BASIC CONCEPTS OF GST (PART-1)

[Dr. Sanjiv Agarwal]

What is Goods and Services Tax (GST)?

GST stands for “Goods and Services Tax”, and is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. Its main objective is to consolidates all indirect tax levies into a single tax, except customs (excluding SAD) replacing multiple tax levies, overcoming the limitations of existing indirect tax structure, and creating efficiencies in tax administration.

Simply put, goods and services tax is a tax levied on goods and services imposed at each point of sale or rendering of service. Such GST could be on entire goods and services or there could be some exempted class of goods or services or a negative list of goods and services on which GST is not levied. GST is an indirect tax in lieu of tax on goods (excise) and tax on service (service tax). The GST is just like State level VAT which is levied as tax on sale of goods. GST will be a national level value added tax applicable on goods and services.

A major change in administering GST will be that the tax incidence is at the point of sale as against the present system of point of origin. According to the Task Force under the 13th Finance Commission, GST, as a well designed value added tax on all goods and services, is the most elegant method to eliminate distortions and to tax consumption.

One of the reasons to go the GST way is to facilitate seamless credit across the entire supply chain and across all States under a common tax base. It is a tax on goods and services, which will be levied at each point of sale or provision of service, in which at the time of sale of goods or providing the services the seller or service provider can claim the input credit of tax which he has paid while purchasing the goods or procuring the service. This is because they include GST in the price of the goods and services they sell and can claim credits for the most GST included in the price of goods and services they buy. The cost of GST is borne by the final consumer, who can’t claim GST credits, i.e. input credit of the tax paid.

Example: A product whose base price is ₹ 100 and after levying excise duty @ 12%value of the product is ₹ 112. On sale of such goods VAT is levied @ 12.5% and value to the ultimate consumer is ₹ 126. In the proposed GST system on base price of ₹ 100 CGST and SGST both will be charged, say @ 8% each, and then the value to the ultimate consumer is ₹ 116. So, in such a case the industry can better compete in global environment.

Therefore, GST is a broad based and a single comprehensive tax levied on goods and services consumed in an economy.

In particular, it would replace the following indirect taxes as these will be subsumed in the proposed GST:

At Central level

• Central Excise Duty
• Service Tax
• Additional Excise Duties
• CVD (levied on imports in lieu of Excise duty)
• SAD (levied on imports in lieu of VAT)
• Excise Duty levied on Medicinal and Toiletries preparations,
• Surcharges and cesses
• Central Sales Tax

At State level

VAT/Sales tax

Entertainment tax (unless it is levied by the local bodies)

Luxury Tax

Taxes on lottery, betting and gambling

Entry tax not in lieu of Octroi

Cesses and Surcharges

Taxes/Duties Likely to be subsumed in GST

Central Taxes/Levies	State Taxes/Levies
Central excise duty under Central Excise Act, 1944	Sales Tax/Value Added Tax (VAT)
Additional excise duties – Under Additional Duties of Excise (Goods of Special Importance Act, 1957	Entertainment tax
Excise Duty under Medicinal & Toiletries Preparation Act, 1955	State excise duty
Service Tax under Finance Act, 1994	Luxury tax
Additional Customs Duty (Countervailing Duty - CVD)	Taxes on lottery, betting & gambling
Special Additional Duty of Customs (SAD)	Entry tax (not in lieu of Octroi)
Surcharges (e.g. national calamity contingent duty)	Purchase tax
Cesses (e.g., Cess on rubber, Cess on tea etc)	State Cesses
Central Sales tax (to be phased out)	State Surcharges

Taxes/Duties not likely to be subsumed in GST

Central Taxes/Levies	State Taxes/Levies
Basic Customs Duty	Taxes on Liquors
Excise Duty on Tobacco products	Toll Tax/ Road Tax
Export Duty	Environment Tax
Taxes on petroleum products	Property Tax
Stamp Duties	Purchase tax on food grains
Specific Central Cess like Oil Cess etc	Taxes on motor spirit & high speed diesel
	Tax on Consumption or Sale of Electricity - Not certain
	Stamp Duty - Not certain

 

(To be continued…………)

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Discussions to this article

[DEEPAK BHARDWAJ]

Part 1 in reference to Basic Concepts of GST is an excellent way to share the real concepts proposed in GST. I thank and hope that more such parts will be shared in the time to come.

Deepak Bhardwaj