What is the taxation policy?
Taxation dates back to 1800 when India was under the British Raj. Tax is a diverse and complex policy. The common man cannot easily understand the concept behind this system. Hence, the system requires utmost attention and focus. The finance ministry in talks with the finance minister changes the taxation policy every year. The central board of direct taxes is the apex regulator of the taxes levied within India. The citizens pay a certain % of tax on everything they purchase or consume. This % is decided by the CBDT, finance ministry and the finance minister. Moreover, two types of taxes existed: Direct and indirect taxes. GST(Goods and Service Tax) is one such rule that came into India as indirect tax policy.
What is GST(Goods and Service Tax)?
GST means goods and service tax. It is a form of consumption tax or a sort of an indirect tax. This was a reform that took place in the year 2017 on 1st July. The tax replaced other multiple overlapping taxes that made it difficult to regulate the collection system. Usually, India used to follow two divisions of taxes. One was the central tax and the second was the state tax. Due to variations in tax rates and charges from state to state it became challenging to keep a track. Hence, the government decided to abolish such time consuming and vast procedures and adopted the single tax policy. In case of the interstate sale, the Central GST and the State GST will be levied.
The states have to follow one tax bracket for each product or service and cannot, in any case, charge a rate exceeding the percentage decided as per the GST norms. However, there are a few commodities and products that do not have to follow GST and have charges of their own as the costs fluctuate often. Since GST is applicable in stages, it follows a particular procedure.
There are multiple stages that for a part of the supply and production chain:
- Firstly, purchase of Raw materials
- Secondly, production or manufacture.
- Then comes warehousing or finished product.
- Manufacturer to wholesaler
- Wholesaler to retailer
- Retailer to the final consumer.
Components of GST(Goods and Service Tax):
GST being a well-planned policy, also makes for a more straightforward process to understand and follow. It has three primary elements:
- CGST- Collected by the Central Government, if there arises any intrastate sale.
- SGST- Collected by the State Government after the occurrence of an intrastate sale.
- IGST- Collected by the Central government during an interstate sale.
The pattern of tax levied before GST was:
GST(Goods and Service Tax) is a multistage tax. GST forms one tax policy for all the states all over the country and has replaced various indirect tax laws that existed before in India:
- Firstly, When a manufacturer bought raw materials, he paid a specific adjustable rate of value-added tax.
- When the wholesaler bought the final goods produced by the manufacturer they intern paid that rate of value-added tax and an excise duty charge.
- The retailer then bought the goods from the wholesaler by paying the whole amount the wholesaler paid plus an additional VAT.
- Finally, the consumer then purchased the good/service for consumption by paying all the charges that were previously paid by the intermediaries and the manufacturer and an additional VAT %.
Thus, the revenue generated by supplying a good or service gets equally spread among the states and the central government.
The vast number of tax laws that existed before GST are:
Earlier taxes on supply and consumption were huge and cascading. Every state had its tax law. Thus these taxes weren’t readily noticeable. Taxes were also charged separately for different products at different outlets. Many taxes were levied making it a problematic policy. The pre GST period had the following laws for taxes on goods and services:
- Central excise duty
- Duties of excise
- Additional duties of excise
- Additional duties of customs
- The Special particular additional duty of customs
- State VAT
- Central Sales Tax
- Purchase Tax
- Luxury Tax
- Entertainment Tax
- Entry Tax
- Taxes on Ads
- Taxes on lotteries, betting, and gambling.
The goods and services that still do not fall under the GST laws in respect of; resale, use in manufacturing or processing, use in the communication network, in mining, or in the generation or the spread of electricity or any other power are :
- Petroleum crude
- High-speed diesel
- Motor spirit
- Natural gas
- Aviation turbine fuel
- Alcohol for human intake.
Advantages of GST(Goods and Service Tax):
- It mainly removes the repeating effect on the sale of goods/services.
- This will impact the cost of goods, and some of them become cheaper.
- All activities such as an application for the refund needs to be done online on the GSTPortal by the manufacturers or intermediaries. Hence, speeding up the process.
- Lesser laws to deal with, making it easier to understand.
- This also increases efficiency in the logistics side.
- The e-commerce sector follows a defined form of taxation.
- This also helps watch the illegal sectors, thus improving the attention over illegal activities.
The changes that GST has come with:
- Every consumer/purchaser paid a lot of taxes, GST avoids this as the tax is calculated only on the value add at each stage of ownership.
- Thus, this boosted the development of India and improved the collection of taxes by removing the indirect tax barriers and setting a one tax rate.
- GST has also got with it waybills that are uniform in nature. This system is followed for intrastate and interstate transfer. The intermediaries are benefited by a portal where e-bills are got where the consumer as well the middlemen can view a proof of the charges. Hence, this helps the government keep a watch on who is not paying taxes.