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Monday, 29 August 2016

Understanding Goods and Services Tax (GST)

Revolution is a way forward for mankind into a new, better and advance socio-economic world. History has proved its worth and showed us some of the world's biggest reforms and  great revolutionaries. One of such situation prevailed in our country 16 years back when the concept of Goods and Services Tax (GST) was introduced. Long time it took to create unison among parties and form a consent on the passage of the bill. Finally, the 122nd constitutional amendment was passed in Rajya Sabha followed by Lok Sabha and then to be passed by State legislative assemblies, which is then to come into effect from 1 April 2017.

THE NEED OF GST-

Under GST a nationwide common market for the transaction of Goods and Services is to be forged under a GST Council which when integrated with latest IT technology will make a well knitted economic network having potential to turn the trade smooth and  a greater GDP.

Foremost is the cascading effect of tax which in turn increases the cost of finished goods or services. Each time an object is sold from one vendor to another, cost increase due to cascading of Sales tax which is born by the vendor. In order to remove this taxation fault and rising prices, Value added Tax (VAT) was introduced which partially removed the defect, covering only goods. Now, with GST on board, central government, and state government agreed to abandon excise-service tax and VAT respectively and more than 9 taxes to be subsumed within it.

Besides, a single unified market for trade and same treatment for goods and services will eliminate many problems creating situations. Prime Minister has called it a step towards Cooperative Federalism.  All Underground economy, Inspector Raj will fade away, integrating with Aadhaar it will stop leakages in subsidies and with time provide greater transparency in the system.


AFTER PICTURE- 

One nation, One tax. Being indirect tax it is regressive in nature and has very wide coverage base which will affect both rich and poor an absolute equal figure demanding more from later. Estimated in 2003, uniform tax rate to be 12% but with time passing by it has drifted to 18-19%. Countries with GST showing positive upside growth had their rich population largely surpassing the poor which is not the case in India but sure India is world's fastest growing large economy.

GST regime itself is divided into Central GST (CGST) and State GST (SGST) with predefined shares. Assistance in ease of doing business by combining different departments into single unit reducing bureaucratic hassle. But, the autonomy of states to impose regional taxes (except for alcohol) will go in vain as no taxes rather than GST would be implicated.


IMPACT ON ECONOMY- 

Overall expectations are high as the effective tax rate on goods will decline sharply depending on nature of goods and services. With reduced rate, Indian goods will be ready to compete in international markets. This also will increase absorption rate in the domestic market as produced goods, services will be available at lower price, this circulating money can turn capital and utilized by industrialists and government to maximize skill operations and job creations to a great extent. Incorporated with recent FDI reforms, GST regime can pave a path for accelerated GDP growth and moving towards an efficient and coordinated taxation system.



Written by Kartikeya Gupta
An engineer by profession, INDIAN by heart and Aspiring Officer by Choice(IMA). Snooker, Gym, Video Games, National International Affairs, Web Development. And much more.


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