GST

Introduction-
Tax policies play an important role on the economy through their impact on both
efficiency and equity. A good tax system should keep in view issues of income
distribution and, at the same time, also endeavour to generate tax revenues to
support government expenditure on public services and infrastructure development.
The introduction of Goods and Services Tax (GST) would be a very significant step in
the field of indirect tax reforms in India. By amalgamating a large number of Central
and State taxes into a single tax, it would mitigate cascading or double taxation in a
major way and pave the way for a common national market. From the consumer point
of view, the biggest advantage would be in terms of a reduction in the overall tax
burden on goods, which is currently estimated at 25%-30%. Introduction of GST would
also make our products competitive in the domestic and international markets.
What is GST and it's importance –
GST is a comprehensive indirect tax levied on the supply of goods and services
at each stage of the production and distribution chain. It is a destination-based tax,
meaning it is applied at the point of consumption rather than the point of origin. GST
replaced various indirect taxes like VAT, central excise, service tax, etc., streamlining
the tax structure in many countries:
Importance of GST:
1. Simplification and Uniformity: GST simplifies the taxation system by replacing
multiple indirect taxes with a single, unified tax. This brings about uniformity in the tax
structure across the country.
2. Reduced Tax Cascading: GST eliminates the cascading effect of taxes (tax on tax) by
allowing businesses to claim input tax credits. This ensures that taxes are not levied
on the value of the entire product at each stage.
3. Boost to Economic Growth: By promoting a more efficient and transparent tax
system, GST contributes to economic growth. It encourages ease of doing business,
facilitates interstate trade, and attracts foreign investment.
4. Wider Tax Base: GST expands the tax base by including a broader range of goods
and services. This helps in reducing tax evasion and increasing government revenue.
5. Simplified Compliance: The use of technology in GST implementation has simplified
the compliance process. Online filing and automated processes make it easier for
businesses to meet their tax obligations.
6. Consumer Benefits: While the Impact varies, GST aims to make goods and services
more affordable for consumers by eliminating hidden taxes and reducing the overall
tax burden.
7. Transparency and Accountability: GST enhances transparency in the tax system,
reducing corruption and tax evasion. The online nature of GST transactions leaves a
digital trail, making it easier to track and verify.
In summary, GST is crucial for streamlining taxation, reducing complexities, and
fostering economic growth by creating a more efficient and transparent tax structure.
Taxes before GST-
Before the implementation of Goods and Services Tax (GST) in India, the country had
a complex tax structure with various indirect taxes levied by the central and state
governments. Some of the significant taxes that existed before GST include:
1. Central Excise Duty: This was a tax levied by the central government on the
manufacture of goods within the country.
2. Service Tax: Another central government tax, it was applicable on certain services
provided by service providers.
3. Value Added Tax (VAT): VAT was a state-level tax imposed on the sale of goods.
Different states had different VAT rates.
4. Central Sales Tax (CST): CST was a tax on sales of goods in inter-state trade. It was
levied by the central government but collected by the states.
5. Entry Tax: Some states imposed entry tax on the movement of goods into their
territory.
6. Octroi: This was a local tax levied on goods entering a municipal area for
consumption, use, or sale.
So, before Goods and Service Tax, the pattern of tax levy was as follows:
 The introduction of GST in July 2017 aimed to streamline this complex tax structure
by unifying various indirect taxes into a single, nationwide tax system. GST replaced
many of the taxes mentioned above and brought about a more uniform and simplified
tax regime in India.
History of GST-
The concept of Goods and Services Tax (GST) was first introduced in France
in 1954. However, the modern form of GST that we are more familiar with today, as a
comprehensive indirect tax levied on the supply of goods and services, was
implemented in several countries later. The first country to implement a form of GST
in its modern sense was Canada. Canada introduced the Goods and Services Tax on
January 1, 1991. This was a federal value-added tax applied at the national level.
Subsequently, several other countries adopted similar GST or Value Added Tax (VAT)
systems, each with its own variations in terms of rates, exemptions, and
implementation. The introduction of GST in different countries aimed to simplify the
taxation system, reduce tax cascading, and create a more efficient and transparent tax
structure.
The concept of Goods and Services Tax (GST) has a long global history, but in
the Indian context, the journey towards GST implementation can be summarized as
follows:
1. First Discussion (2000): The Idea of GST was first proposed in India in the
early 2000s. A committee headed by the then Finance Minister of West Bengal, Asim
Dasgupta, was set up to design a GST model.
2. Empowered Committee (2006): The Empowered Committee of State Finance
Ministers was formed to draft the GST legislation. This committee played a pivotal role
in building a consensus among states and the central.
3. Constitutional Amendment (2016): The 122nd Constitutional Amendment Bill,
which allowed for the introduction of GST, was introduced in Parliament in 2014. It
took more than two years for the bill to be passed, and it received the President's
assent in September 2016.
4. GST Council Formation (2016): The GST Council, a federal body comprising
representatives from the central and state governments, was formed to make key
decisions regarding GST rates, exemptions, and other related issues.
5. GST Implementation (July 1, 2017): On July 1, 2017, India rolled out the GST,
replacing a complex tax structure with a unified, nationwide indirect tax system. GST
subsumed various central and state taxes, creating a more transparent and simplified
taxation regime.
The implementation of GST aimed to eliminate tax cascading, enhance efficiency in
tax administration, and promote a common market by providing a seamless flow of
credit across the supply chain. While there were initial challenges and adjustments,
GST has significantly Impacted India's taxation system, contributing to economic
reforms and ease of doing business.
COMPONENTS OF GST
There are 3 applicable taxes under GST: CGST. SGST & IGST.
CGST: Collected by the Central Government on an intra-state sale (eg Within Assam)
SGST: Collected by the State Government on an intra-slate sale (eg. Within Assam)
IGST: Collected by the Central Government for inter-state sale (eg: Assam to Gujrat).
In most cases, the tax structure under the new regime will be as follows.
Transaction New Regime Old Regime
Sale Within the CGST+SGST VAT+Central Revenue will be
Sale Excise/Service tax shared equally
between the State and
Centre
Sale to another IGST Central Sales There will be only one
State Tax+Excise/Service type of tax(centre) on
Tax case of inter-state
sales. The centre will
then share the IGST
 revenue based on the
destination of goods.

