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One of the biggest taxation reforms in India -- the Goods and Service Tax (GST) -- is all set to integrate State economies and boost overall growth. GST will create a single, unified Indian market to make the economy stronger. Before evaluating the cost advantages of shifiting to GST lets find answer to below question.
Just what is GST all about and how will it impact us?
What is GST?
Goods and Services Tax -- GST -- is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level. GST is a consumer based tax and not origin based. Under this structure of GST, the tax will be collected by the states where the goods or services actually consumed. The system allows the set-off of GST paid on the procurement of goods and services against the GST which is payable on the supply of goods or services. However, the end consumer bears this tax as he is the last person in the supply chain. Experts say that GST is likely to improve tax collections and boost India's economic development by breaking tax barriers between States and integrating India through a uniform tax rate.
It is estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth. It will divide the tax burden equitably between manufacturing and services.
What are the benefits of GST for individuals and companies? In the GST system, both Central and State taxes will be collected at the point of sale. Both components (the Central and State GST) will be charged on the manufacturing cost. This will benefit individuals as prices are likely to come down. Lower prices will lead to more consumption, thereby helping companies.
Who would be impacted by the implementation of GST? All Business whether engaged in the sales or supply of services would be impacted by GST. If you are dealing Goods covered under GST or if you are rendering any service you will be covered under GST. What type of GST is expected to be applied in India? In India, dual GST is expected to be proposed wherein Centre and State will be levying on the transactions of the value of Goods or Service. In India, due to federal structure, there is a proposal to introduce dual GST system. What is dual GST? Under dual GST, it is levied by both the Central Goods and Service Tax (CGST) and State Goods and Service tax (SGST) will be levied on the taxable value of the transaction. What will be the expected rate of GST? The rate is expected to be in the range of 14 to 16%. Once the total GST is determined, the central and states have to agree on Central GST and State GST rates.
Savings in logistics..
Logistics constitutes 12-13% of GDP and saving of 5% in logistics cost can unlock huge value for the economy. Any revenue loss on account of Removal of Octroi taxes in the state of Maharashtra, will be temporary, as it will attract more investment in the state.
Alcohol, tobacco, petroleum products are likely to be out of the GST regime.
Why are some States against GST; will they lose money?
The governments of Madhya Pradesh, Chhattisgarh and Tamil Nadu say that the information technology systems and the administrative infrastructure will not be ready by April 2010 to implement GST. States have sought assurances that their existing revenues will be protected. The central government has offered to compensate States in case of a loss in revenues. Some States fear that if the uniform tax rate is lower than their existing rates, it will hit their tax kitty. The government believes that dual GST will lead to better revenue collection for States. However, backward and less-developed States could see a fall in tax collections. GST could see better revenue collection for some States as the consumption of goods and services will rise.
A WRAP UP ON ADVANTAGES.
1)Speeds up economic union of India; (2)Better compliance and revenue buoyancy; (3)Replacing the cascading effect [tax on tax] created by existing indirect taxes; (4)Tax incidence for consumers may fall;
(6) By merging all levies on goods and services into one, GST acquires a very simple and transparent character;
(7) Uniformity in tax regime with only one or two tax rates across the supply chain as against multiple tax structure as of present;
(8) Efficiency in tax administration; (9) May widen tax base; (10) Increased tax collections due to wide coverage of goods and services; and (11) Improvement in cost competitiveness of goods and services in the international market.
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