Goods and Service Tax (GST) is an indirect or consumption tax collected in India on the sale of goods and services. GST is collected at every step in the production process, but is refunded to all parties in the chain of production except the final consumer. It came into effect from July 1, 2017 through the 101 amendment of the constitution of India’s implementation by the Indian government. This tax replaced multiple existing taxes imposed by the state and central governments. The rules and regulations, tax rates are governed by the GST Council which consists of finance ministers of all states and central.
GST helps in making tax structure easier and helps to remove all the extra taxes from a business. It helps in giving a clear view of what you are paying and filters all the unnecessary taxes we pay without our knowledge. Goods and services are classified into five tax slabs for tax collection i.e. 0%, 5%, 12%, 18% and 28%. There is special rate of 3% on gold, 0.25% on rough precious and semi-precious stones. The taxes are collected separately by individual state governments on petroleum products, alcoholic drinks, electricity and real estate. Before GST the tax rate for most goods was about 26.5% but after implementation of GST most of the goods are in 18% tax range.
Benefits of implementing GST:
- Indirect taxes such as VAT, CST, service tax, CAD, SAD and excise will be removed. GST replaces 17 indirect levied taxes.
- Simplified tax policy and less tax compliance when compared to current tax structure.
- Manufacturing costs tends lower due to lower burden of taxes on manufacturing sector. Hence the prices of the goods drop.
- Less burden on common man i.e. they will have to spend less money to buy the same products as the taxes are dropped.
- Cascading effect of taxes can be ridded i.e. collection of tax on tax.
- Circulation of black money decreases as the traders or shop keepers should maintain records.
How is GST helping the Indian Economy?
Simple Tax Structure
Calculation of taxes under GST is simpler. It is a one single tax paid instead of multiple taxes under different stages of supply chain. This saves money and time.
Economic Union of India
After GST there is a freedom of transportation of goods and services from one state to another, so the goods can be transported across the country which is a benefit to all the businesses. This increases production of goods.
The tax component of manufactured goods and services in India is around 25-30% of the cost of the product. After implementation of GST, the burden of paying taxes has gone down. Hence there is a scope to increase production so the competition increases.
Greater Tax Revenues
As GST simplifies the tax structure, this increases the number of tax payers and the tax revenues collected for the government. GST encourages the compliance, which is expected to widen the tax base.
Uniform Tax Regime
As GST is one tax, it has made taxpayer easier to pay taxes uniformly. Before GST there used to be multiple taxes where the tax payer would be confused and tend not to pay them which decrease the revenue.
6. Increase in Exports
Due to implementation of GST there has been a fall in the cost of production of goods and services, which increases the competitiveness towards the international market.