Goods and Service Tax (GST): All you need to know

Economy and Finance

Goods and Service Tax (GST): All you need to know

15 Dec 2023 Zinkpot 550

Goods and Services Tax (GST) is a comprehensive indirect tax that has replaced a variety of central and state taxes in India. It is a value-added tax levied on most goods and services at each point in the supply chain.
The GST system was introduced to streamline the indirect tax structure, eliminate tax cascading, and create a unified market for goods and services across the country.
Background: The idea of GST in India was first proposed in 2000 by the then Prime Minister Atal Bihari Vajpayee. However, it took more than a decade for the constitutional amendments and negotiations between the central and state governments to agree on the structure and implementation of GST. The GST Bill was finally passed in the Indian Parliament in 2016, and it came into effect on July 1, 2017.
Structure of GST: GST in India is a dual structure, meaning it is levied by both the central and state governments. There are three main types of GST:
- Central GST (CGST): Levied by the Central Government on the supply of goods and services, excluding alcoholic beverages and petroleum products.
- State GST (SGST): Levied by State Governments on the supply of goods and services, excluding alcoholic beverages and petroleum products.
- Integrated GST (IGST): Levied on interstate supplies and imports, collected by the Central Government but apportioned to the destination state.
Key Features:
- One Nation, One Tax: GST replaced a plethora of indirect taxes, including Central Excise Duty, Service Tax, Value Added Tax (VAT), and others, creating a single, unified tax system.
- Destination-Based Tax: GST is a destination-based tax, which means that the tax is levied at the point of consumption rather than at the point of origin.
- Tax Slabs: GST has multiple tax slabs, including 0%, 5%, 12%, 18%, and 28%. Essential items and some services are taxed at lower rates, while luxury items attract higher rates.
- Input Tax Credit (ITC): Businesses can claim ITC for the GST they have paid on inputs, ensuring that tax is not levied on tax.
- Composition Scheme: Small businesses with a turnover below a certain threshold can opt for the composition scheme, where they pay a fixed percentage of their turnover as tax.
Benefits: The Goods and Services Tax (GST) offers several benefits, including:
- Lowered Tax Burden and Increased Consumption: GST reduces tax barriers and the cascading effect of tax, leading to lower prices for consumers and increased consumption.
- Lower Cost of Goods and Services: It is expected to lower the cost of goods and services, making them more competitive globally.
- Uniform Tax Structure: GST creates a common national market with uniform tax rates and procedures, removing barriers to an integrated economy at the national level.
- Improved Competitiveness: Removal of cascading, improved controls on tax leakage, and a robust IT infrastructure incentivize tax compliance and improve the competitiveness of businesses.
- Higher Revenue Efficiency: GST is expected to increase the efficiency of tax revenue collection, benefiting the government and ultimately the citizens.
- Simplified Tax Structure and Easy Compliance: GST brings a simplified tax structure, higher compliance levels, and easy accessibility, benefiting small businesses and encouraging foreign investment.
- Elimination of Cascading Effect: GST eliminates the cascading effect of tax, where taxes are levied on top of other taxes, leading to a more transparent and efficient tax system.
Challenges: The implementation of the Goods and Services Tax (GST) in India has faced several challenges, including:
- Complex Tax Structure: The GST system has four tax slabs (5%, 12%, 18%, and 28%), making it complex and difficult to understand for businesses and consumers.
- Technology Glitches: The GSTN has faced several technical issues, such as server crashes and slow processing times, leading to difficulties in filing returns and obtaining refunds.
- High Compliance Costs: GST has increased compliance costs for businesses, particularly small and medium-sized enterprises (SMEs), due to the need for regular filing of returns and maintaining detailed records.
- Input Tax Credit (ITC) Issues: The ITC system has faced several challenges, such as the inability to claim ITC for certain expenses and the difficulty in reconciling ITC claims with supplier invoices.
- GST Rates: The GST rates have been a contentious issue, with some arguing that they are too high, leading to increased prices for consumers and reduced demand for goods and services.
- E-way Bill System Issues: The E-way bill system, which is used to track the movement of goods, has faced several technical issues, leading to delays and difficulties in transporting goods.
- Fraud and Evasion: GST has faced challenges in controlling fraud and evasion, particularly in the area of refunds, which are vulnerable to fraudulent claims.
Overall, the impact of GST on the Indian economy has been mixed, with both positive and negative effects. While it has streamlined the tax system, increased tax compliance, and fostered economic growth, it has also faced challenges in adjusting to the new compliance standards, particularly for small and medium-sized businesses
Future Outlook: The GST system in India is continually evolving, with the government making efforts to simplify processes, address concerns, and improve compliance. The plans for GST in India revolve around further digitalization, structural changes, and the unification of systems to create a more stable and simplified tax environment.