India, which is notorious for the complex tax system that it follows, is coming up with a new tax regime, which is expected to change the image completely. So far, the businesses especially the new ones and start-ups found it really troublesome to navigate through the maze of various direct and indirect taxes. Now with Goods and Service Tax (GST) all set to come into play in less than a month, the scenario looks promising.
The change brings about some discomfort too with itself because the general human behaviour is always to resist any change. As the GST will come into effect from 1st July many people are getting jittery as they are not clear on what GST is all about.
To help them understand, let’s discuss some of the common questions that arise.
- What Is GST, CGST, SGST and IGAT?
People get confused by all these terms. GST is an effort to make the entire nation one unified common market by having a single indirect tax. Currently, the taxation is based on the principle of origin and with GST it would be converted to destination-based consumption taxation. The end customer will only bear the GST cost that is charged by the last dealer in the entire supply chain.
Coming to CGST and other taxes, we know India is a federal democracy. Thus, the powers and responsibilities are clearly demarcated between the centre and the states. Thus, areas where the centre has taxation powers come under CGST and where it comes under the jurisdiction of states its SGST.
The Integrated GST (IGST) comes into play when goods are moved within the states of the country. Though this is collected by the centre, it will be transferred to the states.
- What Taxes Will GST Replace?
The current taxes that the GST will subsume are:
- Central Excise Duty
- Value Added Tax (VAT)
- Service Tax
- Central Sales Tax (CST)
- Countervailing Duty
- Entertainment Tax
- Special Countervailing Duty
- Purchase Tax
- Entry Tax
- Advertisement taxes
- Luxury Tax
- Taxes applicable on lotteries
- Who Needs to Register for GST?
Any business having an annual turnover of more than 20 lakhs will have to register for GST. For north-eastern states, the threshold limit for the same is 10 lakh.
- What Is the Registration Procedure under GST?
The registration number under GST will be PAN-based and a unified application will be there for both the federal authorities. The dealer will get a unique ID GSTIN.
- How Will GST Impact in the Short-term?
Though it is believed to help the Indian economy, in the long run, its short-term impact will fuel inflation. The rates of few commodities will increase as they will come under higher tax slabs. Eating out at fine dining restaurants will get costlier. The government is positive that GST will widen the slab of the taxpayers. Keeping the petroleum and liquor out of GST is not seen positively by many experts as they feel it will provide the crony capitalists with a way out for their black money.
- What Are the Benefits of GST?
The benefit of GST for the industry is that there will be uniformity in tax structure across the country benefiting the ease of doing business. The compliance will be both easy and transparent as it will be based on a comprehensive and robust IT system. As the tax credit would be a seamless process in the entire value chain, it will help in removal of cascading.
For the authorities, the new system will be much simpler and easy to administer. Due to enhanced visibility, there will be better controls on leakage and the new system will lead to higher revenue efficiency.
For the end consumer, it promises freedom from many hidden taxes that were levied till now. Since there will be only one tax right from the manufacturer to the end consumer, there will be enough transparency. As there will be a control on leakages and due to efficiency gains, the overall tax burden will come down on many commodities benefiting the consumers.
- When Will GST Be Implemented?
Earlier the government wanted to implement it from the start of the financial year, but that could not materialise. Now the plan is to implement it from 1 July 2017.
Both the government and the people have high hopes from this new tax regime. How it finally unfolds and impacts will be interesting to watch.