Suppose that the GST is 20% and manufacturing cost of Product A is Rs. 100 so the total price is Rs. 120. The next step of taxation would be when the product is sold to customers, suppose at a price of Rs. 150. So the GST will charge another 20% on just the difference between Rs. 150 and Rs. 120, so the 20% will be applicable on just Rs. 30 which is equal to Rs. 6. So the final price is Rs. 150 + Rs. 6. This eliminates the cascading effect of taxes.
Since this will be applied at every step of value creation it will be very difficult for black money owners to participate anywhere in the value chain with the GST without accounting for all other transaction.
10 Frequently Asked Questions about GST Bill:
What are final rate slabs?
The Goods and Services Tax will be levied at multiple rates ranging from 0 percent to 28 percent. The council has finalized a four-tier tax structure of 5%, 12%, 18% and 28%. Highest tax slab will be applicable to items which are currently taxed at 30-31% (excise duty + VAT)
Ultra luxuries, demerit and sin goods (like tobacco and aerated drink, will attract a cess for a period of five years on top of the 28 percent.
What are CGST, SGST, and IGST?
The Central GST is the areas where the center has the powers and State GST where the State taxation capabilities. The IGST or Integrated GST is for movement of Goods within the states of the Indian union. This will be collected by the union however it will be transferred over to the states. Thus it is essential that if and when the GST comes out it is rolled over in the entire nation simultaneously.
What are the differences between the UPA’s GST and NDA’s GST?
Primary differences are as follows:
- The petroleum sector is outside the ambit of GST.
- Liquor for human consumption is exempt however tobacco and tobacco products will fall under GST.
- There is a 1% tax on top of the GST for inter-safe movement of goods and services.
What are the taxes that it replaces?
It replaces numerous different indirect taxes such as:
- Central Excise Duty
- Service Tax
- Countervailing Duty
- Special Countervailing Duty
- Value Added Tax
- Central Sales Tax
- Entertainment Tax
- Entry Tax
- Purchase Tax
- Luxury Tax
- Advertisement Taxes
- Taxes applicable to Lotteries
What will be the short-term impact?
Immediately after its implementation, the inflation rate will rise for short term. The rates ranges from 5% to 28%. Generally, the impact on consumer price inflation is likely to be moderate
When it will be implemented?
The GST roll out will start from July 1, 2017.
Keep checking the article to stay updated.
What are the finer points in the implementation of the bill?
Several committees were setup to evaluate the feasibility and implementation of the GST.
- The issue of separation of taxation powers of the state and center which resulted in CGST and SGST.
- The exemption which currently includes petroleum and Liquor for human consumption.
- Tax will be applicable on imports too along with the Basic Customs Duty which has not been scrapped.
- The GST will be applicable at the point of sale. In comparison, the Value Added Tax is a destination based tax while excise duties are taxed at the origin.
What is the empowered committee?
The empowered committee is a committee of the Finance Ministers of the states. It was set up by the Vajpayee Government to look into the Value Added Tax model. The committee has had an influential hand in its shaping and structuring.
What will become costlier?
According to experts, following items could become costlier
- Cigarette prices likely to rise as GST rate for tobacco will be higher than current duties.
- Commercial vehicles such as trucks will become costlier.
- Mobile phone calls may get costlier as service tax will go up.
- Textile and branded jewellery may become costlier.
- All luxury goods, aerated drink, banking charges, DTH services.
What will become cheaper?
Following items could become cheaper
- Branded Goods: Tax rate slashed to 18% from 23-24 per cent.
- Hotels: Staying at hotels will become cheaper as they are currently taxed at 22% and after GST slashed to 18%.
- Restaurants: Come down to 18% from 22%.
- Food grains.
- Personal hair products.
- Entry level cars, two-wheelers, paint, cement, electrical items, and consumer durables.
Find Expert Financial Advisers on Taxation Now.