A student’s take on GST – what’s it about?

In recent times, every news reporting medium has been talking about the infamous GST Bill and the hurdles faced by the BJP Government to pass this bill in the Rajya Sabha. The GST (Goods and Services Tax) is considered to be a bill which will thoroughly reform the tax system in the country. In simple terms, the bill brings together most of the taxes that are imposed on all goods and services (except a few) under a single banner. Antithetical to the current system, where taxes are levied separately on goods and services, GST serves as an indirect tax. Hence, there exists a need to be cognizant of the differences between direct and indirect taxes:

– Direct tax is a tax that doesn’t allow the liability to be shifted. In other words, they are taxes directly imposed on the person. Examples: Income Tax, Corporate Tax, Wealth Tax.

– Indirect tax is a tax that allows the liability to be shifted. Prominent examples of the same are as follows: — Central Excise – Imposed by the central government on the production of hoods. — Sales Tax – Imposed by the state government on the distribution of goods. — Service Tax – Imposed on production and distribution of goods and services. (Goods and Services are delivered at the same time and are inseparable.) — Nomenclature for these taxes had changed when Central Excise Tax came to be known as CenVAT (Central Value Added Tax) and Sales Tax as SLVAT (State Level VAT).

The purpose of the bill is to merge these taxes as well as other innumerable taxes. Central Excise and Sales & Services Tax put into simple words are perceived as Tax on Tax. These are imposed on the selling amount at different hierarchies of selling – from the manufacturer of the goods to the ultimate seller. This process leads to increase in the price of goods because tax is levied at every level of selling, and since the price of a product is incremented at every level, the final price of the goods increases manifold as compared to the actual cost price.

It could have been evaded if proper invoices were not produced at the time of selling at different levels. Ergo, the Government revenue suffered due to this system. This gave rise to a new taxation system and therefore, VAT was introduced. Conventionally, VAT (Value Added Tax) as the name suggests is a tax imposed on the value which is the difference between Selling Price and Cost Price. It acted as a modification to the previous system to overcome evasion, which also lead to reduction in the price of commodities. Since this tax is levied on the difference, even if the invoices are not maintained, the final tax is imposed on the difference between the original cost price and the final selling price. Though the tax generated was less as compared to the earlier system, it could not have been evaded. But India adopted a modified version of VAT which included CenVAT and SLVAT. This created a certain sense of confusion during the transport of goods between different states, and thus a lot of time was wasted.

With a view to smoothen the various stages of business, unifying all the taxes (direct as well as indirect) under one name was considered to be the need of the hour. These varying type of taxes had a cascading effect on the prices of products and this had to be eradicated. The government settled on a though of introducing a new system which can simplify this complex tax system and can abolish the Tax on Tax policy. Thus, the GST was introduced.

Tax revenue collected due to GST would be on the similar lines as VAT. The Indian GST would be different than the orthodox GST as it will harbour a Dual structure comprising of Central GST and State GST. A GST Council will be established which will be tasked with the objectives of optimising tax collection for goods and services by the State and the Centre. This Council will consist of the Union Finance Minister (as Chairman), the Union Minister of State in charge of revenue or Finance, and the Minister in charge of Finance or Taxation or any other, nominated by the particular state’s government. The council will be the body of decision-making concerned with the segregation of taxes levied by the Centre and the State. Other vital matters of discussion such as the goods and services subjected to GST, the basis and the rates at which GST will be applied will also find a place in the council’s meetings.

The Finance Minister of India, Arun Jaitley, has explained how the GST bill would reduce the cost of goods and services. When the cost decreases, the demand increases and hence, the GDP grows and leads to increase in the savings of customers. The rate of saving increases which leads to the growth of GDP.

According to many experts, the bill will copiously boost tax collection in the country. Thus, the money can be used for further development of government services. It is estimated that if the GST bill is put into action, the Indian economy would grow by 0.9 to 1.5 times which is a gargantuan amount of growth in economic terms. The bill is a win-win situation for the Indian Economy and hence, in their opinion, it should be put into practice as soon as possible.

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