5/17/2015

WhatisGSTItsadvantages,benefitsandproblemsassociatedwithGSTinIndia|MyIndia

TheGoodsandServicesTax(GST)isavalueaddedtaxthatwillreplaceallindirecttaxesleviedongoodsand
servicesbytheGovernment,bothCentralandStates,onceitisimplemented.TheGSTisallsettoconsolidateall
State economies. This will be one of the biggest taxation reforms that will take place in India once the Bill gets
officially the green signal to implement. The basic idea is to create a single, cooperative and undivided Indian
markettomaketheeconomystrongerandpowerful.TheGSTwillseeasignificantbreakthroughtowardsanall
inclusiveindirecttaxreforminthecountry.
Intheyear2000,forthefirsttimetheideaofinitiatingtheGSTwasmadebythethenBJPGovernmentunder
theleadershipofAtalBehariVajpayee.Anempoweredcommitteewasalsoformedforthat,headedbyAsim
Dasgupta(thethenFinanceMinisteroftheWestBengalGovernment).Thecommitteewasformedtodesignthe
modeloftheGSTandatthesametimeinspectthepreparationoftheITdepartmentforitsrollout.In2011,the
previousUnitedProgressiveAlliance(UPA)GovernmentalsointroducedaConstitutionAmendmentBilltofacilitate
theintroductionoftheGSTintheLokSabhabutitwasrejectedbymanyStates.

WhatisGST?
The GST is basically an indirect tax that brings most of the taxes imposed on most goods and services, on
manufacture, sale and consumption of goods and services, under a single domain at the national level. In the
present system, taxes are levied separately on goods and services. The GST is a consolidated tax based on a
uniformrateoftaxfixedforbothgoodsandservicesanditispayableatthefinalpointofconsumption.Ateach
stageofsaleorpurchaseinthesupplychain,thistaxiscollectedonvalueaddedgoodsandservices,throughatax
creditmechanism.

TheproposedmodelofGSTandtherate
AdualGSTsystemisplannedtobeimplementedinIndiaasproposedbytheEmpoweredCommitteeunderwhich
theGSTwillbedividedintotwoparts:
StateGoodsandServicesTax(SGST)
CentralGoodsandServicesTax(CGST)

BothSGSTandCGSTwillbeleviedonthetaxablevalueofatransaction.Allgoodsandservices,leavingasidea
few,willbebroughtintotheGSTandtherewillbenodifferencebetweengoodsandservices.TheGSTsystemwill
combine Central excise duty, additional excise duty, services tax, State VAT entertainment tax etc. under one
banner.
TheGSTrateisexpectedtobearound1416percent.AfterthecombinedGSTrateisfixed,theStatesandthe
CentrewilldecideontheSGSTandCGSTrates.Atpresent,10percentisleviedonservicesandtheindirecttaxes
onmostgoodsisaround20percent.

AdvantagesofGST
IntroductionofaGSTisverymuchessentialintheemergingenvironmentoftheIndianeconomy.
Thereisnodoubtthatinproductionanddistributionofgoods,servicesareincreasinglyusedorconsumed
andviceversa.Separatetaxesforgoodsandservices,whichisthepresenttaxationsystem,requiresdivision
of transaction values into value of goods and services for taxation, leading to greater complications,
administration,includingcompliancescosts.IntheGSTsystem,whenallthetaxesareintegrated,itwould
makepossiblethetaxationburdentobesplitequitablybetweenmanufacturingandservices.
GST will be levied only at the final destination of consumption based on VAT principle and not at various
points(frommanufacturingtoretailoutlets).Thiswillhelpinremovingeconomicdistortionsandbringabout
developmentofacommonnationalmarket.
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WhatisGSTItsadvantages,benefitsandproblemsassociatedwithGSTinIndia|MyIndia

It will also help to build a transparent and corruptionfree tax administration. Presently, a tax is levied on
whenafinishedproductmovesoutfromafactory,whichispaidbythemanufacturer,anditisagainlevied
attheretailoutletwhensold.

BenefitsofGST
FortheCentreandtheStates
Accordingtoexperts,byimplementingtheGST,Indiawillgain$15billionayear.Thisisbecause,itwillpromote
moreexports,createmoreemploymentopportunitiesandboostgrowth.Itwilldividetheburdenoftaxbetween
manufacturingandservices.
Forindividualsandcompanies
IntheGSTsystem,taxesforbothCentreandStatewillbecollectedatthepointofsale.Bothwillbechargedon
the manufacturing cost. Individuals will be benefited by this as prices are likely to come down and lower prices
meanmoreconsumption,andmoreconsumptionmeansmoreproduction,therebyhelpinginthegrowthofthe
companies.
ItemsnotunderGST
Alcohol,tobacco,petroleumproducts

BottlenecksintheimplementationofGST
ThoughtheGovernmentwantstheGSTBilltobeimplementedbyApril2016,therearecertainbottleneckswhich
needtobetakencareofbeforethat:
WhatpreparationsareneededatthelevelofCentralandStateGovernmentsforimplementingtheGST?
WhethertheGovernmentmachineryisefficientenoughforsuchanenormouschange?
Whetherthetaxpayersarereadyforsuchachange?
WhatwillbetheimpactontheGovernmentsrevenue?
Howwillthemanufacturers,tradersandultimateconsumersbeaffected?
WillGSThelpthesmallentrepreneursandsmalltraders?

StatusofimplementationofGST
TobefullyviablebylawinalltheStates,theGSTBillneedstobepassedbyatwothirdsmajorityinbothHouses
of Parliament and by the legislatures of half of the 29 States. In December 2014, Finance Minister Arun Jaitley
introducedtheconstitutionalamendmentBilloftheGSTintheLokSabha.HeannouncedthattheGSTwouldbea
majorreforminIndiastaxationsystemsince1947,whichwouldreducetransactioncostsforbusinessandboost
theeconomy.
Earlier,theBillwasrejectedbyafewStatessayingthatitdoesnotincludetheissuesofcompensation,entrytax
andthetaxonpetroleumproducts.JaitleywhileintroducingtheBillsaidthatalleffortshavebeentakentomake
surethattheStatesdonotsufferanylossofrevenuewiththeimplementationoftheGST.TheStateswillreceive
Rs 11,000 crore this fiscal year so that it would compensate the losses suffered by them for decline in Central
salestax(CST)andsubsequentlyfinancialassistancewouldbeprovidedforafiveyearperiod.
Allsaidanddone,theGSTBillwhichwasconceivedwaybackintheyear2000hasnotseenthelightofthedayas
yet. If everything goes well, most likely the Bill will be legislated by April 2016. According to a study by the
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WhatisGSTItsadvantages,benefitsandproblemsassociatedwithGSTinIndia|MyIndia

National Council of Applied Economic Research (NCAER), full implementation of the GST could expand Indias
growthofgrossdomesticproductby0.91.7percentagepoints.ByremovingthesystemofmultipleCentraland
State taxes, the GST can help in reducing taxation and filing costs and expand business profitability, thereby
attracting investments and promoting GDP growth. Simplification of tax norms can help in improving tax
complianceandincreasingtaxrevenues.

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