How GST will change your life

'One nation, one tax’ is actually a great idea.

 |  6-minute read |   30-03-2017
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Yesterday (March 29), Lok Sabha passed the four key supplementary GST Bills, bringing India one step closer to a uniform tax regime that should be rolled out, if there are no further roadblocks, by July 1, 2017.

Union finance minister Arun Jaitley has hailed this as a revolution and the most significant taxation overhaul in India since a long, long time. PM Narendra Modi said it’s time for one India, one tax, and congratulated his countrymen and women for the passage of the four additional GST Bills in the Lok Sabha.

But what is the GST? We give you a quick explainer on what has been hailed as India’s tax revolution.

What is GST?

GST, or the Goods and Services Tax, is an imminent comprehensive indirect tax on the manufacture, sale and consumption of goods and services all over the Indian territory, and it is to subsume (incorporate and replace) a host of indirect taxes levied by the central and state governments at various points in the circulation of products and services within the country.

Or, GST will create something like a common market, wherein all goods and services, irrespective of their point of origin or transaction, would have a common treatment and a common, capped rate.

In the more familiar language of cellphone networks, a GST is like a national, pan-India network via one telecom service provider, that eliminates the need for a “roaming” component.

GST was introduced as The Constitution (One Hundred and First amendment) Act, 2016, when it was passed by Parliament last year and got the President’s assent. Since then, supplementary GST Bills have been tabled and passed this Budget session in the Lok Sabha, and they will be debated and discussed in the Rajya Sabha.

What does GST consist of?

The four key GST components, Bills related to each passed in Lok Sabha yesterday, are as follows: a) a Central GST, or CGST; b) a State GST, or SGST; c) Integrated GST, or IGST, for state-to-state commercial transactions; and d) Union Territory GST, or UTGST.

Instead of a fluctuating, state-wise variable tax structure, the Central GST (CGST) law has pegged the peak rate at 20 per cent and a similar rate has been prescribed in the State GST (SGST) law, which takes the peak rate to 40 per cent which will come into force only in financial exigencies.

What are the taxes that the GST is subsuming?

GST will subsume a number of indirect taxes levied by the Union and state governments, such as excise duty, VAT, service tax, luxury and entertainment levies, etc.

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A. At the Central level, the following taxes are being subsumed:

1. Central Excise Duty2. Additional Excise Dity3. Service Tax4. Additional Customs Duty commonly known as Countervailing Duty5. Special Additional Duty of Customs

B. At the State level, the following taxes are being subsumed:

1. State Value Added Tax (VAT)/Sales Tax

2. Entertainment Tax (other than tax levied by the local bodies)

3. Central Sales Tax (levied by the Centre but collected by the states)

4. Octroi and Entry Tax

5. Purchase Tax

6. Luxury Tax

7. Taxes on lottery, betting and gambling

What are the benefits of GST?

A. For the central and state governments, GST comes with a host of benefits such as simpler administration, which when complemented by a thorough taxation network, better end-to-end IT system, would ensure easier collection of revenues.

Moreover, GST would widen the tax net, will plug the leakages and multiple taxation, would increase revenue stream and efficiency.

B. For the consumer/tax-paying citizens, GST would mean more transparency, proportionate taxation, relief in overall tax burden, slightly cheaper goods and services.

Because GST is a tax on value addition only at the previous stage, the final consumer of a product will bear the GST charged by the last dealer in the supply chain, thereby de-burdening somewhat the taxes that were being hitherto incurred at all the previous stages.

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How is the GST citizen-consumer friendly?

1. Common return for both Centre and State governments.

2. Digital, electronic payment of dues, and payment by cheque, cash (limited by current cash transaction limit at Rs 2 lakh per person per event per day).

3. Common set of authorised banks, common challan form, single point interface for challan generation in the GSTN.

4. Unified application to both central and state tax authorities. Single application for new dealers.

How will this improve tax compliance?

With PAN linked taxpaying community being tracked electronically, GST will improve collection of revenue as single point indirect tax. We also expect Aadhaar linkage to be coming soon, as the Finance Bill, 2017 has made Aadhaar mandatory for filing direct income tax returns.

Since, all GST registrations will be PAN-linked, and perhaps also Aadhaar-linked, the possibility of tax evasion will be significantly reduced.

And, the worrywarts

Veerappa Moily of Congress, chiefly.

Also read: Why GST may not provide any relief

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