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What is GST: How will it change India

January 28, 2015

GST Bill In India

GST Bill in India – One Step Towards Simplifying the Muddled Up Tax System

The proposed Goods and Services Tax (GST) is said to replace all indirect taxes levied on goods and services by the Government, both Central and States, once it is implemented. The GST will consolidate all State economies. It will be one of the biggest taxation reforms to take place in India once the Bill gets the official green signal. The basic idea is to create a single, cooperative and undivided Indian market to make the economy stronger and powerful. The GST will make a significant breakthrough paving way for an all-inclusive indirect tax reform in the country.

Read : Impact of GST on Various Sectors and Common Man

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.

Read : How to register for GST Online?

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 of goods and services, 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:

  • State Goods and Services Tax (SGST)
  • 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.

Must Read: GST Bill Nears Consensus

Advantages of GST Bill

Introduction of a GST is very much essential in the emerging environment of the Indian economy.

  • There is no doubt that in production and distribution of goods, services are increasingly used or consumed and vice versa. Separate taxes for goods and services, which is the present taxation system, requires division of transaction values into value of goods and services for taxation, leading to greater complications, administration, including compliances costs. In the GST system, when all the taxes are integrated, it would make possible the taxation burden to be split equitably between manufacturing and services.
  • GST will be levied only at the final destination of consumption based on VAT principle and not at various points (from manufacturing to retail outlets). This will help in removing economic distortions and bring about development of a common national market.
  • It will also help to build a transparent and corruption-free tax administration. Presently, a tax is levied on when a finished product moves out from a factory, which is paid by the manufacturer, and it is again levied at the retail outlet when sold.

Benefits of GST Bill

For the Centre and the States

According to experts, by implementing the GST, India will gain $15 billion a year. This is because, it will promote more exports, create more employment opportunities and boost growth. It will divide the burden of tax between manufacturing and services.

For individuals and companies

In the GST system, taxes for both Centre and State will be collected at the point of sale. Both will be charged on the manufacturing cost. Individuals will be benefited by this as prices are likely to come down and lower prices mean more consumption, and more consumption means more production, thereby helping in the growth of the companies.

Items not under GST

Alcohol, tobacco, petroleum products

Bottlenecks in the implementation of GST

Though the Government wants the GST Bill to be implemented by April 2016, there are certain bottlenecks which need to be taken care of before that:

  • What preparations are needed at the level of Central and State Governments for implementing the GST?
  • Whether the Government machinery is efficient enough for such an enormous change?
  • Whether the tax-payers are ready for such a change?
  • What will be the impact on the Government’s revenue?
  • How will the manufacturers, traders and ultimate consumers be affected?
  • Will GST help the small entrepreneurs and small traders?

Status of implementation of GST

To be fully viable by law in all the States, the GST Bill needs to be passed by a two-thirds majority in both Houses of Parliament and by the legislatures of half of the 29 States. In December 2014, Finance Minister Arun Jaitley introduced the constitutional amendment Bill of the GST in the Lok Sabha. He announced that the GST would be a major reform in India’s taxation system since 1947, which would reduce transaction costs for business and boost the economy.

Earlier, the Bill was rejected by a few States saying that it does not include the issues of compensation, entry tax and the tax on petroleum products. Jaitley while introducing the Bill said that all efforts have been taken to make sure that the States do not suffer any loss of revenue with the implementation of the GST. The States will receive Rs 11,000 crore this fiscal year so that it would compensate the losses suffered by them for decline in Central sales tax (CST) and subsequently financial assistance would be provided for a five-year period.

All said and done, the GST Bill which was conceived way back in the year 2000 has not seen the light of the day as yet. If everything goes well, most likely the Bill will be legislated by April 2016. According to a study by the National Council of Applied Economic Research (NCAER), full implementation of the GST could expand India’s growth of gross domestic product by 0.9-1.7 percentage points. By removing the system of multiple Central and State taxes, the GST can help in reducing taxation and filing costs and expand business profitability, thereby attracting investments and promoting GDP growth. Simplification of tax norms can help in improving tax compliance and increasing tax revenues.

Will the GST see the Light of Day in the Monsoon Session?

According to latest reports, the GST Bill is most likely to get passed in the ongoing Monsoon session of the Parliament. Main opposition Congress has agreed to a five-hour-long discussion on the proposed tax reform in Rajya Sabha. It is estimated that some kind of breakthrough may be at hand. The BJP-led NDA government and opposition party Congress have reached consensus on two clauses of the tax reform bill. The parliamentary debate would focus more on the technicalities of fixing a limit on the GST rate. The ruling government has committed to waiving the 1 per cent additional tax which was demanded by the Congress. According to sources, the government may be open to adding a proposal in the proposed Bill to set up a dispute resolution mechanism that would be chaired by the Union Finance Minister.

