Goods and Services Tax or the GST Act would be implemented across the country from July 1st, 2017. Most agencies and financial organisations across the world have forecast an increment of up to 2% in India’s GDP after the successful implementation of the new taxation structure. There are 9 important sub-classifications of GST rules that include registration, return, refund, composition, transition, invoice, payment, input tax credit and valuation. These fragments would ensure that GST is implemented successfully even on a micro-economic level.
Goods and services have been classified and segregated under five tax slabs according to which taxes would be levied on goods sold or services provided. These slabs are 0%, 5%, 12%, 18% and 28%. The GST council, which comprises ministers from both central and state governments, has put these products and services under specific tax slabs. The GST Act is going to be implemented to bring transparency in the taxation structure and remove unnecessary bottlenecks from the system so that the whole process is smooth for manufacturers and service providers and is relatively economical for end-customers.
The current taxation scheme is of cascading nature where the end-customer has to pay tax on taxes which he is not even aware of. Under the current structure, taxes are levied in different forms at multiple times and at different rates. This sometimes makes the product cost double its original manufacturing cost. Currently, goods are taxed at the point of manufacturing. Butunder GST, tax would be levied at the point of consumption only. This would not only reduce the cascading effect of different taxes but also bring mobility in the industry by reducing the transportation time and also minimise tax evasion and corruption at many levels.
Under the current taxation structure, a total of 17 state and central taxes such as the Value Added Tax (VAT), service tax, excise duty, and sales tax would be abolished and GST would take its place. Trucks carrying consumables and other products wait in long queues to pay taxes before entering one state. In cases where they have to cross 8 or 10 states, there is a significant delay in transportation of the product causing huge loss to the companies. While transporting consumables, there is an added risk of food products going rotten and causing huge loss to the manufacturer.
Setting up a taxation system where tax would be collected when the product is bought will bring significant dynamism in the industry and thus increase efficiency. Also, single tax means there would not be any ambiguity regarding complex taxation strategy under the GST Act. The Constitution of India has provided exclusive powers to both the centre and states to collect taxes as per their domains. This has made India economically fragmented even if it is a single entity politically. GST Act would create an economically unified country that would act as a uniform playing field for all competitors and give opportunity to people from all over the country to market their products at competitive prices. This would allow customers to buy standard products at not-so-high prices.
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If a product is manufactured in Maharashtra, the manufacturer pays a central excise tax once the product leaves the factory gate. The product reaches the showroom in New Delhi where the customer buys the product and pays VAT on it to the central government.
Assuming the company had to buy inventory from Karnataka, the state government of Karnataka would charge tax on the inventory. Had the product been sold in Maharashtra itself, then the state government would have levied tax on the product. As the product was exported to other state from Maharashtra, the state government would collect central sales tax.