Goods and services tax (GST) is an indirect tax that has been started by Indian Government. As per this new structure, the old service taxes would be combined into a single system that would be applicable across the country. It was introduced with the name Constitution (One Hundred and First Amendment) Act 2016 and came after Constitution 122nd Amendment Bill was passed. The GST Council will be looking after all aspects of the goods and services tax. The council in question is chaired by Arun Jaitley, Union Finance Minister of India. This indirect – and yet comprehensive – tax will be applied on the making, selling, and buying of goods and services across India.
The tax will not be applicable to Jammu and Kashmir. It will be taking the place of taxes that were previously levied by Indian Government as well as state governments of the country. With the help of this new method, businesses that are registered for goods and services tax will be able to claim tax credit to the tune of the tax that they have already paid for buying goods and services that form parts of their regular commercial activities. In this case, a single authority will be responsible, administratively, for levying the tax on goods and services.
Status of exports
It is being assumed that in the new regime exports would be regarded as zero-rated supply and imports would be subjected to the same rate as goods and services made and sold within the country. In this case the authorities would be looking to follow the destination principle. Customs duty will be charged separately as it remains independent of the goods and services tax. This tax is being thought as a major step as far as reforming the structure of indirect taxation in India is concerned.
What is being expected of the tax?
Experts say that by combining the different state and central taxes into one there would be various benefits. For starters, it would restrict the effects of double or cascading taxation. It would also lead to one single market across India. Since the new tax structure is simpler it would also make it to administer and enforce it. As far as consumers are concerned the biggest advantage they would have is a reduction of the overall taxes that they end up paying in availing services and buying goods in India.
Situation of tax right now
At present, people in India pay an aggregate 25 to 30 per cent in service taxes and other indirect taxes for any and every product and service bought and availed by them. It is expected that this new tax regime would help goods to be moved freely from one state to another. They would not have to stop at state border and spend hours in order to pay things such as entry tax and state tax. Paperwork is also expected to be reduced to a huge extent compared to what happened before. The goods and services tax is supposed to come into action from July 1, 2017 onwards.
A little lesson in history
It was in 1986 that the first effort was made to reform the indirect tax structure in India. The credit in this case goes to Vishwanath Pratap Singh, who tried to come up with Modified Value Added Tax (MODVAT). The following are supposed to be included in the new goods and services tax:
- central excise duty
- services tax
- additional customs duty
- state-level value added tax
It is also expected to remove the levies that are presently applicable for transporting goods from within one state to another.