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Comments

Comments
Showing 22 Comments :

According to me, GST bill is a brilliant idea by the Govt. & Specially it is very helpful for us. Therefore it should be done immediately.

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What are the benefits from introducing with GST bill system, how to follows with this system, how to helpful GST system to the growth of country. how to useful to the make prepares of accountants..

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Really GST is a great idea, its really helpful for growth of economics of india ,we r really appreciated this tax.

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Deepak kumar Jain August 24, 2016 at 9:38 pm

THANKS. BUT ONE QUESTION IN MIND RATES OF FOODS,CLOTHES, MOBLIE BILLS, ETC. ARE INCREASED OR DECREASASED

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WIth the implementation of gst,is there is inflation in prices or vice versa.

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navin kumar bakebaria August 14, 2016 at 1:09 pm

GST is combind tax system of india EK des eak tax

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navin kumar jain August 14, 2016 at 1:07 pm

GST is a single window tax system in india more transparency genrate for indian econymy for next edges,creat econymy devlopments of india.

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Nice strategy, GST bill helps to all middle level people and lover level people, its creating job opportunities indirectly …..India GDP also can grow up…

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IF WE NOTE THAN WE SAY THAT THIS IS BENEFICIAL FOR MANUFACTURING STATE IN SPITE OF OTHER STATES WILL GOVT COMPENSATE FOR STATES BEARING LOSS IS THE STANDARD AMOUNT OF RS 11000 CRORES

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BUT WHY ALCOHOL , TOBACCO , PETROLEUM PRODUCTS EXCLUDED FROM GST WHEREAS THESE ARE THE MAIN SOURCE OF REVENUE GENERATION TO THE GOVT IS THERE ANY OTHER TAX CHARGE TO THESE PRODUCTS

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I WANT TO KNOW THAT WHO IS SPECIALIZED PERSON FOR AUDITING PROCESS OF VAT BECAUSE IT IS VERY EASY TO CALCULATE SO NOT REQUIRED ANY SPECIFIED PROFESSIONAL BECAUSE THERE IS NO ANY CASCADING OF TAXES AND NOT MORE COMPLICATED LAWS

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AJIT KUMAR SAHA August 3, 2016 at 6:50 pm

I personally welcome GST. This will help people from the burden of multiple taxations.This bill should be passed immediately without further loss of time.

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PROF AYYUB AHEMAD QURAISHI August 2, 2016 at 10:19 pm

REALLY THIS BILL WILL BE HELPFUL TO THE PUBLIC IN THE INDIA. BUT BECHARE STATE GOVT.

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Good morning
what is the role employees in GST Act
means which cadre employees need to work above ACTO Rank or other rank?

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It will realy gives a marvellious performnc towards the growth of indian economy
I rquested to authorites for tryng to pass this GST bill as soon as possible….

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Jitendra Parida January 8, 2016 at 12:42 pm

Nice article, After read the article I have cleared all bassic doubt about GST.. Thanks a lot…

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Very nice gst bill pls.sported all persson.

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Our honorable president has taken a great decision because by implementing of GST there is randomly change in country it growth
At least 2to3percent today it is a need to a country among 22000 direct employement provide it means 1 direct employe provide 3indirect employement 66000 employment to every state……it provide tremendous growth to country ….I really slatue to Mr nareder modi……..

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Can you also please educate as on why alcohol, tobacco and petroleum products are excluded from the preview of GST

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Rajinder Singh Malik August 15, 2015 at 4:04 pm

I am retired commissioner from Excise & Taxation Deptt. in Haryana. You have well explained the ideas on GST. Kindly continue to elaborate further as the law develops further. Thanks. R.S.Malik–9812012033

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    GST Amalgamates all indirect taxes to avoid double taxation. In case of cigarette, alcohol taxes will be levied at all stages so the end product costs high. so, not implementing Gst on such products remain revenue to economy same. where as gst implemented products will be at lower codt to consumer and prevents tax evasion from middle men

    Reply

    There are lot of players (companies) in different sectors who fall under unorganized category. Most of these companies will come under tax regime after the implementation of GST. This will lead to reduction in their competitiveness compared withe organized players. There is high percentage of unorganized players in certain sectors like Paints, Sanitaryware, Textiles, Batteries, FMCG, Footwear etc..
    Hence companies which fall under these sectors can benefit.

    Reply