India is notorious for its complex tax system. For new businesses and startups, it becomes impossible to navigate through various direct and indirect taxes. Constant changes to taxes like Service Tax are making things even worst. But now, the things are set to change with new Goods and service tax – commonly known as GST.
Lets understand what is GST, how it is different from other taxes, GST applicability, GST rates, its impact on your business and latest updates about GST bill. To make things easy to understand, I will start with an example..
Mr. Sharma is a businessman who wants to start a business. For this he needs various raw materials which have to be imported from China and will need to be brought to Gurgaon – where he has his factory – by road through various states. Once he gets down on the process of estimating his costs he is a little troubled.
First, he needs to pay a customs duty for importing the materials on top of the shipping charges. This is fine but there are a lot of other taxes which he seems to be unable to comprehend. Also he finds out that when he has his final product ready he will have paid the Central and State Governments at least 10 different taxes not all of which are exclusive of each other. On diving deeper he finds many cases where a tax is also taxed by the government.
Petrol prices are the perfect example. The price charged to dealers by the Oil Marketing Companies is Rs. 25.46 currently for a litre of petrol. Now Excise Duty is collected at Rs. 21.48 per litre by the Central Government and adding the dealer commission the price now is Rs. 49.22. This is not the end and Value Added Tax is now charged at 27% which takes the final price to Rs. 62.51 in Delhi. At first it may seem fair that both the Governments tax the product but it is not that innocuous. There is a tax on a tax here! The State Government charges 27% of the final amount in which Central Excise Duty has already been borne by the businessman.
The Goods and Services Tax promises to alleviate this problem among many others. It is being hailed as the game changer for India’s economy and is being labelled as the biggest change in the Constitution since India’s independence. The Goods and Services tax or commonly referred to as the GST will replace the indirect taxes levied by the Central and State Governments and provide for a single and streamlined process. It presents India as a unified market to business owners and also aims at bringing a lot of black money back into the mainstream economy. The tax will be implemented at every step of value creation.
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