GST - No Tax On Tax
July 1stFinally, after 11 years, the Goods and Services Tax (GST) was rolled out on July 1. Even though it is a bit early, let us take a look at the expected impact of GST and the immediate impact of its implementation.
One of the expectations from GST is that the prices of goods and services will come down. No doubt, the rate of tax is an important factor for price reduction. But, there are other equally important factors.
GST will bring down prices because of its structure and form. First, the minimising of cascading taxes through a free flow of input tax credit will lead to elimination of the hidden tax, that is, tax on the tax.
Secondly, by subsuming 17 indirect taxes of the centre and the states into one tax, GST will reduce overall compliance costs. Also, subsuming of Entry Tax/Octroi into GST will drastically reduce transportation and logistics costs. GST will do away with check posts at inter-state borders which were responsible for piling up of trucks, loss of man-hours and delay in transportation. All these costs were being finally passed on to the consumers. With GST, these costs will be marginalised, and therefore, should bring down prices across the board of all goods and services irrespective of their tax rates.
Now, the impact of GST rates. Theoretically, GST should have only one rate. But, in India, people are at different levels of society - some are below the poverty line, there is the lower middle class, the middle class, the upper middle class and the super rich. Further, the government has a commitment to the weaker sections of society. Therefore, India cannot have one rate of tax for all goods and services. One cannot imagine a “suit” and a “dhoti” attracting the same rate of tax. So, there was a need for different rates keeping in mind the needs of different classes of people.
Besides, India is not the only country to have more than one rate. France, the first country to introduce VAT in 1954, has five rates. The UK, Australia and many European countries have two or more rates.
Against this background, the GST Council decided to have four rates apart from the exempted goods. Broadly speaking, the five rate-slots are: zero percent, five percent, 12 percent, 18 percent and 28 percent, according to their usage by different classes. For some of the goods at the 28 percent slot, there will be additional cess. Further, for gold, diamond and other precious metals, a special rate of three percent has been fixed.
http://www.indialegallive.com/constitutional-law-news/economy-news/gst-no-tax-tax-30050/
