Transcript Slide 1
GOODS AND SERVICES TAX (GST) GOODS AND SERVICES TAX Goods and Services Tax (GST) is a single tax rate levied on the manufacture, consumption sale of goods services at a national level. and and GOODS AND SERVICES TAX In this system, GST is levied only on the value-added at every stage of production. This will ensure that there is no cascading effect of taxes (tax on tax paid) on inputs that are used in manufacturing of goods. GOODS AND SERVICES TAX For example: If a tax of 15% is levied on Rs. 2 lakhs at the first stage, the tax outflow would be Rs. 30,000. At the next stage when the same goods are sold for Rs. 2.5 lakhs the tax would have been Rs. 37,500 (Rs. 2.5 Lakhs x 15%) but since there is a set off of Rs. 30,000 available, the actual tax at that stage will be Rs. 7,500 (Rs. 37,500 – Rs. 30,000). GOODS AND SERVICES TAX Simply put, when the final tax is calculated, the tax already paid on input / raw material is deducted and then tax is levied only on the cost of the goods produced. How is the GST different from current system? GOODS AND SERVICES TAX Current A Combination of value added tax (VAT) which is a destination-based tax and originbased taxes such as excise duties etc. GST Tax incidence at the point of sale Tax Base Goods & Services are taxed separately, subject to some exemptions Comprehensive base of goods & services included Multiplicity of tax rates Multiple tax rates Single tax rate Tax Cascading Incomplete set off mechanism for tax paid in Complete set-off should be the supply chain (e.g. no set off available for available in the entire chain of VAT against service tax or excise duty) production and distribution to eliminate tax cascading effect Nature of Regime GOODS AND SERVICES TAX Why is it considered a better system? GOODS AND SERVICES TAX Currently, there are multiple indirect taxes — Central taxes such as excise duty, service tax and countervailing duty, and State taxes, such as VAT, entertainment tax and luxury tax. This results in high tax rates. Accordingly, GST seeks to eliminate multiplicity of taxes, rates, exemptions and such exceptions to achieve uniformity of taxes across the country. Further, it would provide greater certainty and transparency of taxes. Also, the differences across states fragment the national market along state boundaries. GST is likely to replace all these taxes with a simple levy, lowering effective tax on goods and creating a national market in goods and services. What is the GST model India plans to adopt? GOODS AND SERVICES TAX Most countries have a unified GST system. However, India has opted for a dual GST system prevalent in Brazil and Canada. Under this model, both the Centre and states have the right to levy and collect tax on the sale of goods and services. What are the key benefits of implementing a GST? GOODS AND SERVICES TAX GST will simplify India's tax structure, broaden the tax base, and create a common market across states. This will lead to increased compliance and will support India's GDP growth. It will be beneficial for India Inc. as the average tax burden on companies will fall due to transparent set-off mechanism and elimination of cascading taxes leading to reduced production costs and increased export competitiveness. GOODS AND SERVICES TAX Implementation of GST may lead to a fall in costs in many cases making several products competitive leading to benefits for the manufacturers and also making some of them competitive on the world stage. Over a period of time the consumer will reap the benefits of the process through lower costs. CURRENTAND ACCOUNT DEFICIT GOODS SERVICES TAX Let us see the formula of the Current Account Balance (CAB) CAB = X - M + NI + NCT X = Exports of goods and services M = Imports of goods and services NI = Net income abroad [Salaries paid or received, credit / debit of income from FII & FDI etc. ] NCT = Net current transfers [Workers' Remittances (unilateral), Donations,Hope Aids & you have now understood the Grants, Official, Assistance and Pensions etc] concept of Goods and Services Tax. Please give us your feedback at [email protected] DISCLAIMER The views expressed in this lesson are for information purposes only and do not construe to be any investment, legal or taxation advice. The lesson is a conceptual representation and may not include several nuances that are associated and vital. The purpose of this lesson is to clarify the basics of the concept so that readers at large can relate and thereby take more interest in the product / concept. 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