GST is a new initiative of the government, which will substitute for all the indirect taxes of the government. Suppose, You own a manufacturing industry, excise duty must be paid by you. If it’s a service oriented industry you end up paying service tax. Then registration fee, excise needs to be registered separately are also applicable. If exporting out of state, then bill for Central Sales Tax (CST) needs to be made. If it’s within the state, then VAT is levied. So, at the end of the day, one product is taxed at several stages by the time it reaches the customer’s hands.
In order to avoid this double taxation and cascading effects (tax is levied at each stage of production process till it reaches its final customer) on goods, the government of India passed a GST bill in the year 2014. GST a Value Added Tax will serve as a common tax replacing all the indirect tax. The main motto behind this tax is to create a single, comprehensive and undivided Indian Market to make our economy stronger.
Why is there an opposition and how does it work?
The decision about GST is solely made by the central government. Suppose, for a certain good of Rupee 100, the rate is decided at 20%, then the central government will collect Rupee 10 and the State Rupee 10 and no further taxes will be levied. The main opposition comes from State from the proceeds of VAT, octroi duty and few other taxes levied by the state is now to be replaced by GST. The state now has only GST to the proportionate amount contributed to the center on account of the sales happening in their state, that proportionate component is calculated by the central and given to the state. Thus, the state government fears that it may lose out on the revenue it used to receive from various forms of tax.But for a manufacturer, the tax burden will be reduced.
Need of GST
According to article 246 (7) schedule to the constitution of India, there are 3 lists that are Union list, State list, and concurrent list. Union list only central government can levy taxes(Custom Duty, Excise Duty and Service Tax, education cess and product specific cess, automobile cess, research and development cess), State government only state Government can levy taxes (VAT, octroi duty, entertainment tax, luxury tax,), concurrent list both central and state can levy taxes. To accumulate all these together and make a single uniform tax we need GST.
- India will gain approximately $15 billion a year, this is because of the uniformity in taxing there is more manufacturing, more exports, and more employment opportunity and boost growth.
- Individuals benefit as the price comes down because the central and state tax will be collected at a point of sale, charged on the manufacturing cost, as a result consumption goes down.
- There will be one common tax because of the amalgamation of both center and state instead of 16 different taxes.
- Invoicing will get simpler as they are billed separately for each item and written in detail for goods and services at present. This causes a delay in transit for delivery of goods and services, which will be eradicated after GST as the process gets simpler.
- The rate of duty will become same all over India as the elimination of distinguished rates by state and central is done.
The political conditions have held up the introduction of these Goods and Service Tax bill.