What is GST in India: Components, Impact, Advantages
16 Dec 2022
What is GST?
GST (Goods and Service tax) is described as an Indirect Tax which has replaced many Indirect Taxes in India. Simply, it is a Comprehensive, multi-stage, destination-based tax that levied on the supply of goods and services on every value addition. The GST Law was passed in the Parliament on 29th March 2017. But it came into effect on 1st July 2017. This law has replaced many indirect tax laws that previously existed in India.
Therefore, before GST, the pattern of tax levy was as follows:
But after the introduction of Goods and service tax, all the taxes have been subsumed such as Central Excise Law, Service Tax Law, VAT, Entry Tax, Octroi etc. Besides, it has been proven the biggest indirect tax reforms in the country. The motive behind the introduction of Goods and service tax is to bring together state economies and improve the overall economic growth of the nation. In intra-state sales case, there are two kinds of GST i.e Central GST and State GST whereas inter-state sales will be charged to integrated GST.
Let us understand the concept of Goods and service tax at multi-stage given below:
From manufacture to the final sale to the consumer, there are multiple change-of-hands an item goes through along its supply chain. Consider the following case:
- Purchase of raw materials
- Production or manufacture
- Warehousing of finished goods
- Sale to wholesaler
- Sale of the product to the retailer
- Sale to the end consumer
Goods and Services Tax will be levied on each of these stages which makes it a multi-stage tax.
In the above figure, the manufacturer who makes biscuits buys flour, sugar, and other material. When the flour and sugar are mixed and baked into biscuits then the value of the inputs increases. Then, the manufacturer sells the biscuits to the warehousing agent who packs large quantities of biscuits and labels it. Here, another addition of value will occur after which the warehouse sells it to the retailer. He packages the biscuits in smaller quantities and invests in the marketing of the biscuits. Therefore, its value increases. On the other hand, Goods and services tax will be levied on these value additions i.e the monetary worth added at each stage to achieve the final sale to the end customer.
Why there is a need for GST in India?
In the current regime, Goods and service tax launching is taken as a significant step in the reform of indirect taxation in India. The nation was dealing from so long with the double taxation system, cascading, a multiplicity of taxes, taxable events, classification issues etc but the amalgamation of various central and state taxes into a single tax would help the country to get rid of all of them.
Impact of GST on Indian Economy
Following are the benefits offered by Goods and services tax to the Indian Economy:
- Boosting factor to Foreign investment as well as for Make in India campaign and created a unified common national market
- Boosting factor to export and manufacturing activity and leads to substantive growth
- Eradicate poverty by generating more employment
- Constant SGST and IGST rates to reduce the incentive for tax evasion.
Impact of GST on Consumers
Following are the benefits for consumers:
- Simple tax system
- Reduce the prices of goods and services due to the elimination of cascading
- Constant prices throughout the country
- Proper transparency in a taxation system
- Raise employment opportunities
Impact of GST on Traders
Following are the positive impact of Goods and services tax on Traders:
- Reduce multi-taxes
- Mitigate cascading through an input tax credit
- Efficient and effective neutralization of taxes especially for exports
- Developed a common national market
- Simple tax regime
- Fewer rates
- Fewer exemptions
- No need for the distinction between Goods and Services
- By all means, to take this step was never easy but however, the government is still trying to make the path of GST smooth and simple. Besides, it is equally important to have a look at global economies that have implemented GST previous to us and who are doing very well and had an experience in having a unified tax system & easy input credits.