What is Goods and Services Tax?
The Goods and Services Tax(GST) is a tax we have to pay
every time we buy goods or services. In this system, the
consumer pays the final tax but an efficient input tax
credit system ensures that there is no cascading of
taxes — tax on tax paid on inputs that go into
manufacture of goods. Put simply, GST is levied only on
the value-added at every stage of production. The price
of any input going into production will have a cost and
a tax component. The system ensure that when the final
tax is calculated, the tax paid on input is taken out
and the tax is levied only on the cost of the good
produced. It is therefore, also known as value added tax
in some countries and trade blocks.
Why is it considered a better system than the current
one?
Currently there are a multiple of indirect taxes --
central taxes such as excise duty, service tax,
countervailing duty, special additional duty on customs,
all cesses and surcharges and state taxes including
value added tax(VAT), sales tax, entertainment tax,
luxury tax, tax on lottery, betting and gambling, entry
tax and state cesses and surcharges. This causes
effective tax rate to be high and the differences across
states fragments the national market along state
boundaries. GST will replace all these taxes with a
simple levy, lowering effective tax on goods and
creating a national market in goods and services.
What is the GST model India plans to adopt?
Most countries have a unified GST system. India,
however, has opted for a dual GST system prevalent in
Brazil and Canada. Under the dual GST model, both the
centre and states, have the right to levy and collect
tax on the sale of goods. Consultations are on between
the centre and the state government through the
empowered committee of state finance ministers to
finalise the detailed structural framework of the tax.
What will be the GST rate?
There is no decision yet on the rate structure of GST. A
task force set up by the Thirteenth Finance Commission
that gave its report recently recommended a rate of 12%.
States, however, have said they will not settle for a
rate less than 15%. Internal studies carried out by the
centre and various states point to rate of 14-16% At
present, the talks have veered around to the view that
there should be two slabs-- one lower or floor rate for
essential items and another higher or effective rate for
most items. There will also be an exempted list of items
and a lower rate of 1% for precious metals such as gold,
platinum, silver.
