3rd April 2017
Any financial reform is primarily aimed at the middle and lower strata of the society. After all, a government is expected to uplift the marginalised first before turning its eye to the privileged. The introduction of the GST, which now has been passed by the both the houses of the parliament, is expected to impact the common man in more ways than one. But it’s not a simple legislation to conceive, like most of the reforms, GST too has its share of complications. This post aims at putting things in perspective and explaining how the bill will affect the common man.
The current system of taxation is India has distributed the power between states- drawing its roots from the federal structure of the country. Both governments have some exclusive rights and areas from where they levy taxes. Most of the direct taxes such as the income tax is a prerogative of the Central Government. Then there are indirect taxes that we have to pay on goods and services. Again indirect taxes on manufacture of goods and services are levied by the central government while on the other hand the taxes levied on the consumption the goods and services are collected by the state authorities.
There are some flaws in this arrangement. For example, if there is a packet of chocolate, the moment it is manufacture, the central government collects indirect taxes and then upon consumption, the state levies taxes making the product costlier than what it would have cost in case of a single tax.
Another point to be noted here is that the consumption of taxes within the confined territory of a state is completely the authority of states and hence any good influx into the said state is termed as imported goods. So any sub-product (product required in the manufacturing of a particular item) if imported from any other state will have its own costs. Further if the product is sent across the border of a particular state, the manufacture will have to pay the export tax well. This Federal system of taxation makes India not-so-friendly country to do the business as relatively new market players have to go through a lot of paraphernalia before they can dream of establishing a business. And since the cost of price of the good increases at every level, more so if it requires involvement of various states, the manufactures tries to compensate by pricing the end product higher than it should. All this directly impacts the consumer.
How GST is resolved to make life easy for the consumer
When a buyer gets hold of a particular product, all he notices is the VAT paid for that product. However, what he misses is the amount which would have been extracted via excise duty. It is not common to mention the amount paid as excise duty for the product on the bill. Thus a consumer is hardly aware of what is the taxation amount he has paid of the product. A rough estimate tells us that in most cases, consumers end up paying more than 20% percent tax on a product.
Speaking in broader terms, GST is going to make things transparent and the tax will be levied at the time of consumption not every level. It will include all types of taxes and there won’t be separate taxes. A consumer will have direct knowledge of the amount of tax he is paying.
The current system of taxation means that people tax on tax if the product moves across states before reaching them. GST will strike this off and one uniform tax will make things smooth.
Though the parliament has cleared the bill after certain amendments, there is still some time to go before it is introduced in the market. Some details are yet to be finalized and only when it is done, a rate for GST will be fixed. However, there is one thing you and I can be sure of: that is now that the bill is cleared sooner or later it will be adopted pan India.
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