GST (Goods and Services Tax) is the largest indirect tax reform of India. GST is a single tax on the supply of goods and services. It is a destination based tax. GST will subsume Central Excise Law, Service Tax Law, VAT, Entry Tax, Octroi, etc.
GST is 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 states and Central.
There are around 160 countries in the world that have GST in place. GST is a destination based taxed where the tax is collected by the State where goods are consumed. India is going to implement the GST from July 1, 2017 and it has adopted the Dual GST model in which both States and Central levies tax on Goods or Services or both.
SGST: State GST, collected by the State Govt.
CGST: Central GST, collected by the Central Govt.
IGST: Integrated GST, collected by the Central Govt.
Need for GST in India:
Introduction of GST is considered to be a significant step in the reform of indirect taxation in India. Amalgamating of various Central and State taxes into a single tax would help mitigate the double taxation, cascading, multiplicity of taxes, classification issues, taxable event, and etc., and leading to a common national market.
VAT rates and regulations differ from state to state. On the other hand, GST brings in uniform tax system across all the states. Here, the taxes would be divided between the Central and State government.
GST will bring in transparent and corruption-free tax administration, removing the current shortcomings in indirect tax structure. GST is business friendly as well as consumer friendly. GST in India is poised to drastically improve the positions of each of these stakeholders. We need a change in the taxation system which is better than earlier taxation. This need for change leads us to ‘need for GST’.
GST will allow India to better negotiate its terms in the international trade forums. GST aimed at increasing the taxpayer base by bringing SMEs and the unorganized sector under its compliance. This will make the Indian market more stable than before and Indian companies can compete with foreign companies.
Benefits of GST:
|To trade||To Consumers|
|Reduction in multiplicity of taxes||Simpler Tax system
|Create unified common national market for India, giving a boost to Foreign investment and “Make in India” campaign|
|Mitigation of cascading/ double taxation||Reduction in prices of goods & services due to elimination of cascading||Boost export and manufacturing activity and leading to substantive economic growth|
|More efficient neutralization of taxes especially for exports||Uniform prices throughout the country||Help in poverty eradication by generating more employment|
|Development of common national market||Transparency in taxation system||Uniform SGST and IGST rates to reduce the incentive for tax evasion|
|Simpler tax regime||Increase in employment opportunities|
|Fewer rates and exemptions|
|Distinction between Goods & Services no longer required|