GST stands for Goods and Service Tax, which was recently implemented in India and came into effect on July 1st, 2017. Here we are going to quickly understand what GST is and its impact on the society.
India before GST:
Tax is a compulsory payment made by the people to the government, without expecting anything in return. Tax is collected for the common welfare of the people. Before the implementation of GST, tax in India was classified broadly as Direct tax and Indirect tax. Direct tax doesn’t need an introduction. The direct tax is the tax burden on the income received. Whereas in income tax there are 18 other taxes which come under the head Indirect tax.
What is the idea behind GST?
Though the idea of GST is brand new to the Indian soil, there a lot of countries that follow the concept of GST. The difference between the old tax system and GST is simple. GST is a single point taxation system, whereas earlier people were taxed under multiple point system. The concept of cascading is absent in GST. In both tax system, the ultimate payer is the consumer the only difference is the burden. Like it is stated earlier, many countries like America, Canada, and Singapore follow GST, however, in GST there is something called Dual-GST which is followed in countries like Canada. India adopts this dual GST. So the simple idea behind GST drops down to ‘One Nation; One Tax; One Market.’
How is the tax divided between the state and the center?
India is a federal nation, which means it is ruled by both the central and state governments. Earlier there was a long list of indirect taxes. Some of them belong to the Central government while the State government enjoyed others. But after the implementation of GST, the whole revenue collected in the form of tax reaches the center, because of which the state governments may suffer. Now you know why India chose the Canadian style of dual GST, taxing people under two heads CGST and SGST. And as a measure of support to the state government petroleum products, alcohol for human consumption and tobacco are still under the purview of state governments.
Benefits of GST:
#1 GST has rubbished the idea of cascading effect and thereby the cost of all taxable products will reduce.
#2 The tax procedures have become simpler which reduces errors and increases the efficiency
#3 By integrating the indirect taxes under one head GST the nation has gotten onto the global platform. When the nation is a part of the global platform, other countries are appreciative of their tie-ups with India.
#4 The chances of Foreign Direct Investment increase which will automatically push the foreign exchange of India. This will also boost the GDP growth of India.
The implementation of GST has a lot of benefits. However, it can be enjoyed by the nation and its residents only if it is properly implemented and strictly governed. Since now the ultimate tax burden is on the consumer the state and center should make sure that the interest of the consumer is not affected.