With a complex, inconsistent and multi-layered tax structure, the consumer has often ended up feeling cheated and ripped off. Cross-border compliance, compounding of taxes on domestic goods and separate central and state taxes had only made the system more complex. The central government took the final bold step the nation had been debating upon since the last 17 years.
At the stroke of the midnight hour on 30th of June 2017, Prime Minister Narendra Modi pressed the button to officially roll out the much-awaited Goods and Service Tax (GST).
GST made its mark on the here when it was first introduced in 2001. As one can clearly conclude from the chart posted above, it was a widely debated bill and even rejected in Rajya Sabha in 2015. Still, pursuant in its approach, the NDA Government made this a flagship decision of their current term, keeping in mind that the 2019 General Assembly polls are close and major policy changes will be critical signs of the work done by it.
GST is a multi-stage taxation scheme which will be levied on each point of manufacturing and processing until it reaches the end consumer. The taxes will be imposed on each sale, thus making it a destination-based taxation scheme. What happens in such a system is that the buyer has to pay the tax amount in all the phases and earn it back only when he or she further completes the transaction by selling the processed product. This scheme branches out into three main taxes- CGST (Central), SGST (State) and IGST (Inter-State). To prevent taxation overlapping, GST, within its mandate, has demarcated areas of administration for revenue collection.
The need for this system arises because it incorporates all other indirect taxes, such as central excise, service tax, special additional duty, Central Sales Tax (CST), and VAT. It will facilitate the creation of a single tax reporting structure, thus pushing India a step closer to becoming a unified market. There will be a proportionate reduction in economic distortions caused by the inter-state variations in taxes. One of the more important reasons why GST is needed is its ability to curb tax evasion and increase the revenue for the government.
This configuration reinforces the difference between needs and aspirations. It gives one the security that vegetables, fruits, and milk will be affordable, but also makes a middle-class family reconsider the decision about buying a four wheeler. It is good for a start; the products have been matched up to the tax bracket that they were closest to before the GST was implemented. But we look forward to revisions and corrections in the system as and when we settle into it.
However, the categorization of some products definitely needs attention. For example, while it is an excellent move to put condoms in the 0% tax category, sanitary napkins fall into the 12% category. There have been protests in UP as well, to reduce the tax on bicycles, which is the cheapest and most eco-friendly mode of transportation in almost all parts of the country.
But all of that being said, is it really such a rosy picture for the people? The average salaried employee ends up giving a good percentage of their wealth to the government. An individual whose income is 10LPA ends up paying 30% of the amount of income tax, and also has to pay taxes through GST, road tax, property tax, etc. It would be a fair estimate to say that around 45-50% of that person’s income will go to the government. While we understand the plight of the government in the form of very low percentages of citizens filing their income tax, one simply cannot kill the law abiding Samaritan who pays his or her taxes on time, while trying to improve their family’s standard of living.
By Anirudh Singla