BENGALURU: A 17-year-old dream, the Goods and Services Tax (GST), finally became a reality on July 1. The move, as claimed, will be a great push for Prime Minister Narendra Modi’s reform for development.

GST is said to be the mother of all taxes as it looks at replacing all the indirect taxes making way for a smooth economy. Before one seeks to understand this new system and its functionality, one needs to comprehend what is taxation and how it works.

INDIAN TAX SYSTEM

A tax is a contribution by an individual or organization to state revenue which is imposed by the government. There are two types of taxes, direct and indirect. Direct tax is something that a person pays directly from his pocket. For example, you earn some income and the government imposes a certain percentage to be deducted directly from your salary.

In case of indirect tax, this is something an individual pays through a medium or channel, which means taxes are imposed on goods and services here. For example, you go to a restaurant and you pay a certain amount of tax called, ‘service tax’, ‘VAT’, or ‘sales tax’. Here, the customer ends up paying the tax for the goods or service that has been rendered.

Income tax is the most known form of direct tax. This type of tax is applicable to both an organization and an individual. There are various tax slabs that the government decides for various groups. Anyone earning

There is no need to get into direct tax, as GST has been implemented for smooth functioning of indirect taxes. It is also expected that GST will improve transparency in taxation and help build a corruption-free economy.

HISTORICAL MILESTONES OF GST

• The BJP-led Atal Behari Vajpayee government in the year 2000 introduced the idea of GST which was overlooked by the finance minister of West Bengal, Asim Dasgupta. Later, Mr Vajpayee made a special request to the Chief Minister of West Bengal to let the Finance Minister to design the GST model.

• In 2006, P Chidambaram, Union Finance Minister, of the Congress, announced that GST would roll out in April 2010.

• In 2008, the Empowered Committee made a report on the structure and the recommendations that GST required.

• In 2009, the empowered committee suggested dual GST module, under which there would be two components Central GST and State GST and taxes like excise, state, VAT, entertainment tax, service tax, entry tax, etc,  would be absorbed under the broad umbrella of GST.

• The empowered committee had to ensure there was development in IT system and infrastructure for smooth functioning of GST, which was overlooked by Nandan Nilekani.

• GST was officially passed in 2016 by Rajya Sabha with the required amendments.

WHY GST?

The question now arises, why was GST implemented or even thought of? The rational approach by the central government to implement GST was to streamline all the indirect tax regime which means the tax levied on goods (central and state level) will be streamlined creating a common market for all. So if you look at it, a certain tax is levied on value added goods and services at every stage (sale to purchase). This means, a consumer will bear the GST charged by the last service provider and will not pay anything that has to go to the manufacturer. GST here is breaking the barrier between states and it integrates one single rate throughout. Thus, a great boost for Indian economy.

With the introduction of GST, bills now carry ‘CGST’ and ‘SGST’ on our bills now. Here both the central and state government have been assigned with certain fiscal responsibilities and thus had their own tax rates that they levied, but now considering the Indian federalism, both central and state government shall impose 9% tax under GST.

WHAT EXACTLY IS CGST AND SGST?

One needs to know what CGST and SGST currently means. ‘CGST’ would mean the tax levied on supply of any good and service which is the revenue for the Central Government, the tax that comprise this structure are excise, service, additional tax. The collection of ‘SGST’ means, tax levied on supply of goods which is revenue for the State Government. Tax like VAT, entertainment, luxury and entry tax are merged under this tax.

There is another tax, the ‘IGST; which is abbreviated as integrated goods and service tax, while SGST and CGST are essentially the Intra state movement tax under GST. For the supply of goods and services that happens between two states tax is levied at 18 percent.

HOW IS IT A BOOST TO THE INDIAN ECONOMY?

The implementation of GST it is claimed to boost the Indian economy and create a common market for all taxpayers.

THE AREA OF CONCERN

GST has affected many sectors in various ways, and while prices have shot up for things like home appliances, charges like school fees, mobile bills, wifi services have become an expensive affair. Also, the bright side of GST being that luxury cars will be cheaper, movie tickets are few of the things that are said to becoming economic.

GST has made its impact in many sectors in India. Previously there were different tax rates allotted in each state making it difficult for the flow of foreign investments. Now, it has eased the process of trade or supply by implementing uniform rates. The main concern behind GST was to boost the economy.

Petrol, diesel and alcohol were few of the components that the states agreed not to add under the bill of GST because they generate close to 40% revenue for the state. With the implementation of GST, which means no entry tax, the state saw a steep fall in the price of petrol by Rs 3 right after the bill was passed (prices varied from state to state).

Every legislation contains its own pros and cons. But, GST weigh with pros higher than cons. it is addressed as a beneficial taxation because ultimately the impact is prices are going to go down.

To know about GST Impact on basic expenses