illustration: A dealer in Assam sells goods to a consumer in Assam worth Rs. 10,000,
The GST rate is 18% comprising CGST of 9% and SGST of 9% In such cases, the dealer
collects Rs. 1800 and of this amount, Rs. 900 will go to the Central Government and
Rs. 900 will go to the Assam government.
Now, let us assume the dealer in Assam had sold the goods to a dealer in Gujarat
worth Rs. 10,000 The GST rate is 18% comprising of only IGST. In such case, the dealer
has to charge Rs. 1800 as IGST. This IGST revenue will go to the Central Government.
CHANGES DOES GST BRING IN-

Before GST tax on tax was calculated und tax was paid by every purchaser including
the final consumer. The taxation on tax is called the Cascading Effect of taxes.
GST avoids this cascading effect as tax is calculated only on the value add, at
each transfer of ownership. Understand what the cascading effect is and how GST
helps by watching this simple
GST will improve the collection of taxes as well as boost the development of
Indian economy by removing the indirect tax barriers between states and integrating
the country through a uniform tax rate
illustration:
Say a shirt manufacturer pays Rs. 100 to buy raw materials. If the rate of taxes is set
ut 10%, and there is no profit or loss involved, then he has to pay Rs. 10 as tax. So,
the final cost of the shirt now becomes Rs (100+10=) 110
At the next stage, the wholesaler buys the shirt from the manufacturer at Rs. 110,
and adds labels to it. When he is adding labels, he is adding value. Therefore, his cost
increases by say Rs. 40. On top of this, he has to pay a 10% tax, and the final cost
therefore becomes Rs.(110+40=) 150 +10% tax-Rs. 165.

