A common refrain in the popular discussions is what is the need for the introduction of GST? To answer that question, it is important to understand the present indirect tax structure in our country. Earlier the Central Government levies tax on manufacture (Central Excise duty), provision of services (Service Tax), interstate sale of goods (CST levied by the Centre but collected and appropriated by the States) and the State Governments levy tax on retail sales (VAT), entry of goods in the State (Entry Tax), Luxury Tax, Purchase Tax, etc. It is clearly visible that there are multiplicities of taxes which are being levied on the same supply chain.
There is cascading of taxes, as taxes levied by the Central Government are not available as setoff against the taxes being levied by the State governments. Even certain taxes levied by State Governments are not allowed as set off for payment of other taxes being levied by them. Further, a variety of VAT laws in the country with disparate tax rates and dissimilar tax practices, divides the country into separate economic spheres. Creation of tariff and non- tariff barriers such as Octroi, entry Tax, Check posts etc. hinder the free flow of trade throughout the country. Besides that, the large number of taxes creates high compliance cost for the taxpayers in the form of number of returns, payments etc.
What is GST
GST is an indirect tax that is levied on goods as well as services. All the existing state and central indirect taxes are subsumed under the GST. All the taxes mentioned earlier are proposed to be subsumed in a single tax called the Goods and Services Tax (GST) which will be 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. So basically any tax that is presently being levied by the Central or State Government on the supply of goods or services is going to be converted into GST.
GST is proposed to be a dual levy where the Central Government will levy and collect Central GST (CGST) and the State will levy and collect State GST (SGST) on intra-state supply of goods or services. The Centre will also levy and collect Integrated GST (IGST) on inter-state supply of goods or services.
This tax reform will lead to creation of a single national market, common tax base and common tax laws for the Centre and States. Another very significant feature of GST will be that input tax credit will be available at every stage of supply for the tax paid at the earlier stage of supply. This feature would mitigate cascading or double taxation in a major way. This tax reform will be supported by extensive use
of Information Technology [through Goods and Services Tax Network (GSTN)], which will lead to greater transparency in tax burden, accountability of the tax administrations of the Centre and the States and also improve compliance levels at reduced cost of compliance for taxpayers. Studies indicate that introduction of GST would instantly spur economic growth and can potentially lead to additional GDP growth in the range of 1% to 2%.
Benefits of GST Registration
- Under this system, a single product is taxed at the same rate in every corner of the country, hence deciding the applicable GST rate becomes convenient.
- Only GST registered business can charge or collect GST.
- Tax can legally be collected from purchasers and the credit of the taxes paid on the goods or services supplied can be passed on to the purchasers or recipients.
- There is a common portal for various requirements such as registration, tax payments, refunds, and returns.
- The Composite Scheme and its tax benefits can be availed by the entrepreneurs whose turnover is within the prescribed limit.
- Businesses prefer to choose GST registered entrepreneurs over the unregistered to avail the benefits of the input tax credit.