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GST (Goods and Services Tax)Biggest Tax Reform Since Independence..IntroductionIntroduction of Goods and Services Tax (GST) will indeed be an important logical step towards a indirect tax reforms in India. The scheme is supposed to be implemented in India from 1st April 2016, however it may get delayed since the NDA government does not have majority in Rajya sabha (The upper house of parliament or the house of states).Further, Punjab and Haryana are reluctant to give up purchase tax, Maharashtra is unwilling to give up octroi, and all states wanted to keep petroleum and alcohol out of the ambit of GST.

Meaning of TaxTaxes are the amount of money government impose on an individual orcorporate directly or indirectly so as to generate revenue or to keep in check any black money activities in India.If tax is levieddirectlyonpersonalorcorporateincome, then it is adirect tax.If tax is levied on thepriceof a good or service, then it is called anindirect tax. The purpose oftaxationis tofinancegovernment expenditure. One of the most importantusesoftaxesis to financepublic goods andservices, such as street lighting and street cleaning.

Value Added Tax-When we pay an extra amount of price for the goods and services we consume or buy, that extra amount of money is called as VAT. This taxes is about to be replaced by Goods and Services Tax.Current rate-On agricultural goods-4%On luxury items- 20%

Customs Duty Customs Duty is a type of indirect tax levied on goods imported into India as well as on goods exported from India.In India, the basic law for levy and collection of customs duty is Customs Act, 1962. It provides for levy and collection of duty on imports and exports.

Excise Duty An excise or excise tax is an inland tax on the sale, or production for sale, of specific goods or a tax on a good produced for sale, or sold, within a country or licenses for specific activities. Excises are distinguished from customs duties, which are taxes on import.

Service Tax-Service Tax is a tax imposed by Government of India on services provided in India. The service provider collects the tax and pays the same to the government. It is charged on all services except the services in the negative list of services.Current rate-12.36%

What is GST?G GoodsS ServicesT TaxGoods and Service Tax (GST)is a comprehensive taxlevy on manufacture, sale and consumption of goods and serviceat a national level under which no distinction is made between goods and services for levying of tax. It will mostlysubstitute allindirect taxeslevied on goods and services by the Central and State governments in India.

OBJECTIVES OF GSTOne of the main objective of Goods & Service Tax(GST) is to eliminate the doubly taxation i.e. cascading effects of taxes on production and distribution cost of goods and services. The exclusion of cascading effects i.e. tax on tax till the level of final consumers will significantly improve the competitiveness of original goods and services in market.Introduction of a GST to replace the existing multiple tax structures of Centre and State taxes is not only desirable but imperative. Integration of various taxes into a GST system would make tax system transparent and uniform across India.GST, being a destination-based consumption tax based on VAT principle.

Cascading Effect of Present Tax system

(assuming tax rate=5%)

VAT(Value Added Tax)Value added tax is imposed on amount of Value addition made, wherevalue addition = Sale Price- Purchase Price Thus, VAT= Output Tax - Input TaxImplemented in April-1/2005It is replacement to complex Sales TaxIt overcomes a Cascading Effect of Tax It applied on Value Added Portion in sales priceIllustration of VAT

Problems with VATA major problem with VAT is the way it taxes inputs and outputs. Input are taxed at 4 percent and outputs at 12.5 percent.It is not uniform in nature.VAT is different for different States.Different rates of taxation for different goods.What is GSTGST is a comprehensive value added tax on goods and services.It is collected on value added at each stage of sale or purchase in the supply chain. No differentiation between Goods and Services as GST is levied at each stage in the supply chain.At all stages of production and distribution, tax is borne by the final consumer.All sectors are taxed with very few exceptions / exemptions.GST StructureDual GSTState GSTCentre GSTGST to be levied by the Centre and the States concurrentlyGST to be levied by CentreGST to be levied by State

Proposed GST RatesTaxes to be subsumed in GST

Following Central Taxes should be subsumed under the Goods and Services Tax:

Central Excise DutyAdditional Excise DutyThe Excise Duty levied under the Medicinal and Toiletries Preparation ActService TaxAdditional Customs Duty, commonly known as Countervailing Duty (CVD)Special Additional Duty of Customs - 4% (SAD)Surcharges, andCessesThe following State taxes and levies would be,to begin with, subsumed under GST:VAT / Sales taxEntertainment tax (unless it is levied by the local bodies).Luxury taxTaxes on lottery, betting and gambling.State Cesses and Surcharges in so far as they relate to supply of goods and services.Entry tax in lieu of Octroi.

Product Excluded from GSTPetroleum ProductAlcoholTobacco ProductPurchase Tax

Illustration of GSTBenefits of GSTTransparent Tax SystemUniform Tax system Across IndiaReduce Tax EvasionExport will more competitive Hurdles in ImplementationDispute between centre and state over Tax SharingHighly sophisticated IT infrastructure required .Issue of taxing financial services and e-commerce is to be appropriately addressed and integrated.Political ImbalanceGST Global ScenarioMore than 140 countries have already introduced GST/National VAT.France was the first country to introduce GST system in 1954. Typically it is a single rate system but two/three rate systems are also prevalent. Canada and Brazil alone have a dual VAT.Standard GST rate in most countries ranges between 15-20%.