Now, the retailer pays Rs. 165 to buy the shirt from the wholesaler because the tax
liability had passed on to him. He has to package the shirt, and when he does that,
he is adding value again. This time, let's say his value add is Rs. 30. Now when he
sells the shirt, he adds this value (plus the VAT he has to pay the government) to the
final cost. So. the cost of the shirt becomes Rs. 214.5 Let as ace a breakup for this:

Cost =Rs. 165+ Value add =Rs. 30+10% tax= Rs. 195 +Rs. 19.5 =Rs. 214.5 So, the
customer pays Rs. 214.5 for a shirt the cost price of which was basically only
Rs. 170 (Rs 110+ Rs. 40 Rs. 30). Along the way the tax liability was passed on at every
stage of transaction and the final liability comes to rest with the customer. This is
called the Cascading Effect of Taxes where a tax is paid on tax and the value of the
item keeps increasing every time this happens,

Action Cost 10% Tax Total

Buys Raw Material @100 100 10 110

Manufactures @40 150 15 165

Adds Value @30 195 19.5 214.5

Total 170 44.5 214.5

In the case of Goods and Services Tax, there is a way to claim credit for tax paid in
acquiring input. What happens in this case is, the individual who has paid a tax already
can claim credit for this tax when he subunits his taxes,

In our example, when the wholesaler buys from the manufacturer, he pays a 100% tax
on his cost price because the liability has been passed on to him. Then he adds value
of Rs. 40 on his cost price of Rs. 100 and this brings up his cost to Rs. 140, Now he has
to pay 10% of this price to the government as tax. Rut he has already paid one tax to
the manufacturer, So, this time what he does is, instead of paying Rs (10% of 140=) 14
to the government as tax, he subtracts the amount he has paid already. So, he deducts
the Rs. 10 be paid on his purchase from his new liability of Rs. 14, and pays only Rs. 4
to the government. So, the Rs. 10 becomes his input credit. When he pays Rs. 4 to the
government, he can pass on its liability to the retailer. So, the retailer pays Rs
(140+14=) 154 to him to buy the shirt. At the next stage, the retailer adds value of Rs
30 to his cost price and has to pay a 10% tax on it to the government, When he adds
value, his price becomes Rs. 170. Now, if he had to pay 10% ax on it, he would pass on
the liability to the customer. But he already has input credit because he has paid Rs.
14 to the wholesaler as the latter's tax. So, now he reduces Rs. 14 from his tax liability
of Rs. (10% of 170=) 17 and has to pay only Rs. 3 to the government. And therefore,
he can now sell the shirt for Rs. (140+30+17=) 187 to the customer.

Action Cost 10% Tax Actual Liability Total

Buys Raw Material 100 10 10 110
Manufactures @40 140 14 4 154
Adds Value @30 170 17 3 187
 Total 170 17 187

In the end, every time an individual was able to claim input tax credit, the sale price
for him reduced and the cost price for the person buying his product reduced because
of a lower tax Inability. The final value of the shirt abo therefore reduced from
Rs. 214.5 to Rs. 187, thus reducing the tax burden on the final customer.
Positive and Negative of GST-
Positive Impact of GST:- Goods and Services Tax (GST) has ushered in several positive
changes in the taxation landscapes

1. Simplified Tax Structure: GST replaced complex web of central and state taxes,
streamlining the tax structure and reducing compliance burdens for businesses.

2. Removal of Tax Cascading: The input tax credit mechanism under GST eliminates
tax cascading, ensuring that businesses only pay tax on the value they add, leading to
cost savings and increased competitiveness
3. Increased Tax Compliance: GST encourages businesses to join the formal economy
expanding the taxpayer base and reducing tax evasion. This enhances overall tax
compliance and revenue for the government.

4. Uniform Market: GST creates a unified national market by standardizing tax rates
across states promoting seamless interstate trade and reducing economic barriers.

5. Boost to GDP: The simplified tax procedures contribute to economic growth, Post-
GST implementation, India witnessed improvements In the Gross Domestic Product
(GDP) growth rate reflecting a positive economic impact.

