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Introduction
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’s main
objective is to consolidates all indirect tax levies into a single tax, except customs (excluding SAD)
replacing multiple tax levies, overcoming the limitations of existing indirect tax structure, and creating
efficiencies in tax administration. One of the reasons to go the GST way is to facilitate seamless credit
across the entire supply chain and across all States under a common tax base. The current framework
allows limited inter-levy credits between CENVAT (tax on manufacture) and service tax. However, no
cross credits are available across these taxes and the sales tax/VAT
paid (on input) or payable (on output). Introduction of GST would thus rationalize the tax content in
product price, enhance the ability of business entities to compete globally, and possibly trickle down to
benefit the ultimate consumer.
The Goods and Services Tax (GST) is a value added tax that will replace all indirect taxes
levied on goods and services by the Government, both Central and States, once it is
implemented. The GST is all set to consolidate all State economies. This will be one of the
biggest taxation reforms that will take place in India once the Bill gets officially the green signal
to implement. The basic idea is to create a single, cooperative and undivided Indian market to
make the economy stronger and powerful. The GST will see a significant breakthrough towards
an all-inclusive indirect tax reform in the country. In the year 2000, for the first time the idea of
initiating the GST was made by the then BJP Government under the leadership of Atal Behari
Vajpayee. An empowered committee was also formed for that, headed by Asim Dasgupta (the
then Finance Minister of the West Bengal Government). The committee was formed to design
the model of the GST and at the same time inspect the preparation of the IT department for its
rollout. In 2011, the previous United Progressive Alliance (UPA) Government also introduced a
Constitution Amendment Bill to facilitate the introduction of the GST in the Lok Sabha but it
was rejected by many States.
What is GST?
The GST is basically an indirect tax that brings most of the taxes imposed on most goods and
services, on manufacture, sale and consumption, under a single domain at the national level. In
the present system, taxes are levied separately on goods and services. The GST is a consolidated
tax based on a uniform rate of tax fixed for both goods and services and it is payable at the final
point of consumption. At each stage of sale or purchase in the supply chain, this tax is collected
on value-added goods and services, through a tax credit mechanism.
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:
1. State Goods and Services Tax (SGST)
2. 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.
How will it work in India?
The GST system is based on the same concept as VAT. Here, set-off is available in respect of
taxes paid in the previous level against the GST charged at the time of sale. The GST model has
some aspects which are as follows:
Components: GST will be divided into two components, namely, Central Goods and Service
Tax and State Goods and Service Tax.
Rate: Rates charged across all states and the central level will be uniform along with the
regulations, definitions and classifications
Applicability: GST will be applicable to all Goods and Services sold or provided in India,
except from the list of exempted goods which fall outside its purview.
Payment: GST will be charged and paid separately in case of Central and State level.
Input Tax credit: The facility of Input Tax Credit at Central level will only be available in
respect of Central Goods and Service tax. In other words, the ITC of Central Goods and Service
tax shall not be allowed as a set-off against State Goods and Service tax and vice versa.
Advantages of GST
Introduction of a GST is very much essential in the emerging environment of the Indian
economy.
1. When GST is introduced the price of a product will become reduced. A fall in price
generally increases the product demand. Not only the price reduces but also the working
capital too. GST makes the price of a product unique throughout the country.
2. The concept of warehouse changes when GST is introduced. In the present tax system a
ware house is required for each state. If the dealer and the ware house are in different
states, then the dealer needs to pay a Central Sales Tax of about 2%.This increases the
price of the commodity. Thus companies use to setup a warehouse in each state. In GST
as the CST gets eliminated, the number of warehouses can get reduced.
3. GST is not much complicated as the current tax pattern which involves the calculation as
well as the tabulation of various indirect taxes. This can also reduce much paperwork.
4. There won’t be any GST charged on the Goods with the exempt category, 1% on bullion
