The introduction of Goods and Service tax (GST) will amalgamate the various taxes of state and central taxes into one. At present, Indian companies have to pay at least 17 different taxes of both state and centre, if the company wants to sell its wares outside India. However, the implementation of GST from 1st July’17, by the government will transform Indian market into one of the biggest single market for goods and services globally. This will also boost the Prime Minister’s pledge to ease doing business in and with India.
What are the good thing about GST?
In a country like India, where the population is around 1.3 billion which is about 4 times bigger than the population of the United States, selling products is complicated with more than 17 types of taxes under both state and centre are levied on most of the items. Currently, a product is taxed multiple times and at different rates. However, under GST, the trading will be easy and will save more time comparatively as there will be no queues at the checkpoints while crossing any border. The system of paying entry fee while entering a state for business will not be prevalent under GST, as the common tax will be applied to goods at the point of consumption rather than production. This will also minimize corruption, as it will allow the producer to claim credit easily and reducing the cascading effect of taxation.
What will be the probable Tax rate under GST?
Under GST, the tax may comprise at the five basic rates – 5%, 12%, 18% and 28%. However, the officials are due to reveal the final details of what will fall in each bracket. Arun Jaitley, the finance minister, said that 50% of the retail inflation basket will not be taxed. It is to protect the consumer from raise in price on basic goods such as food grains. Apart from the four rates, the rate on tobacco products and luxury items is believed to be higher.
The fixed tax slab under GST are –
|Rate %||Goods and services|
|0%||Basic essential items such as food grains|
|5%||Mass consumption items such as tea and spices|
|12%||Commonly used items such as processed food|
|18%||Household goods such as oil, soap, toothpaste, etc.|
|28%||Heavy consumer durable goods such as LED TV set, car, etc.|
|28% +||Luxury and demerit goods such as tobacco, aerated drinks and luxury cars.|
What will be the impact of GST on Indian economy and the businesses?
According to a Citygroup’s economist, after the implementation of the GST countries like Canada, Australia and New Zealand had experienced inflation, however, the price got normalized soon. As Jaitley said, this one tax system could lift the economy as much as by 2% points. With the great tax compliances and efficiency Asia’s widest budget deficit could be reduced. This will help get funds for schools and highways. Moreover, by paving the way for a free flow trade, the government will give a boost to Modi’s ‘Make in India’ manufacturing.
Under GST, the companies may have to reconsider their accounting systems including their one-time investment cost. The Logistic sector will experience more gain as ferrying goods all over India will become very easy under GST.
You can find more information on topics like e filing, income tax, refund status, calculator, etc. on our blog.
Is one nation one tax really happening in India and do other countries use the same type of tax system?
It has been quite a long time since GST was proposed – it was proposed in 2006. However, the final procedural hurdle was cleared in April. With the finalizing of the tax slabs of all the goods and services; the GST Network (the technological backbone that will generate huge numbers of invoice); and finally training around 58,000 officers on GST will be the last flurry of all activities. The government is determined to roll out the new system as per the set dateline, however, some companies are looking forward for more time to prepare for the new regime.
With GST, India will join 160 nations that have VAT, it includes Poland, Canada, and Japan. Interestingly, India’s GST will be rated among the highest and the logistics of overhauling Indian tax system with 29 states, 22 official languages and 9 million businesses will not be an easy calculation.
GST, the tax formed by amalgamating 17 different taxes will generate more revenue for better society and will minimize corruption.