Goods and Services Tax (GST) came into effect on 1St July 2017. Lok Sabha passed the GST ACT on 29th March 2017. This new reform has revolutionized the entire taxation system in India. The look4expert team has jotted down a small analysis regarding GST for our understanding.
What is GST?
The very first question that strikes anyone is what exactly is GST? GST is a multi-stage destination-based tax that is levied on various goods and services. This single tax reform has replaced many previously existing taxes and combined into one. GST is managed by using Goods and Services Tax Network which is the IT Network for GST.
What has GST replaced?
Various taxes and levies viz Service tax, Central excise duty, additional customs duty, surcharges, state-level value added tax and Octroi have all been subsumed into GST. The main impact was the Cascading Effect of Taxes which has completely disintegrated through GST and the taxes paid now are genuinely based on the ownership and consumption
What is GST levied on?
As mentioned earlier, GST is applicable to any goods and services. These include sale, transfer, purchase, barter, lease, inter-state goods transportation and import of goods/services.
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What are the components of GST?
CGST – Tax collected by central Government for sale within the state
SGST – Tax collected by the State Government for sale within the state
IGST – Tax collected by the Central Government for inter-state sale
Advantages of GST
- GST reduces the number of indirect taxes making taxation simple and transparent
- Simplicity in the tax laws leads to a better understanding of the laws, and thus more tax payers boost the revenue.
- Reduction in the number of laws through GST speeds up the transit process and hence minimizes the cost of Logistics and Inventory.
- GST encourages investment as one can avail input tax credits on capital goods.
- With the launch of GST, the tax amount can be dispersed across the nation as opposed to the old tax law which mentioned 98% of tax amount remains within the state itself. This money can help the underdeveloped states to reach their potential.
- Indirect taxes led to improper tax calculations earlier. GST has now brought a steady and standard process of calculating the taxes which has increased accuracy and diminished inappropriate charges.
- Less complication in the taxation leads to corruption free tax administration.
- As the prices of many goods and services reduce with GST, the consumption automatically increases benefiting people.
- Being destination-based tax, GST is also levied on consumption based on Value Added Tax (VAT) principle and consequently helps in the reduction of economic distortions and brings development of a common national market.
- With the reduction in the production costs in the domestic market, goods and services will price more in the foreign markets due to GST. This will thus, ensure export boost.
Disadvantages of GST
- Small business traders who lack the knowledge of computers and internet would lag behind.
- GST likely to increase house costs by 8% which in turn will reduce the demand for real estate by 12%. This is slightly negative for real estate market.
- Many experts perceive GST similar to the old tax systems with just a new names and hence, no big reductions in tax layers.
- Early use of GST would mean paying higher taxes which would be exercised only in the later stages. This leads to income tax credits mismatch.
- Many tax-free things linked to the disabled have now been included in GST taxes like brail paper, typewriter, hearing aid and a motorized wheelchair. Oppositions are claiming GST as Disability tax.
- GST has increased the rates for banking and insurance services which can pull people back from using these services.
- GST poses taxes on the pre-discounted product cost instead of the costs post discount. Hence, many companies have suspended their rewards and benefits programmes to later.
- The Government chose to launch GST in the middle of the year which has created complexities in the system for taxation and reporting.
- GST requires sellers to register there in the states they have their business. This is a slight complication for large-business owners.
- If GSTN failure occurs, it can affect everyone as well as it can create privacy and security related issues.
- Local dealers have to pay CGST along with SGST as opposed to paying only Value Added Tax (VAT) from earlier.
Impact on Common Man
Although all the above-mentioned points affect the common man directly or indirectly, yet the drastic change is seen in the actual prices of the goods and services. Some items became cheaper whilst some became more expensive. Look4expert has made a small of the list of some of these for convenience.
Items that became or will potentially become cheaper:
- Cars – Entry level Sedan except for small cars, SUVs, luxury or premium cars
- Movie tickets in many states
- Washing Machines
- Items that became or will potentially become costlier:
- Aviation industry
- Travels – Rail and Metro
- Clothes and garments
- Cigarettes and tobacco products
- Banking and investment services
- Medical care
- Real-estates and house rents
- WIFI and DTH services
- Online booking services like movie tickets
- Courier services
- Aerated drinks
- Mobile services
Like every coin has two sides, GST also has its own pros and cons. Just because of some items price heavier, it need not be criticized bitterly. The actual influence will only be seen in the years to come. India has transformed drastically in the last few decades yet there have been many fingers pointed along the way. Nevertheless, it is always the first step that is the most difficult and important.
How can we help?
From the above analysis, Look4expert shows that although GST is simple, yet its calculations have its own complications. So, if you need advice in understanding the major changes of GST, if you do not understand how to begin – the best advice would be to get a professional to help you with these. Look4expert can ease your road to paying the right taxes at the right time