GST – In a nutshell
June 30, 2017 . 203 views
Finally, the rates for Goods and Services Tax, popularly known as GST have been finalized for almost all goods and services produced and consumed in the country
• Essentially, everything is divided into 4 tax slabs – 5%, 12%, 18% and 28%, under which all the country’s goods and services will be taxed.
• The good news is that the majority of goods and services will be taxed at a rate of less than 18%. Currently, when you buy goods it is inclusive of a standard excise duty of 12.5% and VAT ranging from 12.5% to 14%, depending on the state you buy it in (you can see this on your bill). The effective tax rate ends up being at least 28%. Plus there is also service tax of 15% on services consumed.
• The changes made also have a handful of goods and services that have been exempted from tax.
• Not such good news if you are amongst the luxury good consumers, though- a cess over the peak rate of 28% will be imposed on these goods for a period of 5 years. Why you? Well, this is mainly done to compensate states for any revenue loss with the implementation of GST.
What’s so different now?
• Currently, taxes are levied separately by the Centre and the States (with no overlaps), which are governed by various laws and have a number of tax rates – 17, to be precise! This includes excise duty, VAT, Sales Tax, Luxury Tax, Customs Duty, Purchase Tax, Central Sales Tax, etc.
• According to a report by CARE Ratings, the GST regime would take over the various laws and henceforth there would be a single tax law and 4 tax rates would be charged (replacing all other taxes) In the current system, taxes are levied on the manufacture of goods or on sale of goods or services, GST will be levied on “supply” of goods and services.
• Even though GST may make certain products expensive and others cheaper, this will only be a short-term phenomenon. The idea behind GST is to adopt one single tax rate and reduce the cascading effect of taxes that we see now. Everyone will now be able to set off the taxes they pay and this will be passed on through the supply chain up to the actual consumer. Once the producers realize that the cost of producing and selling is reducing, they will eventually reduce their prices in the competitive market as well.
Are we at par with the world?
• All around the world, GST is conceptually similar to that which is to be implemented in India now. In some countries, VAT (value added tax) is the substitute for GST.
• As of 2016, almost 160 countries have implemented a GST system.
• At present, Australia, Canada, Singapore, New Zealand, Jersey (UK), Malaysia, Indonesia and Pakistan have a GST system while other countries have a VAT system in place.
• The standard GST/VAT Rate ranges from 5% (in Canada) to 21% (in Netherlands). India’s standard rate is set at 18% to be on par with some other developing countries.
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