GST stands for "Goods and Services Tax", and is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. It will replace all indirect taxes levied on goods and services by the Indian Central and State governments.
In the present structure of GST proposed in the constitutional amendment bill , it is not replacing all indirect taxes from the day one. Initially, GST will not apply to petroleum products and State excise duty. GST Council which will set up after constitutional amendment will decide on rates, exemptions and procedures etc. However,GST implementation would be the biggest fiscal reform in India.It is expected and argued to be effective because of the following reasons:
(i) It will influence the revenue base of economy. Services which are mainly taxed by the Centre will be brought under GST. More revenue will be generated by charging higher rates to services. Again, at present the highest sectoral contribution comes from services. So an uniform rates on Goods and services will help yield more revenue.
(ii) In the existing system, firms were subject to multiple indirect taxes, and to a level of high aggregated tax rates. With implementation of GST, the cascading effects will reduce . Further it will be more simplified for firms to comply a single comprehensive indirect tax than multiple taxes in the present regime. So indirect tax compliance and hence revenue generation would be better.
(iii) GST is a Dual vat, would be levied by both the Centre and the States by their respective agencies. transaction of firms can be tracked both the agencies. Cross verification can check leakages and improve the effectiveness of GST .
thanks
Dear Vinay,
Recently, I answered a similar question in the following way:
The consequences of the implementation of the Goods & Services Tax (GST) depend on the particular provisions of the GST law. For example, if the GST is reimbursable to business entities (as is often the case with sales taxes), the tax reform will reduce their cost basis. Thus, inflation should not be a direct consequence of the reform. Also, compliance costs can be expected to be lower if dealing with one tax as opposed to several different taxes.
Also, the current trend in international taxation is to tax consumption but to reduce the tax burden of income. If this is the goal of the new GST in India, lower taxation on income is to be expected which can be considered beneficial to individuals.
Moreover, there are probably high administrative costs on part of the state, that will be reduced if the different taxes now at use become replaced by the GST. These savings can be used to ease other budgetary constraints and - at least in theory - to serve as an incentive for further tax reductions.
Paul
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