay GST on their exports. GST paid by them on the procurement of goods and services will be refunded.
What are the benefits of GST?
- Lowered tax rates due to broadening of the tax base and minimizing exemptions & exclusions.
- Creation of a common market across the country.
- Redistribution of the burden of taxation equitably between manufacturing and services.
- Reduction in transaction and compliance costs.
- Facilitation of business decisions on purely economic considerations.
- Enhanced efficiencies & productivity through the supply chain.
- Simple and transparent tax structure with only one or two rates of taxes.
When will GST be implemented?
Central Board of Excise and Customs chairman S D Mazumdar recently said – “Work is progressing well on GST net also. The standing committee has just started work on the bill. So if they give the report by the winter session then we can take it up in the budget session. After that we will have to get GST bill passed in Parliament and also state assemblies. We can have GST in place by October 2012.”