What is Goods and Service Tax (India)?

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Goods and Services Tax (GST) is a proposed indirect tax, the aim of which is to remove tax barriers between the states and consequently form one single market.

Multiple and Double taxation:
India is a huge country with a number of states, 29 states and 7 union territories to be precise. Not all states produce/manufacture all the commodities needed by consumers and hence there is a lot of selling and buying among the states. Because of this there are multiple taxes involved.

Let us take an example:
Bread is manufactured out of wheat flour. The central government charges a tax on manufacturing called the central excise tax. When this bread reaches a retail outlet or “kirana” store, we pay an indirect tax called value added tax (VAT). Now if the bread is manufactured in Maharashtra but crosses the state border and is sold in Karnataka, Karnataka state will charge a sales tax. So in this one transaction of buying bread we as consumers are paying three different taxes.

In addition, we are subjected to double taxation because we are paying a tax on tax. In this example, VAT is calculated on the cost of bread including the excise.

Solution to avoid Multiple and Double taxation:
To avoid double taxation and the confusion of the multiplicity of taxes, Goods and Services Tax has been suggested.

For GST to become a reality there is still a lot of time. Since states and center both are involved legislation need to pass in both the parliament and state level. And for this to happen the constitution needs to be amended by a “Constitution amendment bill”.

Also the exact percentage or other factors of GST are yet to be finalized. But if this bill is passed and GST, becomes a reality it will benefit the consumers immensely. This is because:  There will be a single tax instead of multiple taxes on goods and services.

Customers will be more aware of price increase, which is a consequence of increased taxation. Double taxation will be eliminated, reducing the burden of price paid on goods and services by consumers.

Let us hope that Goods and Services Tax (GST) bill is soon passed and then the policy makers can dive deep into the intricacies and put a consumer friendly tax structure in place.

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