Goods and Service Tax (“GST”) is a comprehensive tax on manufacture, sale and consumption of goods and services, that will absorb most of the indirect taxes levied by Central and State Government. Currently the GST is adopted in over 150 countries. If passed, GST Bill would be THE biggest tax reform by the Indian government since inception of the Indian constitution.
How Will GST Work?
- In India, GST would work on dual model which will include – C-GST collected by Central Government + S-GST collected by State Government on intra-state sales. GST reform would also feature an Integrated GST (IGST) collected by Central government on inter-state sales, which is to-be divided between Central and States Government in a manner decided by the Parliament on recommendations by GST Council.
- By doing away with several Central and State Taxes, GST would diminish the cascading effect of tax (or double taxation, whereby the same product is taxed at the stage of manufacturing as excise, then as VAT/ sales tax on sale and so on.), which is prevalent in the current tax framework. Being a consumption-destination-based tax, GST would be levied and collected at each stage of sale or purchase of goods or services based on the existing input tax credit method. Current tax structure works on production-origin-based system i.e. goods and services are taxed differently on each stage of production.