Demonetization and Gst in India

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Indirect tax is a type of tax collected by the government from an intermediary such as manufacturer or retailer. The eventual burden of the tax falls on to consumers who buy goods and services from the intermediary, as the intermediary applies indirect taxes on the product in the form of Value Added Tax (VAT), service tax, sales tax etc.

Indirect taxes are called so because they are collected indirectly from consumers by the government through intermediaries, who are the first payers of the tax to the government. These taxes are different from direct taxes such as income tax which is collected directly from taxpayers. Indirect taxes include taxes such as sales tax, service, tax, VAT etc. whereas income tax, wealth tax, corporation tax etc. fall under the ambit of direct taxes.

Unlike direct taxes, indirect taxes are levied on goods and services rather than individuals. Individuals pay the taxes indirectly in the form of higher prices on their purchases. A retailer selling a product to you has already levied indirect taxes on the product, which is then passed on to the relevant tax-collection authorities.

- Indirect taxes are levied on clearance of goods and services from the origin, instead of actual sale of the products to the customers. What this means is that the intermediary will pay excise duties irrespective of whether they could sell the good or service to consumers.

- Indirect taxes fall under both the central and state governments according to specific type of indirect tax. For instance, VAT is levied by the state governments whereas CST is levied by the central government.

Indian GST Bill

- Central GST replaces

- Central Excise Duty

- Additional Excise Duty

- Service Tax

- Countervailing Duty (CVD)

- Additional Customs Duty

- Surcharge, Education and Secondary, Higher Secondary Education Cess

- State GST replaces

- VAT Sales Tax

- Purchase Tax

- Entertainment Tax

- Luxury Tax

- Lottery Tax

- State surcharge & cess

- Out of GST ambit:

- Customs

- Stamp Duty

- Petroleum

- Electricity Tax

- Alcohol

GST will be applied on Consumption side and not on manufacturing side. Therefore, manufacturing states like TN, Maha, Guj, etc will incur losses.

Central Govt will compensate these states for a period up to 5 years

Administration of GST will be taken care of by an apex body called the GST Council, which will also be the Policy Making body for GST. They will also be in charge of fixing the GST rate. Members will comprise of both central and state ministers.

Rate will be approx. between 15 to 17%, with some items having a different tax rate.

Positives of GST

Negatives of GST

- Removes multiple taxation

- Less Tax Disputes - related to the definition of "Goods & Services" since GST will be uniform on both

- Reduces Tax on manufacturers (consumer side) - helps manufacturers be more competitive in international + domestic market

- Boost GDP by 0.9 to 1.5%

- Prevent Tax Leakage - increase revenue for Govt.

- Seamless interstate flow of goods - Lower transit time and higher truck utilization

- Greater cost competitiveness - no extra tax benefits for location or product - evens the competition field

- Positive impact on sectors - reduces tax rate on several sectors

- Dual Control of both State and Central

- Credit will be available online with GST network only. - small businesses might find the usage difficult

- State loses autonomy to alter tax rates

- Manufacturing states will suffer losses

- Petroleum & Liquor is still out of GST purview, but these two together account for 40 % of total trade in the country

- Higher GST can have negative effect on Inflation

- Negative impact on sectors where the tax rate is much lesser than what GST has to offer