Negative Impact of GST: Despite its advantages, GST has faced challenges and
criticism:

1. Initial implementation Challenges: The transition to GST posed initial challenges

for businesses, causing disruptions in operations and supply chains. The complexity
of compliance procedures led to difficulties for some businesses, especially smaller
enterprises

2. Impact on Small Businesses: Small and medium enterprises (SMEs) faced

challenges adapting to the new tax system due to compliance requirements,
impacting their operational efficiency.

3. Inflationary Pressures: Certain goods and services experienced fluctuations in

prices post- GST implementation, leading to temporary Inflationary pressures.
However, over time, these issues tended to stabilize
4. Technological Glitches: The GSTN portal faced technical glitches during the early
stages, affecting the smooth filling of returns and causing frustration among taxpayers
In conclusion, while GST has significantly Improved the efficiency and
transparency of the Indian tax system, addressing initial challenges and ensuring
continued refinements is essential for maximizing its positive impact on business and
the economy
SUGGESTIONS & RECOMMENDATIONS
 Tax payers, need to be educated more about the GST.
 Standardization of systems and procedures.
 Wall defined procedures, in case of Job works
 Uniform dispute settlement machinery.
 Adequate training for both tax payers and tax enforcers.
 Re-organization of administrative machinery for GST implementation.
 Building information technology backbone- the single most important initiative
for GST implementation.
 Uniform Implementation of GST should be ensured across all states (unlike the
staggered implementation of VAT) as many issues might arise in case of
transactions between states who comply with GST and states who are not
complying with GST.
Conclusion
Tax policies play an important role on the economy through their impact on both
efficiency and equity. A good tax system should keep in view issues of income
distribution and, at the same time, also endeavour to generate tax revenues to
support government expenditure on public services and infrastructure development
GST will give more relief to industry, trade and agriculture through a more
comprehensive and wider coverage of input tax set-off and service tax set-off,
subsuming of various Central and State taxes in the GST. The transparent and
complete chain of set-offs which will result in widening of tax base and better tax
compliance may also lead to lowering of tax burden on an average dealer in industry,
trade and agriculture. The subsuming of major centre and state taxes would reduce
the cost of locally manufactured goods and services. This is likely to increase the
competitiveness of Indian goods and services in the international market and to boost
Indian exports.
GST is expected to bring many benefits to the Indian economy. Though, all these
benefits are based on the assumption that overall taxation structure is less
bureaucratic and cumbersome than present. The implementation is going to be crucial
so that the promised benefits are realized, The Government also needs to be weary of
inflation spurts in initial implementation phase of GST us pointed by experiences from
international economics. Ideally, one should be first casing all these state-wide
inefficiencies and then implement GST. However given the challenges in India, the
policymakers are hoping GST will help ease these inefficiencies and eliminate them
over a period of time.
Implementation of GST is one of the best decision taken by the Indian
government. For the same reason, July 1 was celebrated as Financial Independence
day in India when all the Members of Parliament attended the function in Parliament
House. The transition to the GST regime which is accepted by 159 countries would not
be easy. Confusions and complexities were expected and will happen, India, at sonic
point, had to comply with such regime. Though the structure might not be a perfect
one but once in place, such a tax structure will make India a better economy favorable
for foreign investments. Until now India was a union of 29 small tax economies and 7
Union territories with different levies unique to each state. It is a much accepted and
appreciated regime because it does away with multiple tax rates by Centre and States.
And if you are doing any kind of business then you should register for GST as it is not
only going to help Indian government hut will help you also to track your business
weekly as in GST you have to make your business activity statement each week.
The taxation of goods and services in India has, hitherto, been characterized as
a cascading and distortionary tax on production resulting in misallocation of resources
and lower productivity and economic growth. It also inhibits voluntary compliance. It
is well recognised that this problem can be effectively addressed by shifting the tax
burden from production and trade to final consumption. A well designed destination-
based value added tax on all goods and services is the most elegant method of
eliminating distortions and taxing consumption. Under this structure, all different
stages of production and distribution can be interpreted as a mere tax pass-through,
and the tax essentially 'sticks' on final consumption within the taxing jurisdiction.
A flawless GST in the context of the federal structure which would optimize
efficiency, equity and effectiveness. The "flawless GST is designed as a consumption
type destination VAT based on invoicecredit method.