There have never been so many hue and cries about any taxes until GST rolled in. GST took over the country on 1st July, 2017 leaving people baffled and disappointed. Let us help you in understanding GST, how different it is from other taxes, its applicability, GST rates, impact on businesses and GST bill.
First, we need to understand that GST is no rocket science and promises to alleviate all tax related problems. How much time, can’t say but things are set to change with the new Goods and Service Tax (GST).
GST will replace the indirect taxes levied by the Central and State Governments and provide for a single and streamlined process. It presents India as a unified market to business owners and also aims at bringing a lot of black money back into the mainstream economy. The tax will be implemented at every step of value creation.
Since the GST will be applied at every step of value creation it will be very difficult for black money owners to participate anywhere in the value chain with the GST without accounting for all other transactions. The GST is estimated to provide an immediate boost of 0.9% – 1.4% of the GDP.
Final GST rate slabs:
GST Council has finalised a four-tier GST tax structure of 5%, 12%, 18% and 28%, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess. Service Tax will go up from 15% to 18%. The services being taxed at lower rates, owing to the provision of abatement, such as train tickets, will fall in the lower slabs.
Essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate in order to control inflation.
The lowest rate of 5 percent would be for common use items. There would be two standard rates of 12% and 18%, which would fall on the bulk of the goods and services. This includes fast-moving consumer goods.
Highest tax slab will be applicable to items which are currently taxed at 30-31% (excise duty plus VAT). Ultra luxuries, demerit and sin goods (like tobacco and aerated drinks), will attract a cess for a period of five years on top of the 28 per cent GST.
The collection from this cess as well as that of the clean energy cess would create a revenue pool which would be used for compensating states for any loss of revenue during the first five years of implementation of GST. Finance minister said that the cess would be lapsable after five years.
The GST will replace different indirect taxes such as:
- Central Excise Duty
- Service Tax
- Value Added Tax (VAT)
- Countervailing Duty
- Special Countervailing Duty
- Central Sales Tax (CST)
- Entertainment Tax
- Entry Tax
- Purchase Tax
- Luxury Tax
- Advertisement taxes
- Taxes applicable on lotteries.
These items could become costlier:
- Textile and branded jewellery
- Cigarette prices Commercial vehicles such as trucks
- Mobile phone calls
These items could become cheaper:
- Car batteries
- Auto: Prices of entry-level cars, two-wheelers, SUVs
- Paint, cement
- Movie tickets
- Electronics items like fans, lighting, water heaters, air coolers, etc.
The introduction of GST bill is expected to simplify administration by removing multiple taxation systems at every stage of trade model and removes disturbances in production. It aims for a uniform tax rate for all goods and services. It is said that all manufacturers and middle income people will benefit the most as it reduces the tax levied on them. The results will take time to appear but let’s keep our fingers crossed and hope that GST does the same amount of good as expected!