17.12.14

What is GST?

What is goods and services tax (GST)?
The proposed tax will be one tax, which will cover all levies at the Centre and the state level, including entry tax. It is a value added tax, which means a levy at each stage of production, sale or consumption will be set off against taxes paid in the previous stage. Through a system of tax credits, those who are in the chain in the intermediate stage will get credits or refunds for whatever levies they have paid. The end consumer will have to pay the entire tax. Unlike the existing VAT, which is levied only on manufactured goods, the proposed tax will also include services and credits will be given.

When was GST conceived and when will it be implemented?
It's been a long journey . Although the plan has been discussed for years, a formal announcement was made in the 2006 Budget by P Chidambaram, the then finance minister.Since then it has missed several deadlines. The BJP government is now hoping for a nationwide roll-out of GST from April 2016.

Why was it held up?
When the system was first discussed there was great enthusiasm. But, slowly states started raising objections as individual finance ministers would lose control over the taxation system and may be unable to give hand-outs. The other area of concern is potential loss of revenue from cash cows such as petroleum, which makes up for almost half the revenue for some states. In addition, states started raising objections so that they could strike a better bargain with the Centre.

Is it on course now?
The government is hoping to introduce a Bill to amend the Constitution so that it can levy the tax.
In the meanwhile it has assured states that it will compensate them for revenue loss due to GST roll-out, besides providing flexibility on entry tax and taxing oil products.
Once the Constitution is amended several other gaps need to be filled, including the rate of tax, which may be in the region of 11-12% for basic necessities. There are several loose ends to be tied up before a GST Bill is introduced in Parliament.

How will GST impact households?
It may result in a lower burden on consumers as the levy will be at the point of sale and the central and the state taxes will be merged into one levy .

What's the gain for the corporate sector?
The incidence of tax in sectors such as real estate is expected to come down by 25% since companies will be able to claim credits or set offs for tax on goods and services. In addition, the refund mechanism for taxes paid across the country is expected to be more efficient, thanks to the proposed IT backbone. Currently , industry complains that refunds and credits are tough to claim and even more difficult to get.

What will be the gain for the government and the economy?
The tax system is expected to be more efficient and will boost the economy and revenue collections. Experts reckon that indirect taxes collected by the Centre and states in India amount to 5% of GDP , and it may be possible to raise it to 12%. It is expected to add economic growth.

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