The Goods and Services Tax bill, touted to be India’s biggest tax reform, will simplify the current system of taxation. The bill will convert the country into a unified market by replacing all indirect taxes with one tax.
What is GST? Why is there a need for this bill?
Quite literally, GST (Goods and Services Tax) is a tax levied when a consumer buys a good or service.
The current tax regime is riddled with indirect taxes which the GST aims to subsume with a single comprehensive tax, bringing it all under a single umbrella. The bill aims to eliminate the cascading effect of taxes on production and distribution prices on goods and services.
What is the cascading effect of taxation?
Cascading effect of taxes is caused due to levy of different charges by state and union governments separately. In the current multi-staged tax-structure, the following taxes are levied by the centre and state separately:
Taxes levied by the Centre include: Income tax, service tax, central sales tax, excise duty and security transaction tax.
Taxes levied by the state include: VAT/sales tax, octroi, state excise, property tax, entry tax and agriculture tax.
This tax structure raises the tax-burden on Indian products, affecting their prices, and as a result, sales in the international market. The new tax regime will therefore, help boost exports.
What are the challenges in the implementation?
India is adopting a dual GST, wherein the Central GST will be called CGST and state SGST. The main road block is the coordination among states. Centre and states have to come to a consensus on uniform GST rates, inter-state transaction of goods and services, administrative efficiency and infrastructural preparedness to implement the new tax reform.
How will GST remedy the situation?
GST will do away with Gordian knot of multiple tax-rates which is a burden on the common man.
Dual GST means it will have a federal structure. The GST will basically have only three kinds of taxes – Central, state and another one called integrated GST to tackle inter-state transactions.
Under the current GST tax reform, all forms of ‘supply’ of goods and services like transfer, sale, barter, exchange, and rental will have a CGST (central levy) and SGST (state levy).
GST will also help usher-in an era of a transparent and corruption-free tax administration. It is set to weed out the current shortcomings of the supply chain owing to the complicated, multi-layered policies.