What is Goods and Services Tax (GST)?

Goods and Services Tax (GST) is a form of indirect tax introduced by the Government of India in order to provide uniformity in the tax regime of the country. The law has replaced many other forms of indirect taxation in India.

Under GST, tax will be imposed at every point of sale. It is being levied at multiple stages and would cover all value additions to the goods and services.

Value addition

It is important to understand the importance of value addition and how the new tax regime is impacting the goods and services. In order to understand, let’s take an example of a bag manufacturer.

When the raw material is converted into a bag; the value of the bag increases. The manufacturer then sells the bags to warehouse agent who labels and tags of each bag. This increases the value of the bag further. The warehouse agent sells the bag to the retailer, which in turn, increases the value of the bag.

GST will be levied on every addition to the value, from the manufacturing to the final stage. This clearly explains what is GST.

Another important factor of the rule is the point of sale or destination. The GST is always levied at point of sale. Therefore, if the goods are manufactured at a place and sold at another. The entire tax revenue would go to the place where it has been sold.

Advantages of GST

The introduction of the regime entails a number of advantages for the country. Some of the advantages are given below:

·         Removes the cascading effect

·         Introduction of defined treatment for the e-commerce business

·         Regulates the unorganized sector, as it brings every business under the purview of taxation

·         Facilitates efficient logistics

·         Removes multiple taxation, hence less compliance

·         Brings forth simpler and less complicated procedures for tax filings, which is online systems and procedures

Components of GST

GST has the following three components.

1.      CGST

Central Government State Tax is a tax collected by the central government on intra-state sale.

2.      SGST

State Government State Tax is the tax collected by state government on intra state sale.

3.      IGST

Integrated Goods and Services Tax is collected by central government on inter-state sale of goods and services.

Impact of GST

The introduction or implementation of GST has brought with itself a number of changes in Indian tax regime, such as:

·         Tax on tax and tax paid by everyone from purchaser to consumer commonly termed as cascading effect will terminate because of GST.

·         Improved tax collection by introducing a common taxation and removing the inter and intra-tax indirect barriers within the state.

·         It is expected that with the introduction of goods and services tax, the complexity in taxation would reduce. This would help both the state and business, thus improving the economy of the country.

The long-term impact of GST is yet to be seen. However, it could be considered a strong economic move for development.