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GST ( Goods & Services Tax ) – Part 1

By on July 1, 2017 in Trade Policies with 0 Comments



The Goods and Services Tax ( GST ) is scheduled to come into effect from the 1st of July, 2017. In what is perhaps the biggest economic reform in India’s history, the goods and services tax will overhaul the whole taxation structure, bringing India at par with other developed countries like France, Japan, United Kingdom, South Korea etc. who have implemented the GST ( presently there are around 160 countries globally that have GST in place). For the uninitiated, GST simply means an indirect tax that will be levied throughout India, replacing the innumerable taxes that are levied by central and state governments respectively. Through implementing GST, India hopes to make ease of doing business easier and also reduce the taxation liability passed by the manufacturer, wholesaler and the retailer to the end customer, thus providing him/her with monetary savings on buying a product or availing a service.


Goods & services tax: A history

GST was first introduced in France in the year 1954 and consequently was also implemented in countries such as United Kingdom, Australia, Japan, South Korea and Canada. In India, GST was first mooted in the year 2000 by the Vajpayee government. A committee was specifically set up to draft GST laws. In the year 2004, a task force recommended implementation of the GST in order to improve the prevalent taxation structure. Afterwards, in the year 2006, the then finance minister Mr. P. Chidambaram proposed the introduction of GST from the 1st of April 2010. Unfortunately due to political bickering, the aforesaid timeline was not met, with many states across India not being on board for the implementation of GST. This was the prevalent situation for almost a decade till the present finance minister, Mr. Arun Jaitley reintroduced the GST bill in parliament in the year 2016. The bill consequently passed through the Lok Sabha and the Rajya Sabha, with the President of India soon giving his approval to the bill.


The dual GST model

Although around 160 nations across the globe have implemented GST, all countries with the exception of Canada follow either the CGST ( where central and state governments combine to levy a single unified tax) or the SGST ( where GST is levied by state governments, with the central government completely withdrawing from levying taxes). The Canadian model is known as dual GST, where GST will be levied on goods and services by both the central and state governments concurrently. India too is following the Canadian model, where there will be a central GST ( administered by the union government ) and state GST ( administered by respective state governments).


Importance of GST

Let’s have a look at the reasons that make GST very important

  • Be it goods or services, the cascading effect of taxes is suffered by all of us. The manufacturer, wholesaler and retailer all pass on the taxes paid by them to the end customer, with many a time the customer ending up paying more than double the original cost price of the product. To correct this, the GST provides a way for claiming credit for tax that was paid in acquiring input. So the wholesaler and retailer of a product can claim credit for the tax that has been passed over to them by the manufacturer.
  • Tax evasion is a major problem in India. Thus clarity on taxes will also ensure that evasion of taxes becomes much more difficult.
  • GST will also result in a much lower compliance and other procedural costs for organizations. Moreover, the need for keeping specific records as regards to multiple taxes that are currently levied won’t be necessary .
  • GST will also result in a much more faster movement of goods and services across various states of India. This will help in the growth of Indian economy. It’s anticipated that the implementation of goods and services tax will boost India’s GDP by 1-2 percent
  • Currently, different states in India have different tax structures, resulting in location bias with regards to an organization’s decision to invest. To elaborate, organizations currently wanting to invest in India give preference to places with low taxes. The GST, resulting in uniform taxes across various states will result in investment even to the less developed parts of India.
  • Lastly, it has to be said that India will finally become a unified market for goods and services. India with a population of over 1 billion people has always been thought of as a place with great investment potential but due to lack of clarity in taxation laws and other factors, investments in India have always suffered. The GST will help correct the ever pestering issues related to taxation



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