India is ill-famed for its intricate tax system. Though for new businesses and startups, it becomes difficult to navigate through various direct and indirect taxes. Constant variations to taxes such as service tax, making things even worse. With the advent of GST, these things will hopefully change with new belongings and service tax.
Let’s get deeper into Goods and Services Tax :
In an effort to make it understandable, we are considering an example:
An individual wants to start a new business for which he needs to import various raw materials from China to Gurgaon – in his factory via road. The cost associated with traveling via various state can trouble him. Let`s know how?
Initially, he pays the cost of customs duty who imported the materials via shipping. Further, there are a lot of other taxes associated, which are unable to comprehend. Last but not the least, is the Central and State Government taxes which are exclusive. On diving deeper, there are some other taxes that are taxed by the government.
Now, come the petrol prices. The petrol cost charged to dealers is 25.46/liter by Oil Marketing Companies. Now, the excise duty of 21.48/liter is also associated. Here the prize becomes 49.22 including dealer commission. Not only this, the Value Added Tax of 27% is also in the line which makes the final price – 62.51 at petrol filling stations.
The Taxes are expected to improve with GST. It is considered as the game changer for India’s economy and is being labeled as the major change in the constitution since independence. GST is believed to replace the indirect taxes imposed by the Central and State Governments while converting all other taxes into a single and streamlined process. It probably benefits people especially business owners, presenting unified market. Also, it refreshed the concept of bringing black money back into the mainstream economy. The tax will be implemented at every step of value creation.
Goods and Services Tax Calculation
Let us take an instance – Goods and Services Tax is set at 20%. Assume the manufacturing cost of a Product A is 100, incorporating GST of 20% – The total amount is Rs. 120. When the product is sold to the customer, including taxation the product prize become Rs. 150. Now, the GST of 20% charges will be charged on difference of Rs. 150 and Rs. 120 i.e. 20% on Rs. 30 which is equal to Rs. 6. The final price become Rs. 156.
With the advent of GST at every step of value creation, it becomes challenging for black money owners to participate anywhere in the value chain with GST. The GST is estimated to provide an immediate boost of 0.9% – 1.4% of the GDP.
Final GST Rate Slab
The (GST) will impose multiple rates, ranging from 0% – 28%. The GST Council finalized a four-tier GST tax structure of 5%, 12%, 18% and 28%. Lower rates will be applied to essential items while the highest is in luxury and de-merits goods.
Service Tax will vary from 15% to 18%. Services like train tickets fall in lower slabs and will be taxed at lower rates. On the other hand, essential items including food that presently constitute roughly half of the consumer inflation basket will be taxed at zero rates.
The lowest rate of 5% would be for common usable items. There would be two standard rates, i.e. 12 per cent and 18 per cent, which would fall on the bulk of the goods and services including fast-moving consumer goods.
The highest tax slab will be applicable to items present taxed at 30-31%. Ultra luxurious, demerit, and sin goods will attract a cess for a period of five years on top of the 28 per cent GST.
GST Types – CGST, SGST, and IGST
GST needs to have clear provisions. Therefore, it is important to distribute areas to the center and the state in order to collect revenue via taxation while preventing overlapping.
The Central GST or CGST is the areas where the center has the powers and State GST where the State has taxation capabilities. The IGST or Integrated GST is for the movement of goods within the states of the Indian union. The IGST collected the tax and further transferred it to the states.
The Conclusion after Key Changes in UPA’s And NDA’s Bills
- GST shall not be applicable on petroleum products.
- Liquor for human consumption is exempt, however tobacco and tobacco products will fall under the GST.
- There is a 1% tax on top of the GST for interstate movement of goods and services.
Replacement of Indirect Taxes with GST
The GST replaces numerous different indirect taxes such as:
- Central Excise Duty
- Service Tax
- Countervailing Duty
- Special Countervailing Duty
- Value Added Tax (VAT)
- Central Sales Tax (CST)
- Entertainment Tax
- Entry Tax
- Purchase Tax
- Luxury Tax
- Advertisement taxes
- Taxes applicable on lotteries.
Goods and Services Tax Impact
The GST will fuel inflation in the short term. The GST rate starts at 5% and 18% taxation services such as restaurants, movies etc. prices can inevitably increase. Another issue with GST is – it doesn`t include liquor and petroleum in this ambit that are the major revenue sources for the government. As per the pundits, this is being done due to some crony capitalists who need some time to funnel away their black money – as the GST promises to widen the tax paying population.
Benefits after the Implementation of the Bill
A lot of committees were set-up to examine the feasibility and implementation of the Goods and Services Tax . Eventually, some fine points came out, which are as follows:
- The taxation powers by separating the state and the center tax which resulted in CGST and SGST.
- Exemptions of Petroleum and Liquor from the GST for human consumption.
- GST will be applicable on imports along with Basic Customs Duty.
- The GST will be applicable at the time of purchase while eliminating value-added tax t destination and excise duties.
- The workings in the implementation of IGST.
Pundits Assumption – Things That Become Costlier and Cheaper
According to expert’s assumption, following are the things that can become costly:
- Tobacco prices will get higher.
- Commercial vehicles will become costlier.
- Mobile phone call rate may rise.
- Textile and branded jewelry can become costly
Cheaper Items Included:
- Entry-level cars, two-wheelers, SUVs prices may fall
- Car batteries are likely to get cheaper
- Paint, cement prices may fall
- Movie ticket prices may lead to decrease
- Electronics items will get cheaper