GST is basically an indirect tax that brings taxes imposed on goods and services, on manufacture, sale and consumption of goods and on supply of services, under a single domain at the national level. In the present system, taxes are levied separately on goods and services. The GST is a consolidated tax based on a uniform rate of tax fixed for both goods and services and it is multiple point taxation system, but final burden falls on end consumer.

The proposed model of GST and the rate

A dual GST system is planned to be implemented in India as proposed by the Empowered Committee under which the GST will be divided into two parts:

  • State Goods and Services Tax (SGST)
  • Central Goods and Services Tax (CGST).

The GST rates applicable on supply of services and goods are 5%, 12%, 18% and 28%. At present, 15 per cent is levied on services and the indirect taxes on most goods is around 20 per cent.

Benefits of GST

  1. Life gets simpler – GST will replace 17 indirect tax levies and compliance costs will fall making it simple for people.
  2. Threshold Limit enhanced – In earlier VAT regime, threshold limit for registration was INR 10 lacs in most of the states and also in Service Tax, threshold limit was INR 9 lacs which has been enhanced to INR 20 lacs in new GST regime.
  3. Input Tax Credit of CST & Excise – In earlier indirect tax regime, CST was cost of purchaser and no Input Credit could be passed on of tax paid by purchaser. In case of manufacturers with turnover up to INR 1.5 crores and traders, input of Excise Duty was not available for the products on which Excise Duty was levied. Similarly, Input of Service Tax was also not available for Traders and manufacturers without Excise Duty and Service Tax registration. And hence these were cost to traders and no input was available, and this simply inflates cost of product by 15-25%. Now in new GST regime, Input of all the 3 nature of taxes will be available to all assessees registered under GST.
  4. Revenue will get a boost – Input tax credit will encourage suppliers to pay taxes – States and Centre will have dual oversight. The number of tax-exempt goods will decline and as a result revenue will boost.
  5. Logistics, inventory costs will fall – Checks at state borders for slow movement of trucks will boost up speed and hence increasing efficiency and decreasing cost. In India, they travel 280 km a day compared with 800 km in the US.
  6. Investment boost– For many capital goods, input tax credit is not available. Full input tax credit under GST will mean a 12-14% drop in the cost of capital goods. Expected: A 6% rise in capital goods investment, 2% overall.
  7. Make in India tax, high logistics costs and fragmented market b) Increased protection a) Manufacturing will get more competitive as a) GST addresses cascading of tax, inter-state from imports as GST provides for appropriate countervailing duty.
  8. Less developed states get a lift- The current 2% inter-state levy means production is kept within a state. As GST will create a national market, this can be dispersed, creating opportunities for others.
  9. Manufactured goods could become cheaper- GST will lead to lower logistics and tax cost and hence would make goods cheaper.
  10. GDP lift HSBC estimates an 80 basis point rise in GDP growth over 3-5 years. NCAER pegs the effect will be because of the elimination of tax cascading.
  11. Freeing up online State restrictions and levies have complicated e-commerce transactions. Some sellers do not even ship to those particular states. All this will end with GST hence making indirect taxation simpler and easier.

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