Well, GST simply implies goods and services tax. Previously state, in addition to centre, both were levying their own respective taxes upon everything. This being the sole reason that in some states a product would cost ₹60, however, in some states; the price for the same commodity was ₹65. Nevertheless, post implementation of GST India, the cost of everything will be in sync, throughout the country; this largely realizes the vision of one nation one market one tax!
What were the issues with the previous tax structure?
There were two irksome issues with the previous taxation arrangement.
First, keep in mind that a commodity is required to be manufactured before it can be consumed. The central government levied its indirect tax, known as the central excise duty, just before the product could be released from the factory! Consequently, the product gets transported to a retail outlet and, is bought by a consumer, the state government, at this stage, levies another tax on consumption, dubbed value added tax (VAT). Thus, the product was burdened by a tax, before getting released from the factory and, further, when a consumer buys it from a retail outlet!
Since states have their own exclusive domain on goods consumption tax within their borders, they treat goods coming from other states as “imports.” For example, if a cloth merchant in Madhya Pradesh buys dye from Bengal, he would have paid central excise and Bengal’s state taxes on the product. On this cost, Madhya Pradesh government would levy its tax, if the cloth, manufactured, is sold in the state. However, if the cloth is sent across Madhya Pradesh’s border and sold in Delhi, an “export” tax called central sales tax is collected by MP.
As the example suggests, India is politically one country, but economically it is complicatedly fragmented. There are multiple taxes when there is commerce across state borders. Subsequently, it shoots up costs for everyone and makes economic activity within India a tad bit complicated.
How will GST help?
GST India is an indirect tax reform, which aims to remove tax barriers between states and help in the creation of a unified market. For that to happen, the constitution first needs to be amended, in order to remove different layers of governments’ exclusive powers to levy taxes. Once this step is implemented, the tax barriers between states and centre will be expunged, for good.
How will GST help consumers?
Consumers have little or no idea at all, of the extent of taxes that they are unknowingly paying on goods! As discussed above, when you buy goods from an outlet, you are presented with a single tax called VAT, however, remember that well before the goods reached the retail outlet, central government had already blessed it with an excise duty, which is not even mentioned in the bill you receive.
In GST, consumers should benefit in two ways.
First, all taxes will be collected at the point of consumption. It means that if a good is taxed at 18%, it will include both central and state government’s taxes. Transparency in taxation should deter governments from indiscriminately increasing taxes, as there is a boundation of a public backlash.
Second, once barriers between states are removed, we as consumers will not end up paying “tax on tax”, which is what happens when goods move across state borders
After the implementation of GST India, instead paying taxes such as VAT, sales tax, agriculture cess, education cess, swatch bharat cess, etc. you only need to pay two taxes, CGST and SGST.
Hope this helps.