GOODS AND SERVICE TAX (GST)

GOODS AND SERVICE TAX  (GST)

Journey of Indian indirect taxation and turning points, which reformed the taxation system till date before the introduction of GST taxation system in India.

1974: Report of LK Jha Committee suggested introduction of VAT system.

1986: Introduction of restricted VAT called “MODVAT”.

1991: Chelliah Committee report recommended “VAT/GST” and recommendations accepted by the Government.

1994: Service Tax introduction.

1999: Empowered Committee formation on State VAT.

2000: Introduction of Uniform Floor State Tax Rates and abolition of tax-related incentives granted by State Governments.

2003: Implementation of VAT system in Haryana.

2004: Strong progress towards introduction of CENVAT.

2005-06: Implementation of VAT based taxation system in 26+ states in India.

2007: First GST Stuffy released by Mr. P. Shome in January; Finance Minister speech carries the introduction of GST in Budget; CST phase out starts in April 2007; joint working group created and reports submitted.

2008: EC rolls out the GST Structure of Taxation System in April 2008.

2009: Date proposed for Implementation as April 1, 2010.

2010: Department of Revenue commented on GST discussion paper and finance minister suggested probable GST rate.

2011: Team was created to lay down the road map for GST and 115th Constitutional Amendment Bill for GST was laid down by the Parliament.

2012: Negative list regime for service tax was implemented.

2013: Parliamentary Standing committee submitted its report on the Bill.

2014: 115th Amendment Bill lapsed and was reintroduced in 122nd Constitutional Amendment Bill.

 

Working of Goods and Services Tax (GST) :

In order to understand how GST works, the detailed description is demonstrated in this section in lieu of manufacturer, distributor, and retailer along with the impact of cost of goods

on final consumer.

(i) Manufacturer : In the previous taxation system, the manufacturer had to pass through two stages of taxation before transferring the benefit of products to the distributor. At the first instance, he had to charge excise duty @10% and then VAT @ 5 % , which means a total of 15% of indirect tax. If cost of product was ₹100, then Excise duty was charged @ 10% on cost & VAT @ 5% on cost. The total cost of production became ₹ 115.

Cost of Production ₹100

+ Excise Duty@ 10% ₹10

+ VAT @ 5% ₹5

Total Cost ₹115

However, in GST, he has to deal with only one department and also, tax has been reduced by 5%, that is, he has to pay tax @ 10%. If cost of production is ` 100, GST @ 10% will be charged and the total cost of production will be₹ 110.

Cost of Production ₹100

GST@ 10 % ₹10

Total Cost ₹110

It will give a benefit of ₹5 to the producer and this benefit will be passed to the distributor and ultimately to the consumer.

(ii) Distributor : In the previous tax regime, a distributor received goods at a cost of ` 115 from the manufacturer,he added 20% for his profit, VAT @ 5 %, and Service Tax @15% .The total cost that came out was ₹167 as illustrated below :

Cost of Good Received: ₹ 115

+ Profit ₹ 23

+ VAT @ 5% ₹ 7

Service Tax@ 15% ₹22

Total Price ₹167

In GST, a distributor will add only 20% profit margin & GST will be charged at 10% and the total price will come out to about ₹ 145 as illustrated below :

Cost of Goods Received : `₹110

Profit Margin @ 20% : ₹22

GST @ 10% : ₹ 13

Total Price ₹145

Thus, benefit of ₹ 22 ( ₹ 167 - ₹ 145) to the retailer in the new system. This benefit will be ultimately passed to the consumer.

(iii) Retailer : From the above explanation, it is clear that benefit of ₹ 22 is already received under the GST system. Now, if we study the retailer under the previous taxation system & GST, we will be clear about the total benefit received under the new tax regime. In the previous taxation system, the retailer received goods at a price of ₹ 167. Say, he will add 20% profit margin. VAT will be charged @ 10% and Service Tax @ 15%, then the total price to be charged from the consumer will come about ₹ 242.

Cost of Goods Received : ₹ 167

Profit Margin @ 20% : ₹ 33

VAT @ 5%: ₹ 10

Service Tax@ 15%: ₹ 32

Total Price ₹ 242

Under GST, the retailer is receiving goods at ₹145, after adding profit margin of 20% and GST @ 10%, the price charged will be only ₹ 191 as compared to v 242 being charged under the previous taxation system.

Cost of Goods Received: ₹145

Profit Margin @ 20% : ₹29

GST @ 10% ₹32

Total Price ₹191

It will give a benefit of ₹51 ( ₹242 - ₹191) to the consumer. Hence from the above examples, it is clear that not only the manufacturers, distributors, and retailers, but also the consumers will be benefited under the GST Regime.