Gst And Its Implications On Your Business
India has a complex tax structure making it very difficult for consumers, producers, sellers and industrialists to comply with all taxes. For instance, a Restaurant serving food and drinks to its customers had to comply with Value Added Tax (VAT), Service tax, Swachh Bharat Cess, Entertainment Cess, etc. Etc. These indirect taxes were never restraining in nature and thus, loped around like a burden.
To bring out one tax in place of so many indirect taxes that exist, the Government brought out the Goods and Service Tax Act, 2016. GST is an integrated indirect tax imposed on consumption of goods and services. It is imposed only at the final stage i.e. when the good or service is being sold and that too on value-addition.
To name a few taxes included in GST, we have:
At the Central level, the following taxes are being subsumed:
- Central Excise Duty,
- Service Tax,
- Custom Duties
At the State level, the following taxes are being subsumed:
- State Value Added Tax/Sales Tax,
- Entertainment Tax
- Octroi and Entry tax,
- Luxury tax
India, as of now has implemented a Dual GST system, meaning it has both a Centre GST and a State GST. Some of the major Changes brought affecting businesses:
- Reduction and Uniformity in Excise Duty
Excise Duty is paid as a charge when goods or service move from one state to another. Earlier, every State used to charge its own Excise Duty, leading to confusion and also higher rate of taxes. Now, Excise Duty is covered under Integrated GST and shall be Centre’s revenue. The proposed rate is 1%.
This decision is going to affect prices of many goods which are transported from state to state, For e.g. Automobile Industry, steel, iron, cement industries, etc.
- No VAT at each stage reducing cost of products
Earlier, VAT used to be charged at every stage of value addition, for e.g. For wheat, first the farmer sold it to the Dealer on which he had to pay tax at a percentage of the value-addition, then again when dealer used to sell it to the seller, he had to pay tax on value-addition, and then again the seller goes through the same when selling the packed wheat to the consumer. Thus, at every stage there was tax revenue for the Government.
Now, only at the time good and service is being sold, GST is charged. This reduces the cost of the product or service. And thus when cost reduces, demand rises, savings and investments increase, leading to overall growth of GDP and the Economy.
Thus, cost of Consumer products reduces.
- One tax for Goods and Services both. Confusion eliminated
Earlier, we had taxes differently for Goods (usually Sales Tax) and Services (VAT and Service Tax). Since there are few things which cannot be clearly distinguished as ‘services only’ or ‘goods only’, there used to be confusion and a possibility of tax evasion. Now, on both- Goods and Services, we have one common tax i.e. the Goods And Services Tax (GST).
- Complexities for Start-ups to register for VAT and others reduced.
Every Company/ Start-up had to obtain Registration under various taxes- VAT, Service Tax, Excise Duty, etc. under State and Centre. Now, for new dealers, only a Simple Application needs to be filed for Registration under GST which is common for both Centre and State. Each company will be given a unique ID GSTIN.
For existing companies, there is no need to apply afresh for registration under GST if they are already tax-payers.
- GST to be charged on Transactional value
As per Section 17 of the Act, GST is to be charged on the Transactional Value of supply of goods or services. But, the point of importance here is that the Transaction value includes among other things,
- Any commission, packing charge paid or anything done by the Supplier
- Any discount allowed by the Supplier after supply.
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This shall have a strong effect on the E-commerce industry wherein taxes shall be compulsorily charged and that too on the Retail Price and not on the Selling Price.
In all, GST is a much-needed change to the Indian Tax Regime. Its implementation is expected to be on a moderately growing pace. Yet, it is believed tax evasion shall reduce and there will be eventual growth of the Indian Economy with increase in inter-state and inter-country trade.
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