Hello Friends!!!!
Today I'm going to explain, the most anticipated tax change in India called GST or (Goods and
services Tax), in the language of a common man like me.
This is the most revolutionary step taken in respect to tax reforms which has a potential
to reap huge benefits for India in the long run.
I know, there are tons of information available over the internet and other news mediums.
Some are saying that it will take away the cascading effect, CEOs are going gaga over
the ease of doing business whereas others are churning out slogans about 'one nation,
one rate'.
But what does it mean to you?
Will you end up paying more Or less?
Is it an additional tax burden on you apart for the other taxes?
What is GST?
I'll try to explain all these questions in as simple terms as possible.
But for that, let's first understand the current tax structure in India and how GST
can be a game changer: In India, currently, we have two kinds of
taxes.
One is Direct Tax and the other is indirect tax.
What is direct tax?
Direct taxes are those taxes that are paid directly by an individual or company.
Like Income Tax.
It's liability cannot be shifted to somebody else.
Ok, so what is Indirect tax?
For these kind of taxes, the liability for paying the tax, can be shifted to someone
else.
In most cases it is the consumer i.e people like us.
Let me explain this a bit more: Have you ever carefully seen your bill from
a supermarket?
It will have a plethora of taxes.
Depending on the groceries in your shopping cart, you could be paying VATs at different
% from 5.5% to 14.5%.
So, for a bill of let's say Rs.5000, you will have to cough up another let's say
475 Rs.
As tax.
The scenario becomes more complex if you try to dine out.
Not only you will have to pay VAT, but also Service Tax, Krishi Kalyan Cess, Swachha bharat
Cess.
So, on a bill of Rs.1000, you need to shell out Rs. 56 as service tax, Rs. 2 as Krishi
Kalyan Cess, Rs. 2 as Swacch Bharat Cess and a VAT of Rs. 20.
The service tax plus the two cesses goes to the Central Govt. for the restaurant services
that you availed.
The State extracts VAT from you for the food product that you consumed from the restaurant.
In the third scenario, you went for a movie with your friends.
There, you will be slapped with an entertainment tax of almost 30%
So, let's summarize the taxes that we actually pay…..Excise duty, Service Tax, CST, Custom
Duty collected by central govt. and Vat, Entertainment Tax, Luxury Tax, Octroi or entry tax collected
by state gov.
So, to get rid of all these taxes, Central Govt. is bringing in a new unified tax, called
the GST or Goods and Services tax which will abolish, all these taxes.
It is also a form of indirect tax which will be levied on Goods and Services.
To be very clear, it will have no impact on the direct taxes that you are paying.
So, if we go back to our earlier examples, Shopping in a Super market, will be subjected
to GST, same goes for Dine out and movie tickets.
Also, the GST on every transaction within a State will be split equally into a Central
GST and a State GST.
When goods are shipped from one State to another, the Centre will collect an integrated GST
from the seller which rolls both into one.
In simpler terms there will be three types of GST, CGST collected by center which is
replacing Excise Duty, ST, CST and Custom Duty, SGST or State GST is replacing Vat,
Entertainment Tax, Luxury Tax, etc.
Now that we have a basic understanding of what is GST and types of GST, let's see
the benefits: #1) It will remove cascading effect or Tax
on Tax.
Let's understand how it will happen For the sake of simplicity, let's assume
the current tax amount is 10% for every level.
There are generally 4 levels in any kind of supply chain.
Manufacturer, Distributor, Wholeseller and Retailer.
Manufacturer buys raw material for 100 rs.
And creates the product.
So, let's say a value of 50 rs gets added to it.
So the price of the finished product now is Rs.150.
Since there is a tax of 10%, 15 Rs, gets added to the finished product as tax.
The Distributer buys the product from manufacturer at Rs.165 and Adds value of 20 rs.
Price of the product now is 185 Rs.
Again add 10% Tax to it, i.e 18.5 rs, this will make the value of the product as 203.5 rs.
Wholeseller again repeats the same process and now the cost of the product becomes 223.85 +
Taxes.
So now the price of the product is 245.85.
At the final step, the retailer adds his profit and taxes and finally the consumers buys the
product @ 292.43 rs.
Now if we start from the manufacturer at every step there was a tax paid.
And that same tax is again taxed in the next level till it lands into the hands of consumer.
In other words, tax is again getting taxed.
This is also called cascading effect.
Now let's look into the GST System.
Raw material of 100 rs and a value addition of 50 rs.
The product price becomes 150 rs.
