India’s biggest tax reform since independence tonight came into force after 17 years of debate, unifying more than a dozen central and state levies.
The Goods and Services Tax (GST) System
In the current system, tax is levied at each stage separately by the Union government and the States at varying rates, on the full value of the goods.
Under the GST system, tax will be levied only on the value added at each stage. It is a single tax (collected at multiple points) with a full set-off for taxes paid earlier in the value chain.Consumer will bear only the GST charged by the last dealer in the supply chain with set-off benefits at all the previous stages. GST is meant to be a unified indirect tax across the country on products and services.
State GST, inter-State transactions and Central GST
For transactions within a State, there will be two components of GST, Central GST (CGST) and State GST (SGST). In the case of inter-State transactions, the Centre would levy and collect the Integrated Goods and Services Tax (IGST).
Need for GST
Subsume various indirect taxes levied at different levels, with the idea of reducing red-tape, plugging leakages and paving the way for a transparent indirect tax regime.
Effect of GST
GST is meant to eliminate “tax on tax”, overall tax burden on goods is expected to fall over time.
- Many essential goods such as unpacked food grains, gur, milk, eggs and salt won’t attract any tax under GST.
- Prices of vegetables and fruits are likely to rise under the GST regime and services such as eating at restaurants will get more expensive.
- Some services will get costlier as banking and financial services have been put in the 18 per cent rate slab under GST, from 15 per cent earlier.
- It is expected that due to reduced cost because of availability of GST credit on items hitherto not available, the price of services will also come down which will benefit the consumers.
- Alcohol, Petroleum products such as petrol, diesel and aviation turbine fuel have been kept out of GST as of now.
GST in tax evasion
GSTN, will allot universal GST numbers (similar to PAN) to all manufacturers, traders, stockists, wholesalers and retailers. This will simplify the administration of indirect taxes and plug leakages.
Source : Pib, The Hindu, NDTV, CBEC
GS III : Indian Economy