Posted in Common Man, Government, Hindustan, India, Tax

Goods and Service Tax (GST) – Analysis from a layman’s viewpoint

Nowadays, whenever we come across the word GST, it gives us a feeling of a Ghost Seeing Through. The major reasons behind this unfriendly feeling towards GST might be the complicated jargons, ignorance or confusion about the new taxation rules and regulations, lengthy and time-consuming procedural requirements, etcetera. However, there is nothing new in this, because situations like this are bound to occur whenever a new system is introduced anywhere in the world.

As the proposed date for implementation of GST is nearing up i.e. 01st July 2017, a sense of uncertainty and a chaotic situation is building up in our economy. Hence, I have tried to lessen up the burden by throwing some light on the topic of GST from a layman’s viewpoint. Hope it turns out to be useful especially to all those who are a bit scared from this Ghost Seeing Through.

What is Goods and Service Tax (GST)? – Goods and Service Tax, most commonly known as GST is a fusion of Tax on Goods + Tax on Service. The very purpose of introducing GST is to harmonise the tax structure and eliminate a large number of indirect taxes prevailing in the economy. Thus, GST is a “Single Indirect Tax” levied on the manufacture, sale, and consumption of goods or availing of service. Ideally, with the introduction of GST, all other indirect taxes levied on goods and services should be eliminated (except for the tax on goods and services on which GST is not levied).

How is tax calculated under GST? – The methodology adopted to calculate tax under GST is alike to Value Added Tax (VAT) i.e. tax is levied at each stage of “value addition”. It simply means that GST shall be levied only when some value addition has been done on the goods being procured or services being availed. Hence, if someone just procures goods and sell it as-it-is then no GST shall be levied on the same (likewise for services too).

Let us understand this with an example – If you procure a raw material used for manufacturing of the final good in your factory then you might end up paying GST on the purchase of the raw material, which is the input good for you. Further, you will also collect GST at the time of sale of final good manufactured at your end. Herewith, you will be allowed to take “input tax credit” of GST paid on the respective raw material used in the manufacture of the final good. This, in turn, will ensure that there is no double taxation on the cost of the same good.

What does Value Addition mean? – In the present context, value addition means adding some value to the goods or services that are being used as “input” in the resultant “output” goods or service. Value addition implies enhancing the value of input goods or services by applying some means.

What is Input Tax Credit (ITC)? – As mentioned above, GST is levied at each stage of “value addition”. This means that at each stage, the tax shall be calculated on the price of that product/service in that very stage. Since the tax on the same product/service has already been levied in the earlier stages also so this will obviously result in double taxation. Hence, in order to avoid double taxation under GST, the concept of Input Tax Credit was being introduced. The “registered” seller/service provider is allowed to take input tax credit of GST already paid in the earlier stages of the same product/service.

Blogger’s views on some of the hot topics of discussion with regard to GST

Whether prices of commodities/services will go down or rise as a result of GST? – If I talk in bookish terms then by simply comparing the rates of existing tax on goods or service tax against the proposed GST rate, I could very well conclude that prices of some commodities/services will go down, while those of others will rise. However, the hard-core reality is that prices in the practical world never go down in the long run. So, my personal view is that GST should not be looked upon as a measure to reduce prices of goods/services. It is simply one of those “Jumlas” which until now we all should be used to. However, if you still think that the business world is going to share their savings in cost with the consumers “in the long run” then you are free to stay hopeful (*fingers crossed*).

Will the life of business person ease up post implementation of GST? – Ah! On one hand, if you are a registered business person under GST, then you will have to file as many as 37 tax returns per year. And mind it your income tax and other returns are not part of these 37 returns. So either you should be ready to invest your next quarter or half-year in understanding the GST requirements and getting well versed with it or else concentrate on your business and hire a GST professional for taking care of all these issues. While, on the other hand, if you are not a registered business person under GST, then you are not eligible to claim the Input Tax Credit on the goods and services you sell/serve. So you are smart enough to forecast whether your life is going to ease up or not in the GST regime.

Concluding remarks – No doubt GST is a good step in harmonising the tax structure of any economy. And sooner or later, our country has to go for One Nation, One Tax. However, the Government should necessarily look into easing up the procedural requirement under GST. In absence of which, it is surely going to be a difficult task to implement GST in the right spirit. Hope the responsible persons do take note of the same, as well as, take necessary steps in the matter concerned.

Let’s be positive and hope for the best.

God Bless you all! Stay in touch.

Peyush Jain

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