Now most of us are aware of GST - Goods and Services Tax. This ACT has come into force with effect from 1st July 2017 replacing the hitherto THREE different Taxes that were in force, those are 'Excise Duty', 'Service Tax' & 'Value Added Tax - VAT' including Central Sales Tax (earlier known as Sales Tax).
Excise duty was on manufactured goods; VAT was charged on intra-state sale of goods and CST was charged on inter-state sale of goods; Service Tax was levied on services rendered.
Here we are going to understand the details of the previous tax system and GST in simple and understandable terms.
Rates: Excise Duty, Service Tax and CST were central levy whereas VAT was a State levy, hence VAT tax rates would vary for a commodity in different state/s across the country. Excise duty rate was chargeable at the same percentage on almost all goods. Service Tax rates for various taxable services were also not the same.
Levy & Collection: VAT being a state levy, the VAT tax collections were being misused using the loopholes in the system. To add on, collection of all these three levies on a given month could not be ascertained easily either by a State Government or by Government at Centre.
The cascading effect: Excise duty was levied at the first point of sale, i.e., at Manufacturer's point. VAT / CST, as the case maybe, was charged at every point of sale, i.e., from manufacturer to whole-seller, whole-seller to retailer and retailer to the final customer. So, VAT and CST was levied on the value of goods which included excise duty and VAT / CST of previous sales. To further note, VAT/CST input credit facility was not extended by many states on most of the products. This created a cascading effect i.e., tax on tax effect. Hence the product would ultimately cost more for a the final customer.
GST was introduced as a 'single point tax'. This would aid the Government to avoid most of these anomalies present in previous tax system.
GST has been brought under Central Government and is a central levy. Being a central levy, tax rates have been made uniform. GST Act covers both services and on sale of goods. Certain new services were included under the purview of GST levy.
The GST tax revenue is to be shared between the Centre and the states in a prescribed and agreed manner. With some issues initially, the resolved system is in place now.
At the time GST was enacted, various news articles on print media and news coverage social media platforms were circulating which were comparing VAT tax rates with GST tax rates and hence reflecting that GST tax rates are too high in comparison. They were clearly ignoring the Excise duty element which was suffered by most of the goods previously, but which was not known to the final customer as it would not get displayed on the sales after the first (manufacturer's) sale. But the Excise duty, VAT and CST was creating a cascading effect. It is very important to understand that under the GST regime this 'cascading effect' would not take place. Which means, the tax element would get added to the price of the goods only once – first point of sale from the manufacturer's.
GST implementation has been done through a comprehensive software system controlled and operated by the Government of India. The system has been made sufficiently strong to reflect the actual GST collected in a month, precisely, at the end of each month.
Amendments to ease commerce & business- GST rate could be revised, either upward or downward, for any commodity after enactment. In most of the cases the revision is based on the overall collections made in the previous months / years. This has also made it easy to offer any industry specific relief, if required, to improve the economic conditions in the country, which was previously an onerous task.
In the GST portal, process of registration of a dealer has now been made simple. A QRMP scheme has been introduced for dealers having annual turnover of upto Rs 1.50 Crores. Under the scheme, payment has to be made on a monthly basis on self assessment and file quarterly returns.
Though GST regime was intended to capture almost every sale movement, ten returns were earlier required which were subsequently simplified through several amendments.
The number of changes and amendments, has in fact put the GST registered users off track. Nevertheless, meeting the quick requirements of Commerce & Industry was on one side appreciated.
Overall, GST has been a need of the hour change from the earlier Indirect Tax regime!
The author, V Murali Dharan is a Chief Financial Officer in a Real Estate Firm and has industry experience of over 30 years in various fields say, Direct, Indirect Taxation, Company Law, Accounting - including identifying revenue leakage, Audit and General Management & Human resources. Integrity has been his trait. At the age of 29, he raised a red flag in a South Indian conglomerate. He has played an important role in bringing out many revenue leakages during his 30+ years of Industry association. He believes TRUTH will prevail & integrity will give positivity and satisfaction.
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