What’s so special about the month of July? Well apart from the Independence Day of the world’s oldest democracy (USA), there isn’t much to talk about. But on the 1st of July 2017, there indeed was something really exciting to talk about, this time in the World’s largest democracy. The Prime Minister of India on the day launched the Goods and Services Tax commonly referred to as the GST, a historic reform in the country’s existing tax regime. The motto of GST? One Nation, One tax.
But is the tax as simple as its motto suggests? Many might argue. So let’s break it down in layman terms, Firstly, let’s understand what taxes are being replaced by GST. GST is being implemented in place of Service Tax, Value Added Tax (VAT), Central Sales Tax, Luxury Tax, Octroi and 8 other indirect taxes to be precise. There exists basically 4 slabs of tax rates which are – 5%, 12%, 18% and 28%. All products and services available in the country are classified into two major heads – Goods and Services. However, to control inflation, the government has exempted roughly half of the items present in the consumer inflation basket.
Secondly, Why take the hassle of removing the traditional taxation regime and focus on GST? One might ask. Well, the government says it would be easy to monitor timely payments of taxes as well as it becomes easy for businesses to calculate and pay taxes under one head rather than calculate, file and comply with various indirect tax rules.
Thirdly, one might want to know what about the revenue that was previously being earned by state governments from the previous indirect tax regime after the implementation of GST (which is being focused as a Central monitored and collected tax). Well GST has been divided into 3 parts, which are CGST or Central GST, SGST or State GST, and IGST or Integrated GST. CGST is the portion of GST, which will be payable to the Central Government, SGST to the respective State Governments where the final goods or services are consumed and IGST where revenue will be collected by the Centre for inter-state sales.
What is the benefit of transferring to GST one might ask? Well as already specified above, GST will reduce the complexity of paying various taxes at various levels of the manufacturing process. Instead, manufacturers would have to pay only one tax, which is GST at the specified rate. This reduces much time and effort. Also in the long-run, prices of many manufactured goods, for example, entry-level motor vehicles would go down significantly.
We are now almost a fortnight away since the GST has launched, and the environment of uncertainty regarding the ruling and implementation of the tax is behind us. Now what remains for us to see is that whether GST is able to able to keep the promise with which it was brought to the table or will it just be another hit and miss like demonetization?