GST – Goods and Service Tax

With the successful implementation of VAT in all states except Tamilnadu and Uttar Pradesh, Indian finance Minster P. Chidambaram announcing implementation of GST by 1st April 2010. So why is GST? The tax system in India is very complicated levied at both central and state level. The central government levies tax by three ways:

  • CENVAT at manufacturing level
  • Financial Act for services
  • Central Sales Tax intra-state sale of goods

States levy tax on sale of goods independently under their own law. Some uniformity has come with the implementation of VAT. GST will replace the multiple level taxes with a single tax which would operate at various stages of the supply chain. It operates on a negative list that is, all goods and services are subjected to GST unless specifically exempted.

Advantage of GST system:

  • It ensures wider tax base
  • Single tax system through out the country
  • Avoid the CST paid on inter-state procurement which is not eligible as credit
  • Manufactures can avail credit for miscellaneous taxes, such as entry tax, octroi etc.,
  • Manufactures would be entailed to input tax credit of all inputs and capital purchased from within the State as well as inter-state from registered dealers
  • Avoid cascading effect of taxes

More than 130 counties have introduced GST in some form. It has been a part of a tax system in Europe for last 50 years and is fast becoming the preferred indirect tax system in Asia – pacific region. It is interesting to note that there are 40 models of GST currently in force each with its peculiarities. While countries like Singapore and New Zealand tax virtually for everything at a single rate.

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