GST has become a very common phrase with common man for last few months now. We see many people from college going students to senior citizens talking about GST. There is a lot of enthusiasm for some people whereas there are those who are worried about GST. There is a lot of talk about impact of GST on common man. Some are saying it will lead to increase in inflation in short term but will be good in long term whereas government is saying it will lead to price reduction for most of the products/services.
Now, let us try to understand the basic concept of taxation in our country. We will be talking about indirect tax only. Till now indirect tax is collected by Centre as well as states. The Taxes which are coming under Centre are Custom Duty, CVD, Additional Duty, Excise Duty, Service Tax etc. The state taxes include VAT (Sales Tax), Entry Tax, LBT, Octroi, stamp duty etc. Currently all services are charged to service tax by centre only where as goods are taxed by different states. Custom Duty, CVD apply in case of Imports and falls under Centre. In current situation cross credit is not available i.e. service tax credit is not available against liability of VAT or vice versa.
Concept of GST in simple words:
GST means Goods and Service Tax in simple words its merger of Service Tax and VAT (Sales Tax). Till now central levies used to go to centre and VAT collection used to go to states (for common man). With introduction of GST centre and states both will have share of tax on service as well as goods.
How will it impact trade and common man ?
Till now due to dual system of tax, every entity was forced to have a go-down in all states if they wanted to do business (for Goods and not for service) else they were burden with additional cost of 2% charge of CST. Also due to levy of Octroi in many cases, the movement of goods was not smooth. There used to be lot of waste of time and fuel which resulted in increase in cost of material. Also there used to be multiple compliance issues like assessment by Excise department, Service Tax department, LBT assessment and sales tax assessment by different states. It used to increase the cost of compliance and lot of harassment to the trade. With proposed introduction of GST all these taxes will get merged in single TAX called GST. This will result in only one assessment by single authority. This should really help business community and will reduce the burden of compliance and harassment.
With cross credit of material and service made available the overall cost will reduce and in turn it should lead to price reduction for end user except where the rate of tax has increased substantially compare to existing tax rate.
Now let us see the other side of the trade. Pricing of the product (I am currently considering the FMCG products) depends mainly on Cost of manufacturing, fixed overheads, different taxes and the market condition. The MRP is decided considering the margin of distributors and the prices of competitors. So even after introduction of GST it’s not necessary that prices will go down.
With introduction of cross matching concept of Sales and Purchases, government has tried to block the leakage of revenue. This will have indirect impact on Income Tax assessment as well. Hope this will lead to higher collection in taxes and will lead to better compliances and improved standard of living for common man.
[About the Author: This article has been jointly contributed by Mr. Yogesh Gokhale and Mr. Rajaram Walavalkar]