Before the Goods & Services tax was implemented, every business had to pay an indirect tax depending on the kind of product/ service that they were offering and the state that they were present in. A business may have to pay VAT, Sales Tax, Central Sales Tax, Luxury Tax, Service Tax, Entertainment Tax, etc for the business that they are into. As different states had different tax rates, the price of the same product was different in multiple states. This made doing business very tedious process as pricing, billing, accounting was an extremely lengthy and a difficult process. The difficulties for manufacturers would multiply when they would manufacture goods in one state, store them in another and sell them all over the country. The lengthy procedure was an equivalent to selling in different countries, despite us being in one.
All these taxes are indirect taxes and are finally paid by the customer who uses these goods & services. The Goods & Service Tax replaces all these taxes and makes the process simple for everyone. The tax is based on the principle of destination, i.e. it shall be collected at the point of sale. The tax is levied on wholesale agent when he buys from a manufacturer, on the retailer when he buys from the wholesale agent & paid by the consumer when he buys from the retailer. So, indirectly, it is the consumer who ends up paying the GST as he is the final consumer in any case.
There is another major reason for the introduction and implementation of the GST. In order to make India truly a single market in terms of pricing and documentation, GST tax rates have been fixed for different goods and services. These tax rates are uniform across the country.
Another advantage of the GST is that there will be no double taxation, thus reducing the prices of products which may be overpriced due to the taxes. Also, an individual or a business cannot claim tax credits currently, but the GST bill makes a provision for this in order to avoid double taxation. Many times, companies would be forced to pay taxes in every state and wait for years together to get a sales tax refund from the state where they haven’t sold their products, but stored them. Now businesses will not have to do the same, but just pay taxes in the state where they sell their products. There will be no tax for storing goods in a particular state. The Government has pushed for a quick refund procedure with the digitization of all GST systems.
GST is a tax that is bound to affect everyone, irrespective of the industry one is in as registration under GST is complusary for businesses. Every established industry veteran, entrepreneur, senior or mid level executive will need specific knowledge about this tax as the pricing and accounting for their product will be affected by it. Knowing your way around accounts and finance has become very very important, but this tax has made it important for marketers and advertisers to stay updated as their services too shall be covered under the GST. Never before has one tax made such a huge difference. Thus, for every tax that a company has to pay, it just needs to consult with the GST body’s for paying taxes or for getting a refund, which is a radical change from the past.
BSE Institute Ltd (BIL) is a subsidiary of the Bombay Stock Exchange that offers multiple short term and long term courses that help entrepreneurs and executives excel at their organizations. BIL takes full advantage of being at the centre of India’s financial district and was one of the first institute to offer a GST training course that certifies participants and helps any business transition smoothly from the old tax regime to GST.
The Central Government has opted for a multiple GST rate:
- Central GSTà Will include taxes like, excise tax, customs tax & service tax, etc.
- State GSTà Will include taxes like VAT, entertainment tax, sales tax, etc.
Tax slabs: 0%, 5%, 12%, 18%, 28%
The GST tax covers all goods and services in India. Every good/ service has been classified inot one of the 4 tax slabs. Certain goods like agricultural products are tax free. With the digitalization of services, it becomes easy for businesses to upload all their details from the comfort of their office. Another advantage of GST is that since there is only one body with whom we must interact, it saves a lot of time, money and effort for all. With just one body managing everything, everyone.
Advantages of the Goods & Service Tax act:
- Passing the act has sent out a strong message that India is serious about doing business & things are going to be more business friendly in future.
- Accounting will be easier due to a simpler tax structure.
- Lower business and other transaction costs.
- Cost of tax compliance will be very low.
- India will become one borderless market, very similar to the European Union, which will allow hassle free sales of goods throughout the country.
- Small traders may be exempted from GST, thus preventing the cost of essential goods from shooting up.
- Individuals or businesses can recover the tax they incurred on manufacturing expenses as tax credits. This reduces double taxation keeps the cost of goods & services reasonable.
- A less number of taxes will result in lower prices of goods & services.
- GST is not applicable for products that are exported and hence it is a boon for exporters, as they are protected from double taxation.
- Due to a simpler tax structure, the Government touch points may have to be reduced which will reduce corruption.
- Due to a fairer tax structure, more businesses will be willing to pay their fair share and hence increase the Government’s tax collections and reduce corruption.
- The unorganized sector will be easier to monitor.
- The bill emphasizes on the use of information technology to maintain records, thus reducing the possibility of corruption.