What is the 'Goods and Services Tax - GST'

The Goods and Services Tax (GST) is a value-added tax levied on most goods and services
sold for domestic consumption. The GST is paid by consumers, but it is remitted to the
government by the businesses selling the goods and services. In effect, GST provides
revenue for the government.

The goods and services tax (GST) is an indirect federal sales tax that is applied to the cost of certain
goods and services. The business adds the GST to the price of the product and a customer who
buys the product pays the sales price plus GST. The GST portion is collected by the business or
seller and forwarded to the government. It is also referred to as Value-Added Tax (VAT) in some
countries.

Which Countries Collect the GST?

France was the first country to implement the GST in 1954, and since then an estimated 160
countries have adopted this tax system in some form or another. Some of the countries with
GST include Canada, Vietnam, Australia, Singapore, the U.K., Monaco, Spain, Italy, Nigeria,
Brazil, and South Korea. India joined the GST group on July 1, 2017.

The Central government passed four sets of GST Acts in the Budget session this year.
These were Central GST Act, 2017; Integrated GST Act, 2017; Union Territory GST Act,
2017 and GST (Compensation to States) Act, 2017. The Acts were approved by the
Parliament after they were introduced as part of the Money Bill. Following the passage of
the GST Acts, the GST Council decided the rate slabs for the Goods and Services to be
taxed under the GST regime.

Following Central Indirect Taxes and Levies would be subsumed in GST:

 Central Excise Duty

 Additional Excise Duties
 Excise Duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act,
1955
 Service Tax
 Additional Customs Duty commonly known as Countervailing Duty
 Special Additional Duty of Customs
 Central Surcharges and Cess, so far as they relate to the supply of goods and
services.

Following State Indirect Taxes and Levies would be subsumed in GST:

 State Value Added Tax/Sales Tax

 Entertainment Tax (other than the tax levied by the local bodies)
 Central Sales Tax (levied by the Centre and collected by the States)
 Octroi and Entry Tax
  Purchase Tax
 Luxury Tax
 Taxes on lottery
 Betting and gambling
 State cess and surcharges insofar as they relate to supply of goods and services.

The above taxes are directly relatable to the supply of goods and services and fall in the
supply chain from the point of procurement of the raw material to the consumption of the
goods and services by the end customer. All the above taxes will be replaced by the
following:

SGST – State GST, collected by the State Govt.

CGST – Central GST, collected by the Central Govt.

IGST – Integrated GST, collected by the Central Govt.

GST Advantages

 GST is a transparent tax and also reduce number of indirect taxes.

 GST will not be a cost to registered retailers therefore there will be no hidden taxes
and and the cost of doing business will be lower.
 Benefit people as prices will come down which in turn will help companies as
consumption will increase.
 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.
 GST 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.

GST is backed by the GSTN, which is a fully integrated tax platform to deal with all aspects
of GST.
GST Disadvantages

 There is a fear that GST in India would impact negatively on the real estate market. It
would add up to 8 percent to the cost of new homes and reduce demand by about 12
percent.
 Some Experts says that CGST(Central GST), SGST(State GST) are nothing but new
names for Central Excise/Service Tax, VAT and CST. Hence, there is no major
reduction in the number of tax layers.
 Some retail products currently have only four percent tax on them. After GST,
garments and clothes could become more expensive.
 The aviation industry would be affected. Service taxes on airfares currently range
from six to nine percent. With GST, this rate will surpass fifteen percent and
effectively double the tax rate.
 Adoption and migration to the new GST system would involve teething troubles and
learning for the entire ecosystem.

Eliminating tax on tax effect

Previously, several taxes were levied on the same product that increased the price of the
product. With the passing of GST, it will eliminate the tax on tax effect by providing credit for
the taxes paid.

Product identification

Under the previous regime, classification of products into different categories caused a lot of
confusion and was a litigious issue. GST aims to solve this issue by bringing in Harmonized
System of Nomenclature or HSN, which is an eight-digit code to identify products according
to international standards.

One tax

Instead of several different taxes being levied by state and central

government, GST proposes to impose only one tax. GST will replace several hidden taxes
that were imposed by state governments and it will improve ease of doing business.

Decrease in price of products

GST will be charged at the manufacturing cost and collected at the point of sale, which
means that the price will come down that will benefit the consumers. Once the prices come
down, the consumption of consumers will increase which will benefit the companies.

Easy Compliance
All the compliances like registration, returns, payments, etc. under the GST system will have
to be done online, which will make compliance under the GST system hassle-free and
transparent.

Importance of GST in Indian Economy:

GST is one of the biggest indirect tax reforms in the country. GST is expected to bring
together state economies and improve overall economic growth of the nation.

GST is a comprehensive indirect tax levy on manufacture, sale and consumption of goods
as well as services at the national level. It will replace all indirect taxes levied on goods and
services by states and Central.

Need for GST in India:

Introduction of GST is considered to be a significant step in the reform of indirect taxation in

India. Amalgamating of various Central and State taxes into a single tax would help mitigate
the double taxation, cascading, multiplicity of taxes, classification issues, taxable event, and
etc., and leading to a common national market.

VAT rates and regulations differ from state to state. On the other hand, GST brings in
uniform tax system across all the states. Here, the taxes would be divided between the
Central and State government.

Benefits of GST:
To Consumers
To trade

Create unified common national

Reduction in multiplicity Simpler Tax system market for India, giving a boost
of taxes to Foreign investment and
“Make in India” campaign
Reduction in prices of
Boost export and manufacturing
Mitigation of cascading/ goods & services due
activity and leading to
double taxation to elimination of
substantive economic growth
cascading
More efficient
Uniform prices throughout Help in poverty eradication by
neutralization of taxes
the country generating more employment
especially for exports
Uniform SGST and IGST rates to
Development of common Transparency in taxation
reduce the incentive for tax
national market system
evasion
 Increase in employment
Simpler tax regime
opportunities
Fewer rates and
exemptions
Distinction between
Goods & Services no
longer required

Other Benefits of Goods And Services Tax:

Will prevent cascading of taxes as Input Tax Credit will be available across goods and
services at every stage of supply.

Harmonization of laws, procedures and rates of tax.

More efficient neutralization of taxes especially for exports thereby making our products
more competitive in the international market and give boost to Indian Exports.

Improve the overall investment climate in the country which will naturally benefit the
development in the states.

Average tax burden on companies is likely to come down which is expected to reduce
prices and lower prices mean more consumption, which in turn means more production
thereby helping in the growth of the industries . This will create India as a “Manufacturing
hub”.

Will improve environment of compliance as all returns to be filed online, input credits to be
verified online, encouraging more paper trail of transactions.

Common procedures for registration of taxpayers, refund of taxes, uniform formats of tax
return, common tax base, common system of classification of goods and services will lend
greater certainty to taxation system.

Timelines to be provided for important activities like obtaining registration, refunds, etc.

GST will be beneficial with more transparency, efficient compliance, ramp up in GDP
growth to the Centre, states, industrialists, manufacturers, the common man and the
country at large.

Conclusion
GST will bring in transparent and corruption-free tax administration, removing the current
shortcomings in indirect tax structure. GST is business friendly as well as consumer friendly.
GST in India is poised to drastically improve the positions of each of these stakeholders. We
need a change in the taxation system which is better than earlier taxation. This need for
change leads us to ‘need for GST’.

GST will allow India to better negotiate its terms in the international trade forums.GST aimed
at increasing the taxpayer base by bringing SMEs and the unorganized sector under its
compliance. This will make the Indian market more stable than before and Indian companies
can compete with foreign companies.