India being a federal State, there is a division of powers between centre and state. To fulfil their duties they collect resources by applying tax differently. So there is multiple tax system in our nation. But multiple tax system has created a lot of burden on consumers and made everything complicated. To make tax procedure simple and more effective Goods and Services Tax Act, 2016 is passed by parliament. GST is a tax levied upon final consumption of goods and services. It is a comprehensive tax which replaces all small indirect taxes. There is Central Goods and Services Tax (CGST), State Goods and Services Tax (SGST) and Integrated Goods and Services Tax (IGST).
It stands for Central Goods and Services Tax which goes to Central govt. It would replace Central Excise duty, Special Excise Duty, Central Sales Tax, service tax.
It stands for State Goods and Services Tax which goes to State govt. It would replace VAT, entertainment tax, luxury tax, entry tax.
It stands for Integrated Goods and Services Tax which is divided between centre and state as per rate fixed. It is levied on interstate sale. It is not a third tax but an integrated tax on inter-state movement.
For example, if goods manufactured by a person in state A are sold to another person in State A costing Rs. 10,000, and GST is 18 %. It is an intrastate movement. So, Rs 900 goes to the central govt. as CGST and Rs 900 to the State Govt. as SGST. Now these goods are sold from State A to State B then it is an inter-state movement and IGST is levied on it with a combined rate of SGST and CGST.
Need and benefits of GST:
- It will reduce the prices for consumers as tax burden would reduce.
- It will promote international trade as prices in the domestic country would fall and try to control inflation.
- There would be transparency in tax systems and will help to reduce corruption and tax evasion
- It would simplify the tax collecting procedures as there would be one tax instead of multiple taxes.
- Taxation burden would split between manufacturing and services.
- According to experts, India would gain $ 15 dollars in a year and it would help to boost employment opportunities.
- Instead of levying a tax on each stage, now tax would be levied on value addition only.
- All states have different rates of tax, so with GST will have a uniform rate of tax
Bottlenecks in implementation of GST:
- First there is a lot of criticism from the opposition in parliament. And it was required to be passed by the 2/3rd majority in parliament.
- Next the consent of all states was required which was a difficult task. Some states oppose as their revenue would be curtailed. But tobacco, petroleum and alcohol are exempted from GST.
- Opposition from various industries, companies and businessman is high.
- Revenue Neutral Rate (RNR) is to be maintained such that there is no effect on govt revenue after giving tax credits.
- It is to be ensured that there is no excess burden on a small businessman.
- Training is needed to be given to tax administering authorities.
GST is consumer-based and is to be collected by the state in which it is consumed not by the state by which it is sold. Tax on tax is removed and the burden on consumers is reduced. A single tax ensures the same rate of tax and there is no classification as special goods. Less money is spent on litigation and services are also taxed. Companies and business may suffer loss initially but for the long term, it is good for the development of the economy and improving the credibility of the Indian economy and less corruption.