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Indirect Taxation
GST
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GST
GST is a huge reform for indirect
taxation in India, the likes of which the country has not seen
post-Independence. GST had simplified indirect taxation, reduce complexities,
and remove the cascading effect.
Comprehensive:
GST had subsumed all of the current
indirect taxes. Plus, by bringing in a unified taxation system, across the
country, it will ensure that there is no more arbitrariness in tax rates.
Multi-stage:
GST is levied
each stage in the supply chain, where a transaction takes place.
Value-addition:
This is the
process of addition to the value of a product/ service at each stage of its
production, exclusive of initial costs. Under GST, the tax is levied only on
the value added.
Destination-based
consumption:
Unlike the traditional
indirect taxes, GST is collected at the point of consumption. The taxing
authority with appropriate jurisdiction in the place where the goods/ services
are finally consumed will collect the tax.
For example: Let’s say that
cotton garments are being shipped from Karnataka to Maharashtra. Karnataka is
the producer state and Maharashtra is the consumer state. Tax revenue under GST
will go to Maharashtra.
Let’s understand how this will
impact imports and exports. Exports are not taxable, because the place of
consumption is outside India. Imports are taxable, because the place of
consumption is in India.
The tax on imported goods will
therefore be just the same as domestically-produced goods. Thus, the export
industry will become more competitive when compared to its international peers.
Also, domestic goods will be protected by making imports at par with domestic
goods.
What is SGST, CGST and IGST?
Suppose goods worth INR 10,000
are sold by manufacturer A in Maharashtra to Dealer B in Maharashtra. B resells
them to trader C in Rajasthan for INR 17,500. Trader C finally sells to end
user D in Rajasthan for INR 30,000.
Suppose CGST= 9%, SGST=9%. Then,
IGST= 9+9=18%
Since A is selling this to B in
Maharashtra itself, it is an in-tra-state sale and both CGST and SGST will
apply, at the rate of 9% each.
B (Maharashtra) is selling to C
(Rajasthan). Since it is an inter- state sale, IGST at the rate of 18% will
apply.
C (Rajasthan) is selling to D
also in Rajasthan. Once again it is an intra-state sale and both CGST and SGST
will apply, at the rate of 9% each.
*** Any IGST credit will first be
applied to set off IGST then CGST. Balance will be applied to setoff SGST.
Since, GST is a consumption-based
tax, i.e., the state where the goods were consumed will collect GST. By that
logic, Maharashtra (where goods were sold) should not get any taxes.
Rajasthan and Central both should
have got (30,000 * 9%) = 2,700 each instead of only 2,250.
Maharashtra (exporting state)
will transfer to the Centre the credit of SGST of INR 900 used in payment of
IGST.
The Centre will transfer to
Rajasthan (importing state) INR 450 as IGST credit used.
**Note: Custom duties are not
part of this tax structure.