Tax is defined as, a compulsory contribution to state revenue, levied by the government on workers' income and business profits, or added to the cost of some goods, services, and transactions.
Quite a simple word. Is it?
Well, we all get the literal meaning of tax but understanding the process of taxation and how various taxes are levied is beyond the comprehension of the wisest amongst mere mortals like us.
We are lost in the maze of taxes like Entertainment Tax, Value Added Tax (VAT), Excise duties, Import Duties, Luxury Tax, Service Tax, Central Sales Tax, State Tax …… the list seems endless.
The complicated and decades old tax structure of our country has been more of a pain for the common man and tax collection authorities alike. From time to time, there has been demand to reform the tax structure to make it simpler and easy to understand.
One such attempt at reforms was made by introducing the GST bill or the "The Constitution (122nd Amendment) Bill, 2014" in the Parliament.
What is the GST bill and why so much buzz around it?After years of discussions, the upper house of Indian Parliament has finally cleared the long pending GST bill. Touted as the most important tax reform since Independence, the bill basically aims to simplify indirect tax structure.
The Bill is going to have far-reaching impact on the nation and businesses in particular. It is expected that the bill might boost GDP of the nation by more than a percentage point. Simply, put a rise in GDP is clear indicator of value addition and growth of economy which impacts incomes and spending power of its citizens positively.
GST- 1 India 1 Tax: A brief overviewThe Goods and Service Tax (GST) is a new comprehensive nationwide indirect tax structure on manufacture, sale and consumption of goods and services throughout India. This tax will do away with many complex, cascading taxes and will provide a single indirect tax for the whole nation.
This tax has “Destination principle” at its core and is levied on goods and services at the place where final/actual consumption takes place. GST is charged at each stage of sale and purchase of goods and service in a given supply chain.
However, the last person in the supply chain, i.e., the consumer bears this tax and the other parties like the manufacturer, wholesaler, retailer etc., can claim back the GST tax they have paid. GST is will be collected at point of Sale and the seller has to provide complete invoice with details of tax and discounts if any applied before sale.
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What is the difference between previous indirect taxes and GST?All existing indirect taxes are also paid by the end user in the current set up. But, the difference with GST is that it streamlines multiple taxes into one single tax. This will eliminate the double charging and the consumer ends up paying lower tax rate thanks to single GST tax.
GST: The BenefitsGST is going to impact every single person in the Indian economy and some obvious advantages are:
- Simplifies taxation and combines 17 different taxes into 1.
- Tax evasion will drop and revenues would increase as a result.
- Does away with market fragmented along state borders and unites India as one market.
- Logistics will be smoother and movement of trucks across state border would be faster.
- Full input tax credit under GST will decrease cost of capital goods by 12-14%
- Manufacturing and exports would get a boost by simple taxation, better logistics etc.
- Inter-state taxes forced concentration of manufacturing to one state, GST would offer opportunities for inter-state growth.
- Over a period of 3-5 years GDP would get a 0.9-1.7% boost
- E-commerce pain point logistics, will be resolved to a great extent.
How will GST impact E-commerce Eco-System in India?GST is going to be a game changer for the fast growing ecommerce eco system in India. It offers huge benefits which will have far reaching impact on the Indian e-commerce environment.
- It will promote ease of doing business by doing away with host of complicated taxes.
- Will simplify and speed up inter-state logistics, the biggest bottleneck of e-commerce.
- Would do away with complex tax documentation and streamline operations.
- Will eliminate the need of having warehouses in every state to avoid inter-state taxation.
- Reduced tax burden, logistics and inventory cost would positively impact sales and profitability.
- Clarification on how taxation policy will affect aggregators will make running of online marketplaces much smoother and easier.
- Central and State taxes would be levied at single point of sale eliminating dual taxation.
- GST is not only about taxes, it also incorporates how companies register, operate and close. This provides easy guidelines for anyone planning a new business.
- Uniformity and simplicity of centralized registration process and simpler taxes would foster the growth of start-ups.
- As manufacturing gets a boost there would be more players ready to sell online and offer better choices to customers
GST: How to make it even better?The single taxation policy is definitely going to make life easier and give a push to many sectors of the economy, especially e-commerce. However, to make the policy simpler and better the following should be considered:
- The rate of tax is very high at 16% as compared to the current 12.5 % VAT.
- Compliance requires detail information and knowledge of taxes which is difficult for common people.
- The tax needs further refinement and simplification to make it easily understandable even for the layman.