The Government of India is committed to replace almost all the indirect taxes levied on goods and services by the Centre and States and implement GST during any time before 2017. With GST, it is anticipated that the tax base will be comprehensive, as virtually all goods and services will be taxable, with minimum exemptions. GST will be a game changing reform for the Indian economy by creating a common Indian market and reducing the cascading effect of tax on the cost of goods and services.
GST is a tax that we need to pay on supply of goods & services. Any person, who is providing or supplying goods and services is liable to charge GST.
GST is a consumption based tax/levy. It is based on the “Destination principle.” GST is applied on goods and services at the place where final/actual consumption happens.
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.The manufacturer or wholesaler or retailer will pay the applicable GST rate but will claim back through tax credit mechanism.
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. GST is going to be collected at point of Sale.
Indian Government is opting for Dual System GST. This system will have two components which will be known as
- Central Goods and Service Tax (CGST) and
- State Goods and Service Tax (SGST).
The current taxes like Excise duties, service tax, custom duty etc will be merged under CGST.
The taxes like sales tax, entertainment tax, VAT and other state taxes will be included in SGST.
So, how is GST Levied? GST will be levied on the place of consumption of Goods and services. It can be levied on :
- Intra-state supply and consumption of goods & services
- Inter-state movement of goods
- Import of Goods & Services
- The tax structure will be made lean and simple
- The entire Indian market will be a unified market which may translate into lower business costs. It can facilitate seamless movement of goods across states and reduce the transaction costs of businesses.
- It is good for export oriented businesses. Because it is not applied for goods/services which are exported out of India.
- In the long run, the lower tax burden could translate into lower prices on goods for consumers.
- The Suppliers, manufacturers, wholesalers and retailers are able to recover GST incurred on input costs as tax credits. This reduces the cost of doing business, thus enabling fairer prices for consumers.
- It can bring more transparency and better compliance.
- Number of departments (tax departments) will reduce which in turn may lead to less corruption
- More business entities will come under the tax system thus widening the tax base. This may lead to better and more tax revenue collections.
- Companies which are under unorganized sector will come under tax regime.
- All the existing Sales Tax/ VAT, Excise, Service tax assessee need to migrate to GST Network to ensure better preparedness for GST.
- All the existing need to prepare smooth transition to GST to ensure full credit to be availed as credit not claimed in the current system shall be gone forever.
- All existing as well as new assesses should need to understand the point of differences in the GST system as compared to the existing system to ensure better planning and gain optimum benefit from the GST system.
- Last but not the least, the way of doing business will be changing in GST system, we should gear up to adopt it to get set go.