India is preparing to roll out its biggest tax reform since independence: GST. After a lot of contemplation, this reform will finally come into force on July 1, 2017. Due to the vast number of indirect taxes being subsumed under GST, it will surely impact numerous business functioning within the economy.
GST rate in India have been decided and the country will follow a multi-tier tax structure. The GST Council has finalised four rates: 5, 12, 18 and 28 percent. Till now the council has finalised the rates for more than 1,200 goods and 500 services. After scrutinising multiple factors, the council and its members very carefully decided on to which commodity will fall under which category. There is a lot of emphasis which is being placed on making GST a ‘progressive’ tax regime. The council has very strategically placed the essential commodities in the lower tax slab and the luxury ones in the higher tax brackets.
GST calculation in India has become a big topic and businesses are hustling in order to estimate the kind of impact which the upcoming regime might have on them. Different rates are being imposed on different items. Even the items belonging to the same industry might end up attracting different rates. Say for instance, a uniform rate isn’t being levied on the entire textile industry. The GST rate in India differ from product to product within the same category only.
Various businesses are under the impression that once the new tax reform comes into action, it will end up lowering their tax burden. This might be right to a certain extent but certainly GST isn’t bringing good news for all the businesses. Say for example, an item in the present taxation structure is attracting a rate of 5% each from the central and state governments. The total tax comes out to be 10 percent. If this article is placed under the slab of 12 percent, then the burden on the businesses will increase by 2 percent. This will lead to a marginal increase in tax liability post GST implementation. Likewise, there can be a marginal decrease in the tax burden as well.
The excellent GST calculation in India is going to be quite stringent for the demerit goods. There are multiple goods which are falling in this category and some of them are cigarettes and tobacco. These commodities will be attracting an additional cess over the already high rate of 28 percent. The Council has decide that they can end up taking the total rate up to 40 percent, both GST rate and cess included. A maximum rate of 28 percent implies that both the centre and states will be able to levy 14 percent each on these goods. The cess which will be charged in addition to the rate of 28 percent will be used to compensate states for their revenue losses arising out of the implementation of GST. On the other, the commodities of mass consumption like food grains will fall under the zero-tax slab. This means that no tax will be levied on these goods. This step is being taken with the main intention to provide the essential goods to the masses at the lowest possible prices.
One might not find GST appropriate from a personal perspective especially when this is increasing the tax liability in your industry. However, if one chooses to take a look at the overall picture, then the results will be seen. Initially, there will be a lot of turmoil and inefficiency and as the government understands this thing so they are going to be lenient with certain rules and regulations in the initial phase. The GST will start showing its results in the longer run. The coming times will decide the success and failure of this step.Tags: GST