Goods and Service Tax (GST) – One Nation one tax

Narendra Modi

In the midnight hours of 1 July 2017, the parliament was illuminating as it was opened for the fourth time in the complete history of Independent India.

The President of India, Prime Minister of India and MLAs of ruling and opposition parties were gathered in the Parliament House. Our Prime Minister, Narender Modi announced the GST to be applicable across India on the occassion.

In his speech, Modi said there were 500 taxes from Ganganagar to Itanagar, and leh to Lakshdeep. These all taxes would be removed and only one tax GST (Good Service Tax) would be introduced.

The same thing would be sold at same rate. Before its rate would vary from one state to another and tax on tax would added on. But with GST, the price of a commodity would stay same across the state.

This would be beneficial for tourists also who always complain and compare a thing they purchased from one state, available at different prices in another state.

Prime Minister also mentioned a speech mentioned by Albert Einstein where he mentioned, the most difficult task is to take care of Income tax. But if he would alive in India, he would have been surprised with so many taxes.

He added this is not a good and service tax; in-fact is a good and simple tax.

The Urban Finance Minister, Arun Jaitley also made announcement of GST. He told how 24 regulations have been made on 1211 commodities to fix taxes on them without any confliction. The main aim of GST was to maintain the revenue collection by state and center as before without putting any unnecessary burden on the weaker section.

There were 17 transaction tax and 23 paying taxes that all have been closes. Now single registration would be needed on software for all of them by 10th of every month. Tax on tax as earlier would not occur hence forth.

What is GST?

GST is Goods on Service Tax. It is one nation one tax which will be same for the whole nation for a particular commodity. The tax would remain same on the supply of goods or any services. The final consumer would only have to pay the GST charges made by the last dealer in the supply chain.

GST-Good-service-tax

Who decides GST?

There is a separate GST council set-up who will decide GST. The council includes Union Finance Minister and the state finance ministers. Finance Minister would be the Chairman of the council.

Items exempted from GST

The list of items on which GST will be exempted has been ready. On these items, no GST will be applicable and prices or taxes would continue to be the same as used to be.

GST has adopted a four-tier tax structure which is 5%, 12%, 18% and 28%. 18% is the tax rate that would be applicable in most of the goods or services and 40% is the highest tax rate that has been adopted for few of the items.

Government has decided to give exemption on GST on most of the food items like, books, Grains, Rice and milk products, Poha etc. Other food items which come in the category of manufactured goods like, sugar, coffee, tea and oil will have 5% levy in GST.

Not many items are exempted from the list of GST, which is done for the purpose of keeping consistency. As more exemption can lead to systemic inefficiencies impacting revenue collection by the state or center government.

GST effect on car prices

  • Small Petrol cars (length < 4m)
    Pre-GST Rate: 31.40%,
    Base Rate: 28%
    Cess: 1.00%
    Cumulative Tax: 29.00%
  • Small Diesel cars (length < 4m)
    Pre-GST Rate: 33.40%,
    Base Rate: 28%
    Cess: 3.00%
    Cumulative Tax: 31.00%
  • Mid-size cars (length > 4m with engine < 1, 500cc)Pre-GST Rate: 46.60%,
    Base Rate: 28%
    Cess: 15.00%
    Cumulative Tax: 43.00%
  • Biggest Cars (length > 4m with engine > 1, 500cc):
    Pre-GST Rate: 51.80%,
    Base Rate: 28%
    Cess: 15.00%
    Cumulative Tax: 43.00%
  • Sports Utility VehiclesPre-GST Rate: 55.30%,
    Base Rate: 28%
    Cess: 15.00%
    Cumulative Tax: 43.00%
  • Hybrid VehiclesPre-GST Rate: 30.30%,
    Base Rate: 28%
    Cess: 15.00%
    Cumulative Tax: 43.00%

Impact of GST on domestic electronics devices

Every household has one or many electronic devices without which life becomes difficult. Washing machines, LED, Air conditioners, Refrigerators etc. are important for any home now a days.

The average VAT on electronics item is charged around 11-12.5% in most of the state, while the excise duty of 12.5% is imposed on the household electronic household items. If combined together, then the final rate of tax born is 25-26% on electronic goods.

With the application of GST, the rate of taxes on household electronic items is also going to change. Since there are four-tier structure of GST which is 5%, 12%, 18% and 28%, therefore rate of tax on household electronics or electrical items would also vary accordingly.

Electronic items on which 5% GST will be applicable

  • Solar water heater, solar power generating system
  • Biogas plant
  • Windmill and electricity generator operated by windmill
  • Hand pumps and its accessories

Electronic items on which 12% GST will be applicable

  • Sewing Machines
  • Composite machines
  • Nuclear fuel
  • Power driven pumps and Bicycle pumps

Electronic items on which 18% GST will be applicable

  • Steam boilers and generators
  • Nuclear reactors
  • Central heating boilers
  • Machinery used in industries for food and drinks. Also, machinery used for the extraction of animal and plants fat

Electronic items on which 28% GST will be applicable

  • Air or vacuum pumps
  • Refrigerators
  • Dish washing machines and other household items
  • Road rollers, bull-dozers
  • Spark ignition piston

What are the Benefits of GST?

  • Good and Simple Tax would stop black money
  • Foreigners or tourists would get same commodity at same price across India
  • Tax on Tax on a commodity would not happen now
  • It will give more chances of development to lesser developed states
  • The system would be more transparent and easier to understand and implement. All the services related to paying tax would be available to the taxpayers online
  • GST would improve revenue generation by reducing cost of tax revenues collection
  • Many states like, Bihar, Odisha have natural resources but they are not utilized fully. GST will help in their development

What are the Disadvantages and Demerits of GST?

  • Higher burden of tax for manufacturing units
  • Change in business software. There will be a single registration by 10th of every month
  • Business needs to register in all the states they are operating in. This could make it more complicated and increase the burden
  • Increase in prices are suspected due to increase in tax
  • Petroleum products are currently not in scope of GST

Conclusion

The market is always full of rumours when there is anything new goes to happen. This time also people are considering GST as Goods and Service tax. Demerits seems to be more than the merits, but once GST is implemented, perhaps India will become a single market where goods or services can move freely from one place to another with little compliance to deal with for businesses.

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