But this time the manufacturer has to pay a tax only on the value addition that is on
the 50 rs which will be 5 Rs.
But the selling price will not increase and the purchase price for the distributer will
be 150 rs.
He adds value of 20 and pays a tax of 2 rs.
So, the price will be 170 rs.
Same for the wholeseller and the price of the product now is 190…the retailer adds his
profit of 20 rs and pays a tax of 2 and finally the product price is 210....which is paid
by the consumer.
So in totality, the product that you will be purchasing under GST system, technically,
will be 58.23 rs.
Cheaper.
This brings me to the obvious question, will GST bring down the prices?
I would have loved to say 'YES'….but the answer is both 'YES' and 'NO'.
Firstly, if the retailer is kind enough to pass on the benefit to the cosumer rather
than pocketing the benefit, then only you will get lesser prices.
But my common sense says, that will hardly be the truth.
Secondly, based on GST slab, which I'll explain later, some of the prices will go
up and some will come down.
#2) Reduction in black money: Black money is the money on which taxes have
not been paid.
There are certain persons who show less income by not showing all the transactions.
By doing this they not only save indirect taxes but also report very less income.
Since GST provides benefit by eliminating cascading effect, everyone will want to avail
the benefit.
However, to avail the tax benefit paid by the previous person in the supply chain a
transaction document or some sort of proof is required.
Hence, everyone will insist on an invoice.or pakka bill.
This way for each transaction, GST will have a trail right from the manufacturer to the
consumer and this can be accessed by the income tax department.
Also, PAN card and ADHAAR card will be required for filing GST returns
#3) One India, One Market: There are a dozen of taxes that prevents India
from becoming a common market place.
Under GST there will be only a single tax imposed all over the country turning India
in to a common Market.
#4) No entry tax/Octroi Every time goods are moved between states,
the trucks carrying them, needs to be pay, entry tax at the state border.
This is a tax that is collected by state.
If the truck moves between multiple states, it has to pay entry tax at every border.
Also, the counter part of Octroi is CST or Central Sales Tax that is collected by Central
govt. for movement of goods between states.
Some manufacturers refrain to do business between states because of Octroi and CST.
GST will make transportation easier by replacing CST and Octroi.
It will reduce the overall transportation cost for doing business.
#5) Quicker transit Another clear benefit you can expect from
GST is that it will crunch the time taken for goods to move across the country.
Today, if a truck is moving produce from Punjab to Tamil Nadu and passes through 7 different
States, this movement becomes extremely slow due to the entry tax process.
By official estimates, about 6 hours is lost from a 24-hours transit because of this tax
paying process.
GST, by doing away with such hold-ups, may help trucks zip across State borders.
That means products arriving to you in a much more fresh condition, thanks to GST!
#6) Ease of doing business: In the current tax system, every business
has to comply with various tax authorities like Income Tax, Vat, Service Tax, etc. and
file many returns with such tax authorities.
After GST implementation, there will be only a single registration, single return and less
paper work.
So, a business can focus more on their customers, rather than the paper works.
Ok that's about the benefits, but what's in it for Common people like me.
How much we will have to pay?
In the current tax regime, Indirect taxes on Goods are between 27-32%, whereas for Services
it is somewhere around 15% Under GST, Since a lot of the products and
services will come under 18% bracket, cost of many goods should come down, whereas the
cost of some services will go up.
There will be 4 main tax slabs ranging from 5% to 28%
Tax Rates Products Some of the products under 5% Edible oil,
sugar, spices, tea, coffee (except instant) Coal (instead of current 11.69%)
Mishti/Mithai (Indian Sweets) Life-saving drugs
Under 12% we have Computers, Processed food We have 18% on Hair oil, toothpaste and soaps
(currently at 28%) Capital goods and industrial intermediaries
28% will have Small cars (+1% or 3% cess) Consumer durables such as AC and fridge
Luxury items like BMWs, cigarettes and aerated drinks (+15% cess)
High-end motorcycles (+15% cess) Beedis are NOT included here
Other than this, we will also have a category of 0% tax, which is on day to day items like
food grains.
Some of the items that are not included in GST are Petroleum Products like petroleum
crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel, Alcohol
for human consumption, Electricity, tobacco.
However, this list is not exhaustive, so I've shared links to the entire list of GST rates
in the description box below.
Also, link to all the resources used th this video are also given in the description box below.
Please take a look As I see it, GST is one of the most impactful
changes in tax, that will be implemented from July 1, 2017.
Over the long term it will be very beneficial to the common people like us.
Also, it will fuel the next level of growth for India.
That's all for today.
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