GST: One nation, one tax
The biggest tax reform in the country is on its way to implementation with the recently concluded Goods and Service (GST) Council meet that deliberated over the tax rates. The Council announced a 14% compensation to states that would face a loss of revenue and decided that a 'four slab' structure will include 6,12,18 and 26 per cent rates, with lower rates for essential items and the highest band for taxing luxury goods.
GST Council will be meeting again on November 3-4 to finalise the GST rate structure, and on November 9-10 to decide the draft legislations for the bill.
The 'one nation, one tax' reform – as proclaimed by Finance Minister, Arun Jaitley, has been 16 years in the making as it was initially proposed by the then Prime Minister of India, Atal Bihari Vajpayee, back in 2000. The unified tax is proposed to come into effect from April 1, 2017.
What is GST?
GST is one indirect tax for the whole nation, which will make India one unified common market. It is a single tax on the supply of goods and services, right from the manufacturer to the consumer.
What is the need for GST?
An overlap is seen in the economy as services are used in the production and distribution of goods and similarly goods are used in delivering services.
GST will work as an 'All in one' tax as the various indirect taxes being levied by the centre and the state will be 'subsumed' or included in GST.
What is the current tax structure?
Currently, each state taxes goods that move across its borders at various rates, leading to multiple taxation.
The earlier model of separate taxation placed on goods and services would require splitting of transaction value (prices paid for products) into value of goods and services for taxation.
Therefore, the multiplicity of taxation on commodities and the complexities in our current tax structure will be eliminated once GST comes into play.
How will GST help the Indian economy?
The Indian economy's growth rate is expected to increase by 0.9% to 1.7% as per estimates of the National Council of Applied Economic Research (NCAER).
Analysts from Morgan Stanley said that the overall impact of GST is likely to improve growth due to better allocation of resources, improving efficiency of domestic production and exports.
Investments in the Indian economy will seemingly become more attractive as growth improves with GDP growth that could see a minimum boost of 0.5% after GST implementation.
Will GST bring down the prices for you?
The cost of certain goods and services that are camouflaged under multiple taxes levied are foreseen to become cheaper once GST is implemented.
Goods like cement, wood articles and plyboard, satellite TV, batteries, cars, food items, online shopping, cab rides, couriers and mobile bills are estimated to become cheaper depending on the finalized tax slabs.
The analysts from Edelweiss Securities said, "It is widely believed that under the proposed GST, effective tax rate on goods (nearly 70-75% of the CPI basket) will decline, while taxes on services (nearly 25-30% of CPI basket) will increase."
This may imply that certain services in the economy like trips to the beauty parlour, telephones, restaurants, cinemas, air travel, insurance, DTH, credit and debit cards, courier, healthcare, banking and professional consultancies might become more expensive.