One Nation One Tax – Reasons behind this

One Nation One Tax – Reasons behind this

GST- Goods and Service Tax, one of the most significant tax reforms has been successful in completing its two years in India. GST act was passed on 29th March 2017 in the Parliament and came into existence on 1st July 2017.

Arun Jaitley- the former finance minister and a person behind the introduction of GST posted that “After two years, one can confidently argue, without the fear of contradiction that GST proved to be both consumer and assessee friendly. The high taxation of the pre-GST era pinched the consumers’ pocket and acted as a disincentive against tax compliance. The last two years have seen each of the meetings of the GST Council reducing the tax burden on the consumers as the tax collections improved.”

In this article, we will prove this statement and put some spotlight on the benefits of GST on the common person, trade, and consumers.

What is GST?

GST is defined as a multi-stage, comprehensive, destination-based, value-added tax levied on every goods and service.

There are multiple stages an item goes from one hand to another when it finally reaches the consumer from the manufacturer. Let us consider the below-given example to understand it in a better way:

  • Purchase of raw goods and material
  • Production and manufacturing of material
  • Warehousing of goods
  • Sell to wholesaler
  • Sell to retailer
  • Sell product to  the end consumer

  • GST is levied on every stage making it multi-stage tax reform.
  • GST tax is collected by the State where the goods are being consumed making it destination-based tax reform.
  • GST is levied on value additions i.e. the monetary value is added at each stage of production of good to achieve the final stage where it is sold to the end customer.

One Nation One Tax: Reason behind this

GST has replaced various tax reforms and has launched one indirect Tax for the entire nation. Before GST condition was something as follows:

But GST has successfully removed the cascading effect of different types of tax reforms including VAT, Excise Duty, and service tax imposed on every point of sale. Earlier there were various types of indirect taxes levied by both state and central government. States used to collect taxes in the form of Value Added Tax or VAT. Every state had a different set of Tax rules and regulations.

Interstate sales of goods were taxed by the Central government in the form of CST (Central State Tax) was applicable to interstate goods.  This was not the end of the story, other than these there were many more indirect taxes like Octroi, a local tax and entertainment tax that was heavily levied by state and center government on Indian citizens.

So many taxes levied by state and central government led to the overlapping of all these taxes. When goods were manufactured by the manufacturer and sold by the retailer, the central government used to charge excise duty on it and after that more of Excise Duty and VAT was charged by the State government that led to a “tax on tax situation also recalled as the “cascading effect of taxes paid by the government”.

Following are the different types of taxes common man had to pay before GST:

  • Central Excise Duty
  • Cess
  • Duties of Excise
  • State VAT
  • Additional Duties of Excise
  • Additional Duties of Customs
  • Special Additional Duty of Customs
  • Purchase Tax
  • Luxury Tax
  • Entertainment Tax
  • Entry Tax
  • Different taxes on betting, gambling, and lotteries
  • Advertisement Taxes
  • Central Sales Tax

There are 3 different components of GST i.e.

  1. CGST: Central Goods and Service tax. It is collected by the Central Government on an intra-state sale, for example, all the transaction happening within Punjab
  2. SGST: State Goods and Service Tax. It is collected by the State Government on an intra-state sale, for example, all transaction happening within Punjab
  3. IGST: Integrated Goods and Service Tax. It is collected by the Central Government for the inter-state sale, for example, Punjab to Haryana

These 3 different components have replaced all of the above-given taxes. In the pre-GST regime, every final consumer had to pay a lot of taxes. GST has however removed it, as now tax is calculated only on the value-addition at each stage of the transfer of the ownership.

This indirect tax system under Goods and Service Tax has not only relieved general public from multiple taxation system but has significantly improved the collection of taxes as well as has boosted the development of the economy of India by removing all the indirect taxes barrier between states and integrating country through a uniform tax rate system.

Is GST beneficial?

The introduction of GST has mitigated the double taxation, multiplicity of taxes, taxable events, classification issues, etc., hence leading India to a common national market.

Here are some chief benefits of GST on Trade and consumers.

Benefits to Trade:

  • Reduction in the complexity of multiple taxes.
  • Efficient neutralization of taxes especially for the export products.
  • Mitigation of double taxation system
  • Development of uniform and common national market
  • Fewer exemption and tax  rates
  • Simpler to understand
  • No longer distinction between goods and services required

Benefits to Consumers:

  • Simple and non-complex tax system.
  • Uniformity in prices across the nation
  • Elimination of multiple taxation system resulting in overall prizes of goods & services.
  • More consumption leads to more productivity causing an increase in employment opportunities
  • Transparency in the taxation system.

0% tax rates:

Have you noticed the 0% tax slab? No! Then check these products that come under no tax regime after coming of GST:

  • Cereal grains including rye, barley, wheat, oat, etc.
  • Bones and horn-cores and waste of these products.
  • All types of Salt.
  • Palmyra jaggery
  • Kajal
  • Sanitary Napkins
  • Dicalcium Phosphate of animal feed grade conforming to IS specification No. 5470: 2002
  • Children books including picture books, coloring books or drawing books
  • Human hair – dressed, bleached, thinned, or worked.
  • Unit containers-packed frozen uncooked/ steamed branded vegetables.
  • Preserved Vegetables using different techniques like brine and other preservatives that are not suitable for direct human consumption.
  • Music Books and manuscripts

CONCLUSION: The main reason behind GST was to make India free from multiple taxation system. This has somehow been possible. People are relieved from it and have noticed a drop-down in the cost of various products including grains, vegetables, property, etc. Progress has been seen in industries that had affected the economic growth in India in a positive manner. With the completion of two years of GST, various positive outcomes have been noticed but still, some parameters need to be considered. I hope these parameters are being considered is the next GST council meeting.

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