Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Needs with Benefit of Goods and Service Tax (GST)

Needs with Benefit of Goods and Service Tax (GST)
Needs with Benefit of Goods and Service Tax (GST)

1.   Need for GST

Under the pre-GST regime, multiple taxes were being levied on the same supply chain by the Central and  State Governments.

Further, tax system on goods and services was facing the following difficulties:

  • Taxes levied by Central Government were not available as set off against the taxes levied by State For example, Excise Duty was not adjustable against VAT. Further, VAT was levied on  the portion of Excise duty included in the price of goods. Credit of CST levied by Union Government  was not available. Thus, it all became part of the cost of business.
  • Rate of CST being different from VAT created a tax arbitrage which was exploited.
  • Certain taxes levied by the State Governments were not allowed as set off for payment of other taxes levied by State Governments.
  • Different VAT laws, in force in different parts of the country, had divided the nation into separate economic spheres.
  • Tariff and non-tariff barriers such as octroi, entry tax, check posts, etc., hindered the free flow of trade throughout the country.

In view of the aforesaid difficulties, the certain taxes have been subsumed (absorbed) in a single tax called  the goods and services tax (GST) which has been levied on supply of goods or services or both at each stage of  supply chain starting from manufacture or import and till the last retail level.

2.   Benefits of GST

The introduction of Goods and Services Tax on the 1st of July 2017 was a very significant step in the field of  indirect tax reforms in India. It is one of the biggest taxation reforms in the history of Indirect Taxes in India postIndependence. It is one indirect tax for the whole nation, which has made India one unified common market. It is  a single tax on the supply of goods and services, right from the manufacturer to the consumer.

The new legislation i.e. GST will simplify and harmonise the indirect tax regime in the country. It is expected  to reduce the cost of production and inflation in the economy, thereby making the Indian trade and industry more  competitive, domestically as well as internationally. It is also expected that introduction of goods and services tax  will foster a common or seamless Indian market and contribute significantly to the growth of the economy. Due to  the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an inbuilt mechanism in the design of goods and services tax that would incentivise tax compliance by taxpayers. The  goods and services tax will broaden the tax base and result in better tax compliance due to a robust information  technology infrastructure.

See also  [Section 40]- Amounts Not Deductible for computing Profits & Gains of Business or Profession

Thus, the main aim of GST is to integrate state economies and boost overall growth by creating a single,  unified Indian market to make economic stronger.

(A) Benefits for business and industry

(i) Reduction in multiplicity of taxes

As already discussed above, there were many taxes levied by both Central and State Governments on goods  or services or both. Further, different VAT laws in force in different parts of the country had divided the nation  into separate economic spheres.

GST is one indirect tax for the whole nation, which has made India one unified common market. GST will  ensure that indirect tax rates and structures are common across the country, thereby increasing the certainty and  ease of doing business. Thus, GST would make doing business in the country tax neutral, irrespective of the  choice of place of doing business.

(ii) Removal of cascading of taxes

Taxes levied by Union Government were not available as set off against the taxes levied by State  Governments, such as Excise Duty was not adjustable against VAT. Further, VAT was levied on the portion of  Excise duty included in the price of goods. Credit of CST levied by Union Government was not available. Thus, it  all became part of the cost of business which led to cascading of taxes.

By introduction of GST, there will be removal of cascading of taxes. A system of seamless tax-credits  throughout the value chain, and across boundaries of States, would ensure that there is no cascading of taxes. This  would reduce hidden costs of doing business.

(iii) Improved competitiveness

Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for  the trade and industry.

(iv) Easy compliance

A robust and comprehensive IT system would be the foundation of the GST regime in India. Therefore, all tax  payer services such as registrations, returns, payments, etc. would be available to the taxpayers online, which  would make compliance easy and transparent.

See also  GST Return under GST Act.

(v) Gain to manufacturers and exporters

The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods  and services and phasing out of Central States Tax (CST) would reduce the cost of locally manufactured goods  and services. This will increase the competitiveness of Indian goods and services in the international market and  give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way  in reducing the compliance cost.

(B) Benefits for Central and State Governments

(i) Simple and easy to administer

Multiple indirect taxes at the Central and State levels are being replaced by GST. Backed with a robust end to  end IT system, GST would be simpler and easy to administer than all other indirect taxes of the Centre and State  levied so far. Further, there will be reduction in compliance costs as there will be no requirement of multiple  record keeping.

(ii) Better controls on leakage

GST will result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of  input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the  design of GST that would incentivize tax compliance by traders. Thus, uniform SGST and IGST rates will reduce  the incentive for tax evasion.

(iii) Higher revenue efficient

GST is expected to decrease the cost of collection of tax revenues of the Government, and will therefore, lead  to higher revenue efficiency.

(iv) Boost to Foreign Investment and “make in India” campaign

A unified common national market will boost Foreign Investment and “Make in India” campaign

Besides the above, there will be boost to export/manufacturing activity, generation of more employment,  leading to reduced poverty and increased GDP growth. Further, improvement of the overall investment climate in  the country will benefit the development of states.

(C) Benefits for the consumer

(i) Simpler tax system

Due to multiple indirect taxes being levied by the Centre and State with incomplete or no input tax credits  available at progressive stages of value addition, the cost of most goods and services in the country were laden  with many hidden taxes. Under GST, there would be only one tax from the manufacturer to the consumer, leading  to transparency of taxes paid to the final consumer.

See also  Salient Features of GST & IGST

(ii) Reduction in prices of goods and services due to elimination of cascading

Since, there would be only one tax from the manufacturer to the consumer, the cascading effect of the taxes  will be eliminated and it will lead to reduction in prices of goods and services.

(iii) Relief in overall tax burden

Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will  come down, which will benefit consumers.

(iv) Uniform prices throughout the country

Since the rate of Central and State goods and service tax will be same throughout the country, the prices of  goods and services shall be uniform throughout the country.

%d bloggers like this: