Why GST Introduced in India

In previous tax structure, there was lack of uniformity as there were different rates for VAT which resulted in trade imbalance between states.

Some of the reasons are prescribed below:

Ø  Previously CENVAT was limited to manufacturing only and not beyond that. CENVAT paid could not be adjusted against VAT.

Ø  CENVAT was made of various components and because of multiplicity of duties made the tax structure complicated.

Ø  In inter-state sale, CST (Central Sales Tax) was levied by the center and the same was collected by the state which could not be set off against VAT.

Ø  Service providers were unable to neutralize VAT or other taxes paid while CENVAT input tax credit was available to them.

Ø  VAT liability of a dealer used to get enhanced without compensatory set-off because VAT was payable on the goods inclusive of CENVAT paid on manufacturing stage.

Ø  On imports where Special Additional Duties (SAD) of customs were levied at a uniform rate of 4% by the Centre, state VAT and CST did not directly apply. Only to manufacturing excisable goods, input tax credit of these duties was available. Whereas for other importers they had to claim duty refund as and when they pay VAT on subsequent sales.

Ø  VAT dealers were unable to set-off any Service Tax that they had paid on their procurement of taxable input services.

Ø  No set off was available for variety of indirect taxes such as luxury tax, entertainment tax, entry tax etc. which was levied and collected by central.

Advantages of GST

With the implementation of GST in India, it gave numerous benefits to the following:

1.     Make in India

Ø  It will help in boosting make in India campaign as well as foreign investment.

Ø  With this, there will be more efficient tax neutralization.

Ø  It will create more employment in the country and eradicate poverty. 

2.     Efficiency in carrying business.

Ø  Improvement in the tax system of the country by reducing multiplicity of taxes.

Ø  Simplified procedure for GST registration in India and besides GST registration it has also made easy process of return, refunds and tax payments.

Ø  Compliance environment will get improved.

Ø  For more regularization, timelines have been set out for GST registration and GST refund.

Ø  It has made the process more transparent.

3.     Benefits to the Government

Ø  It helped in broadening tax base in India.

Ø  Better compliances and revenue collection

Ø  Now there are less tax evasions.

Ø  Mitigated the cascading effect of taxes.

4.     Trade Benefits

Ø  Multiplicity of taxes have now reduced.

Ø  Mitigation of double taxation/ cascading effect

Ø  More simple tax regime with rates and exemptions.

5.     Consumer benefits

Ø  Cost has been reduced due to removal of cascading effect.

Ø  Purchasing power and savings have been increased.

Ø  Because of savings, investment has also been increased.

Besides advantages, there are some disadvantages also, now let’s discuss the same:

Disadvantages of GST      

Ø  There were many products which were exempted in previous structure, but GST has minimal exemptions.

Ø  In previous tax structure, there were high taxes on few items but now under GST there are lower taxes on almost every item.

Ø  No GST on alcohol liquor consumption.

Ø  Petroleum products are still out the purview of GST.

Ø  Under GST regime, no stamp duty will fall.

GST Council

GST Council is comprised of following:

1.               Union Finance Minister (Chairman of the Council),

2.               Minister of State (Revenue) and

3.               State Finance/Taxation Ministers.

Above mentioned ministersmake recommendations to the Union and the States on the following matters:

(i)              The taxes, cesses and surcharges which may be subsumed under GST levied by central, state or local bodies;

(ii)            Goods and services which may be subjected to or exempted from the GST;

(iii)          the date on which the GST shall be levied on petroleum crude, high speed diesel, motor sprit (commonly known as petrol), natural gas and aviation turbine fuel;

(iv)          Rules & Regulations regarding GST model, GST registration, principles of levy and the principles which govern the place of supply;

(v)            Threshold turnover limit below which GST may be exempted;

(vi)          The rates including floor rates with bands of GST;

(vii)        During any natural calamity or disaster, special rate or rates for a specified period to raise additional resources;

(viii)      Special provision with respect to particular states such as North- East States, J&K, Himachal Pradesh and Uttarakhand;

(ix)          Any other matter relating to the GST.

GST Council mechanism ensures harmonization on different aspects of GST between the Centre and the States as well as among States.

As per the Constitution (one hundred and first amendment) Act, 2016 GST Council shall be guided for the development of a harmonized national market for goods and services.

Source url - http://entersliceindia.full-design.com/Why-GST-Introduced-in-India-15581153