GST is suppose to be implemented in India on 1st July 2017
We all know that both the Central and State governments in India love indirect taxes. And just so that we don’t notice it much, they label them innovatively and stow them under different heads. What GST will do is to sweep (‘subsume’) many indirect taxes into a single label.As things stand, the Centre has agreed to sweep excise duty and additional excise duty, service tax, countervailing duty, surcharge and cess and central sales tax into the waiting arms of GST.
The States have obligingly agreed to give up VAT (sales tax), entertainment tax, luxury tax, taxes on gambling, octroi and entry taxes, cess and purchase tax. GST will thus replace all of these taxes.
Just so they don’t squabble, the GST on every transaction within a State is to be split equally into a Central GST and a State GST.
When goods are shipped from one State to another, the Centre will collect an integrated GST from the seller which rolls both into one.
So in a post-GST world, you can pay GST instead of the different VATs at the supermarket.
At the restaurant, you can again get by with GST instead of service tax, VAT and cesses — all paid in bits and pieces.
At the multiplex, it would be GST again, instead of entertainment tax.
In short, GST will simplify taxes on your purchases. But there will still be a Central GST and a State GST, and three or four GST rates to deal with.
No tax cuts, though
But if you’re expecting GST to trim the taxes on your bills, perish the thought.
How GST impacts your indirect tax outgo will depend on the basket of goods and services you consume.
If you use a lot of services, in fact, you will likely end up paying more.
Why is this? Well, the GST looks to replace the variety of indirect tax rates with just three standard rates.
But as things stand, the rates being talked about are 12 per cent for essential goods, 40 per cent for ‘sin’ goods such as luxury cars, paan masaalaa and soft drinks, and 17-18 per cent for all the remaining goods and services.
So, if you were buying cooking oil and other essentials at a 5 per cent VAT, you may now have to pay a GST of 12 per cent. The service tax of 15 per cent on your Ola rides, mobile phone calls and restaurant outings may shoot up to 17-18 per cent. But yes, you can look to save quite a bit on items that suffer multiple indirect taxes (like cars) or usurious rates (like movie tickets). A lot here depends on the actual GST rates decided on by the GST Council. Some big-ticket items (petrol and liquor) are being kept out of the GST ambit too.
Out with double or triple tax
So, how come everyone’s going gaga over GST? It will not really make anything cheaper, will it?
It should, thanks mainly to the magic system of seamless input tax credit under GST.
Though India is already supposed to be on a ‘value-added’ tax regime where taxes paid on inputs are supposed to be deducted from taxes due on final products, this exists is in name only.
A variety of taxes — central sales tax, additional excise and customs duty, luxury tax, to name a few — are not eligible for such set-offs. As a result, both producers and sellers end up paying taxes on the same inputs over and over again.
Quicker transit
Finally, one clear benefit you can expect from the GST is that it will crunch the time taken for goods to zip across the country.
Today, if a truck ferrying produce from Punjab to Tamil Nadu passes through six different States, it is stopped at the checkpost and subjected to entry tax or Octroi before being flagged off at each of the six States.
This makes for snail-like progress for any goods taking the road route to any part of India.
By official estimates, about 6 hours out of the 24-hour daily travel time for Indian trucks is whiled away in such delays.
GST, by doing away with such hold-ups, may help trucks zip across State borders.
That means products arriving in a more farm-fresh and newly-minted condition at your neighborhood supermarket.
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