The GST Basics – Top Four FAQ’s

GST

The Goods and Services tax has been making headlines ever since its proposition was discussed some years ago. Now, to be right, the seeds for GST were sowed in the year 2003 when the Kelkar task force proposed a comprehensive Goods and Services Tax is one unified tax the consumer will pay for goods and services instead of multiple taxes.  Here is a list of FAQ’s that fumble with your minds every time we hear the word ‘GST’!

1.What’s the GST all about?

The Goods and Services tax is the proposed new taxation system that will replace all other multiple taxes businesses pay to distribute or sell their products and services to customers. For example, a toothpaste company may have its manufacturing hub in Gujarat but sell to outlets all over India. This manufacturer will have to pay VAT, road tax, and Octroi too in cities like Mumbai for bringing new products into the city.  The GST aims to absorb all these taxes under one head making it easier and clearer for the business and the consumer.

2. How does the GST benefit me? I am merely a consumer. I do not manufacture or sell goods and services?

As reported by the Economic Times the indirect taxes on most goods is on the higher side due to multiple taxes like VAT, excise duty, entry tax and other local body taxes. It’s no rocket science that taxes increase the price of goods.  The cascading of all these taxes leads to a tax rate of 25 – 30% when the goods reach the hands of the consumer. At a standard rate of 18%, taxes for most goods is expected to come down, bringing down the overall price the consumer pays for a product.

3. Does this mean that I pay less for all the goods and services I use?

No. The GST may not work to the advantage of the consumer on all goods and services. For example, you pay 15% currently as indirect taxes on services. With the proposed GST this would become 18 %. And for a few goods like edible oil, textiles and low –value footwear the excise duty is nil and most states follow a VAT of only 5%. Factoring all other taxes, even if the total taxes on these goods hit the ceiling of 9%, it definitely results in an increase in the cost for the consumer.

4. Will I now pay two types of GST? A State GST and a Central GST?

Once the GST is implemented, there would be a Central Level GST and a State level GST. This spans the entire value-chain for all goods and services. However, it is important to understand that the total tax paid under GST as a percentage, and evaluate if this percentage exceeds the total tax paid under the current system. The GST will absorb the below-mentioned taxes at the Central and State level.

a) At the Central Level:

  • Duties of Excise (Medicinal and Toilet preparations)
  • Central Excise duty
  • Additional duties of excise (textile and textile products, goods of special importance)
  • Additional duties of Customs
  • Special Additional Duty of Customs
  • Service Tax
  • Surcharges and Cesses that are currently in force

b) At the State level:

  • State cesses and surcharges
  • State Value Added Tax
  • Purchase tax
  • Luxury tax
  • All types of Entry tax , Octroi
  • Central Sales tax
  • Taxes on lotteries and betting
  • Taxes on Advertisements.

The effect of the GST would only be felt after its implementation in July 2017.  The GST is set to release the Indian tax structure from a cumbersome and opaque one to a simple and transparent system. The unified tax system is easy to understand for the businesses and the common man. Enabling better compliance, the GST is set to bring businesses increased value due to its in-built mechanism of incentivizing traders who comply with the tax system.

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