Goods and service tax v/s Current tax structure
Goods and service tax v/s Current tax structure:
Goods and service tax implementation is just few days ahead and there have been made up with all the formalities for GST bill implementation. Goods and service tax makes a huge difference to Indian taxation which makes a huge difference to the economy. But why is there a need for us to go to GST from our present tax structure? Why are we ought to shift ourselves? These questions are often arising in our minds after the news of roll out of GST bill.
Few years ago, If A sells goods to B and B re-sells those to C. B when computing its tax liability, includes the tax paid to A. And then it becomes tax on tax. But then VAT was introduced and the next stage person gets the credit of tax paid earlier and the cascading taxes were resolved to huge extent. But the problem was still on. Credit of VAT is not available against excise and vice-versa. So there is still tax on tax.
Value-added taxation in the country was introduced in 2005, and replaced sales taxes and covered across transactions and sale of goods up to the retail stage. VAT ensured that every person in the transaction chain gets credit of all the taxes paid on previous purchases. However, this did not entirely eliminate the cascading effect of taxes.Read India’s Current Tax Structure to know more about the need for GST.
The Goods and Service Tax shall subsume all the above taxes, except the Basic Customs Duty that will continue to be charged even after the introduction of GST.
India shall adopt a Dual GST model, meaning that the GST would be administered both by the Central and the State Governments.
Lets consider an example of a hardware that is being sold from Mumbai to Pune at Rs. 10,000. Now in the current tax regime there will be VAT applied at Rs.1000. And if again that machine is sold from Pune to Hyderabad at Rs.25000 then again VAT will be applied at 10% i.e., additional 2500/-. Here there is tax on tax. Where in under the GST model if the same machine is sold to Hyderabad at 10% then there will be deduction of SGST and CGST. There fore when the machine is sold from Mumbai to Pune there will be SGST of 500 and CGST of 500, and when Machine is being sold from Pune to Hyderabad from 2500 there will be 1000 less (2500-500-500=1500).
By the above example its clearly visible that current taxation regime has an application of tax on tax where as once GST rolls out this problem will be solved and people will not have to pay extra charges in the name of indirect taxes.