What is GST?

by Manshu on May 30, 2013

in Economy,Featured

The Prime Minister is currently in Japan where he was asked when GST (Goods and Service Tax) will be implemented and he responded by saying that GST will not be implemented by the current government.

GST is one single tax that will replace all existing indirect taxes, and it is supposed to simplify the tax structure quite a bit. Currently there are several different types of taxes and compliance is relatively difficult and time consuming. GST will replace all these taxes and make it simpler for companies and individuals (it will also replace service tax) to comply.

Currently, the central and state governments charge taxes like excise duty, customs duty, VAT (Value Added Tax), Import Duty and Sales Tax but GST will replace all of these.

The problem with the implementation is that states will lose control on some of the taxes they impose and this may result in a tax loss for them. Because of this – negotiations about GST have become so difficult that the PM has accepted that his current government won’t be able to implement it. At this stage, it doesn’t look like the present government will be able to implement DTC (Direct Tax Code) either, and they might as well accept that.

Different countries have implemented GST for different reasons, and they take different forms as well. Some countries have a uniform rate for every thing while other countries have a few rates that are applied across the board. Two things however are clear from their examples – implementing GST has not been easy for anyone, and once implemented, no one has tried to go back so it must work well. For example, Australia first tinkered with the idea in 1980s when it got shot down, and then the idea was re-floated  in 1991 by the opposition, but the opposition had so much difficulty in explaining the tax that they lost the ‘unloseable’ election.

It is difficult to imagine that GST will be implemented easily in India, and when it does get implemented, it will most likely be a complex structure because nothing simple can replace the current structure.

The other important aspect of GST is that it is a Value Added Tax and at every step of the process producers get tax credit with the end customer getting no credit at all.

So to summarize, GST is a simpler tax system that seeks to replace the several types of taxes that currently exist, a lot of countries in the world have some form of GST already implemented, implementation has not been easy for any of them, and GST is a type of Value Added Tax.

{ 5 comments… read them below or add one }

Mohit Golchha May 30, 2013 at 9:55 am

Hi Manshu,
I would like to know purpose and methodologies of each and every tax applied in India.Can you please explain or link me to some of your old articles.

Thanks 🙂

Reply

Manshu May 30, 2013 at 8:04 pm

Interesting question, I have never done such a post but this is a good idea, I might try my hand at creating such a list.

Here are two good links that I found.

http://in.answers.yahoo.com/question/index?qid=20101104002934AAJhgEU
http://www.vitt.in/taxes.html

Reply

Mohit Golchha May 30, 2013 at 10:37 pm

Thank you 🙂

Reply

Anand May 30, 2013 at 11:31 am

Thanks for the simple and lucid explanation.

Reply

Manshu May 30, 2013 at 8:04 pm

Thanks for your comment Anand.

Reply

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