GST decoded

The present structure of Indirect Taxes is very complex in India. There are so many types of taxes that are levied by the Central and State Governments on Goods & Services.

How nice will it be if there is only one unified tax rate instead of all these taxes? Yes , that's what our Government of India has proposed through GST!

The current tax regime is unfairly skewed against most producers. Let's outline and simplify the current system of taxes and GST to see how it operates:

Let's take an example of Tooth Paste Manufacturer

Assume there is a tooth paste manufacturer that procures raw materials at :-

1000 Lakhs per batch - 500 Lakh of raw material from the same state and 500 Lakh of raw material from the other state.

The manufacturer keeps his operating profits at 200 Lakhs and encumbers a processing cost of 100 Lakhs. The flow would look something like this: 

Taxes to be paid

The producer in the present regime only has an input tax credit of 25 Lakhs. In GST regime the producer will get the credit of VAT, CST as well as Entry Tax . The GST hence, reduces the tax burden on producers.

The GST also subsumes within it the taxes like Excise Duty, Additional Custom Duty, Luxury Taxes etc. This means that in GST regime the producers will be relieved of  filling multiple returns.

For service providers like web development companies which are unable to take the credit of VAT paid on infrastructure cost will now be able to take credit of VAT in this new regime. The GST hence, reduces the tax burden to some extent on service providers too.

GST is clearly a long term strategy, it would lead to ease of doing business,  a higher output and  more employment opportunities. Initially however, it is likely cause high inflation rates, administrative costs, and face stiff oppositions from states due to loss of autonomy.

Submitted By Rohit Lohade co-founder at www.businesssetup.in