GST is a multi-stage tax levied on the value added at eachstage of transaction from production to final sales to an end consumer. The taxpaid on all purchases is called the output tax and the tax levied on all salesis called the Input tax. A GST registered enterprise pays tax to the governmentonly if the output tax for the assessment period is more than the input taxpaid by it. However, should the reverse be true, then the enterprise isentitled to a refund from the government within a declared period.


GST is designed to make the final consumer bear the burdenof tax and spare the business of its incidence. It does so by introducing amechanism that allows for the refund of tax that is levied on intermediatetransactions between firms. The proposed GST is likely to be a dual system thatwill support a Central and State GST chain separately. These two chains wouldbe independent of each other. This implies that GST registered companies willnot be able to adjust the input credits of one chain against the other.


The Central GST chain is likely to integrate the existingexcise duty and service taxes levied at the central level while the State levelGST chain the current State-level VAT, other local levies and services tax oncertain specific services on which States may get the powers to levy servicetax. The input tax credit adjustments will operate within the respective chainsbut not across.


The cumulative incidence of the excise duty and the State VATat present works out to around 24 per cent of the retail sales price. UnderGST, the aggregate is expected to be significantly lower. The government islikely to start with a GST of 15% thereabouts and reduce it progressively asthe tax base expands.


In advanced economies, the introduction of GST is usuallyaccompanied by significant cuts in personal income tax as a means to reducethe income tax burden of the lower income segments that ends up paying tax thatis disproportionately higher to their Income than the higher.




ReadFull Article





About the Author:


The author isthe Managing Director of Hydra Consulting Services having expertise in supplychain solutions, process design improvement, automation and integration withspecific reference to the textile industry.