Goods and Services Tax is a unified indirect tax, transforming India’s tax system. This indirect tax was an integration of multiple indirect taxes and replaced them all in July 2017, bringing the tax regime together for both taxpayers and the government. The key reasons behind this change were increased transparency, reduction of tax burdens, and furtherance of economic growth. In the following article, we will break down what GST is, including its types, aims, and benefits for individuals and businesses in the country.
What is GST?
GST stands for Goods and Services Tax, being an all-inclusive multi-stage destination-based tax at every value addition in a supply chain. In plain words, it’s a consumption-based tax at every point of production; however the final incidence of this rests on the last consumer or user. Because it’s a consumption-based tax, the GST collected is usually at the place of destination of goods and services.
Key Features of GST
This GST framework has brought about some novel features in the Indian tax landscape:
- Single Tax Structure: GST harmonizes multiple taxes like VAT, service tax, excise duty, and other indirect taxes into one tax, thereby making the compliance process much easier for businesses.
- Destination-Based Taxation: Based on consumer location, taxation occurs within the actual state of consumption; such taxes distribute revenue equitably across different states.
- Input Tax Credit (ITC): Businesses can claim tax paid on input goods or services against their output taxes to avoid the cascading effect of taxes.
In that case, understanding GST is vital to commerce students, as the tax system and policy are very central for ACCA courses or CMA programs.
Types of GST
India has a GST system, divided into four basic categories; each is differentiated based on the level for which they are designed in order of central, state, and union territories. Below, these types are thoroughly discussed:
- Central Goods and Services Tax: CGST is a tax paid by the central government when the supply happens within one state, meaning within a single state. Example: A retailer selling goods in Mumbai to a buyer will have CGST in addition to SGST (State GST). If the GST rate is 18%, this tax will be split as 9% CGST to the central government and 9% SGST to the state government.
- State Goods and Services Tax (SGST): The state government imposes SGST for intra-state transactions. SGST can be paid together with CGST. Example: The same example of Mumbai- local transaction, but again it will attract the same rate of 9%. These SGST amounts would flow back to the state. Maharashtra state government and Central both get their due amount in money.
- Integrated Goods and Services Tax (IGST): IGST is applied on inter-state transactions, which means when a good or service is sold between two states. It is collected by the central government and then transferred to the concerned states. For example, when a supplier from Delhi sells his goods to a buyer in Haryana, IGST at the full GST rate, say 18%, would be charged instead of the separate CGST and SGST.
- Union Territory Goods and Services Tax (UTGST): The UTGST is similar to SGST except that UTGST is applied in UTs without legislature, namely Chandigarh and Lakshadweep, except for CGST. This means if the store on Lakshadweep has sold its product to any local customer, then CGST+UTGST will apply instead of CGST + SGST.
Objective of GST
The main reasons why GST was introduced to the Indian economy were due to the fact that through its implementation, a sole, simple tax structure would remove complicated indirect taxation. So various key objectives were defined guiding this process of GST.
Elimination of the Cascading Effect of Taxes
Before GST, one tax over another resulted in cascading, a problem that GST does away with through input tax credits.
- Input Tax Credit (ITC): The ITC enables businesses to set off the tax they pay on inputs against the tax they collect on their outputs, thereby reducing the tax burden on consumers.
Simplification of the Tax Structure
GST streamlined the indirect tax by folding many under one entity.
- Ease of Compliance: The system of having a single return filing for GST has helped ease compliance as businesses are not required to handle numerous submissions about various taxes.
- Digital Taxing Platform: GST is managed through the Goods and Services Tax Network (GSTN), which is a digital platform for easier and faster tax processing and record-keeping.
Revenue Generation & Economic Growth
One reason GST was introduced was to expand the tax base, enhance compliance, and increase the revenue-generating capacity in support of national development efforts:
- Better Compliance: The more tax laws are deregulated, the more businesses fall within the tax net, improving revenue collection.
- Economic Development: Higher revenues boost the construction of infrastructure and support educational and health systems, hence developing the economy.
Promoting a Common National Market
GST also aimed to attain a national market that would allow goods and services to be freely circulated across the states:
- Inter-State Trade: It improves inter-state trade. Its removal encourages inter-state trade. It promotes the moving of goods from one region to another. This facilitates economic integration.
- Fair Distribution of Resources: As GST is a destination-based tax, the tax is received by the states that consume the goods. Therefore, resources will be distributed fairly.
Objectives of GST are in consonance with the broader objectives in commerce and accounting courses, such as the ACCA course and CMA. This is because the course work of ACCA incorporates the understanding of tax policy under the ACCA syllabus and CMA curriculum.
Advantages of GST
GST offers several advantages, benefiting businesses, consumers, and the government alike. Here are some of the primary advantages of GST in India:
Reduction in Overall Tax Burden
GST brings the overall tax burden on the consumer to zero as it removes the cascading effect:
- Affordable Goods and Services: GST will lower the tax burden for a final consumer in almost every respect regarding goods and services.
- Transparent Taxation: GST makes taxation transparent where on an invoice, the consumers see at what rate they are taxed, which leads to confident use of the system.
Simplified Tax Filing & Compliance
GST simplifies the tax processes in the company.
- Uniformity in Compliance: Indian businesses would follow just one tax code, thus saving administrative costs.
- Decreased Documentation: GST removes multiple taxes through a single paperless filing system, thus saving time and paper.
Increased Revenue for the Government
With GST, the government earns more through better compliance, thus increasing its revenue.
- Higher Compliance Rate: The ease of GST would motivate businesses to comply and thus expand the tax base, increasing the revenue generated.
- Wider Reach: GST induces wider economic activity to be taxed as far more goods and services are taxable now.
Boost to Export Competitiveness
GST has also made Indian goods and services more competitive in the global market:
- Lower production cost: Input tax credit availability gives an advantage to the manufacturers because their production costs become lower.
- Encouragement for Exports: This tax-neutrality characteristic of GST eliminates additional costs and thus makes Indian exports more attractive.
Conclusion
GST has transformed the indirect tax system of India by making it simple, transparent, and efficient for businesses, consumers, and the government. The GST system has integrated various taxes and made tax compliance easier, increased inter-state trade, and improved economic growth. The GST structure of CGST, SGST, IGST, and UTGST resolves the intricacies of the vast economic landscape of India. complete knowledge of GST is significant because it is a root of accounting, taxation, and financial management. Hence, with GST further evolved, it will further develop India’s economy, boosting its competitiveness in the global economy.
