After 13 years of discussions on the Kelkar Task Force report on indirect taxation, the Goods and Services Tax (GST) was implemented on July 1, 2017. It is a single tax applicable on goods and services across the supply chain. Input tax credits (ITC) are available at every stage of value addition. This makes GST a tax that is levied only on the value addition done at each stage. Therefore, the consumers pay tax charged only by the last vendor with ITC available for all previous stages.
What is GST?
GST subsumes all other types of indirect taxes that were applicable. Here is a list of the subsumed taxes:
#1. Central level taxes
- Excise duty
- Special additional customs duty
- Additional excise duty
- Countervailing duty
- Service tax
#2. State level taxes
- Value Added Tax (VAT)/sales tax
- Taxes levied on lottery, gambling, and betting
- Entertainment tax
- Luxury tax
- Entry tax and octroi
- Purchase tax
GST offers several benefits. Below is the summary of some of these:
#1. For industries and businesses
A strong and detailed system is the base of the new tax regime. Tax payers may avail of various services such as registrations, payments, returns, and others online. This makes it easier for companies to comply with the regulations.
Uniform tax structure
Because all indirect taxes are subsumed, a single tax is levied across the country. This brings uniformity in the structure making it easier to conduct business.
Eliminates cascading taxes
The levy of multiple taxes before GST resulted in traders paying tax on taxes. This cascading effect is eliminated under the new regime, which reduces the costs.
Costs are expected to reduce under the GST regime. As a result, competitiveness within the industry may increase.
- Profitable for exporters and manufacturers
The elimination of Central and State taxes and availability of tax credits reduce the costs of manufacturing goods locally. This may make prices of Indian products globally competitive and boost exports.
#2. For Central and State Governments
Multiple Central and State level taxes are eliminated by GST. A strong end-to-end information technology system makes it easier for the authorities to administer GST.
Simpler and transparent systems boost compliance. The transfer of ITC in the value addition chain acts as an incentive for businesses to comply with the procedures.
The new tax regime decreases the costs of tax collection by the authorities. As a result, it provides higher revenue efficiency.
#3. For consumers
Transparent and proportionate tax
The multiple taxes levied at various stages in the supply chain, and non-availability of input credits resulted in high prices including several hidden costs. A single GST rate brings transparency and benefits consumers.
• Reduces tax burden
Improved efficiency and prevention of non-compliance reduce the tax burden on the goods and services. This reduces the final costs paid by consumers.
Administration of GST
GST comprises two components—Central GST and State GST. The Central Government levies and collects Central GST while the State levies and collects State GST on every transaction executed within its jurisdiction. The ITC is available only in the same component, and no cross utilization is available.
Existing Central excise, VAT, and service tax payers are not required to apply for fresh GST registration. However, new dealers may file a single GST Registration online. The registration number is linked to the Permanent Account Number (PAN) and is the same for Central and State authorities.