India's GST structure changed on July 1, 2017. GST will revolutionize the way Indians pay taxes and yet it a tax reform that most Indians have failed to completely understand.
What is GST and how will it change the tax structure?
GST or Goods and Services Tax is a detailed, multi-layered, destination-based tax that will be levied on every purchase. It is an indirect tax applicable throughout India, replacing multiple cascading taxes charged by the central and the state government.
GST is governed by the GST Council and its chairman is the Finance Minister of India (presently Arun Jaitley).
Under GST, goods and services will be taxed under tax slabs of 0 per cent, 5 per cent, 12 per cent, 18 per cent and 28 per cent. There is a special rate of 0.25 per cent on rough precious and semi-precious stones and 3 per cent on gold.
Almost 60 per cent of all goods under GST fall under the 18 per cent or the 28 per cent tax bracket, to ensure that the revenues earned by both centre and the state governments remain the same. While unpackaged grains and milk remain tax-free, items like hair oil, shampoos, deodorants and even chocolates are taxed at 28 per cent.
GST's role in transforming the economy:
GST will play a significant role in transforming the current tax structure, and therefore, the economy.Originally, the tax structure was divided into direct tax and indirect tax. The liability of the indirect tax could be transferred to the buyer when a seller sells his product. But GST addresses this problem.GST has a system of Input Tax credit which will allow sellers to claim the tax they already paid while purchasing from the retailer, so the final liability on the end consumer is decreased.
How does GST work?
There are three kinds of applicable Goods and Services Taxes. They are:
CGST: where the revenue will be collected by the central government
SGST: where the revenue will be collected by the state governments for intra-state sales
IGST: where the revenue will be collected by the central government for inter-state sales
The tax structure under GST would be:
Sale within the state: CGST + SGST
Sale to another state: IGST
GST around the world
Under the dual-GST structure both the central and the state governments have the power to collect taxes.
India has the highest tax rate out of all the countries that have implemented GST.
Let's take a look at the GST structures around the world:
1. France
There are 4 rates of VAT in France: 2.1 per cent, 5.5 per cent, 10 per cent and 20 per cent since its first implementation in 1954
2. United Kingdom
Since 2011, UK's VAT is set at 20 per cent
3. Ukraine
There are two VAT slabs in Ukraine, which are 20 per cent for most goods and services and 7 per cent mostly for medicines
4. New Zealand
GST was introduced in New Zealand in 1986 at a rate of 10 per cent which was later increased to 15 per cent in 2010
5. Australia
Introduced in 2000, the rate has been set at 10 per cent
6. Vietnam
Three VAT rates of 0 per cent, 5 per cent and 10 per cent are applied to most goods and services in Vietnam unless stated otherwise
7. Singapore
Implemented at 3 per cent in 1994, GST was increased to 7 per cent in 2007
8. Malaysia
Introduced in 2015, Malaysia's GST is set at 6 per cent
9. Canada
GST is set at 5 per cent on supplies of goods or services and includes most products. In some provinces of Canada, a Harmonised Sales Tax of 15 per cent is also charged
(Source: India Today)
What is GST and how will it change the tax structure?
GST or Goods and Services Tax is a detailed, multi-layered, destination-based tax that will be levied on every purchase. It is an indirect tax applicable throughout India, replacing multiple cascading taxes charged by the central and the state government.
GST is governed by the GST Council and its chairman is the Finance Minister of India (presently Arun Jaitley).
Under GST, goods and services will be taxed under tax slabs of 0 per cent, 5 per cent, 12 per cent, 18 per cent and 28 per cent. There is a special rate of 0.25 per cent on rough precious and semi-precious stones and 3 per cent on gold.
Almost 60 per cent of all goods under GST fall under the 18 per cent or the 28 per cent tax bracket, to ensure that the revenues earned by both centre and the state governments remain the same. While unpackaged grains and milk remain tax-free, items like hair oil, shampoos, deodorants and even chocolates are taxed at 28 per cent.
GST's role in transforming the economy:
GST will play a significant role in transforming the current tax structure, and therefore, the economy.Originally, the tax structure was divided into direct tax and indirect tax. The liability of the indirect tax could be transferred to the buyer when a seller sells his product. But GST addresses this problem.GST has a system of Input Tax credit which will allow sellers to claim the tax they already paid while purchasing from the retailer, so the final liability on the end consumer is decreased.
How does GST work?
There are three kinds of applicable Goods and Services Taxes. They are:
CGST: where the revenue will be collected by the central government
SGST: where the revenue will be collected by the state governments for intra-state sales
IGST: where the revenue will be collected by the central government for inter-state sales
The tax structure under GST would be:
Sale within the state: CGST + SGST
Sale to another state: IGST
GST around the world
Under the dual-GST structure both the central and the state governments have the power to collect taxes.
India has the highest tax rate out of all the countries that have implemented GST.
Let's take a look at the GST structures around the world:
1. France
There are 4 rates of VAT in France: 2.1 per cent, 5.5 per cent, 10 per cent and 20 per cent since its first implementation in 1954
2. United Kingdom
Since 2011, UK's VAT is set at 20 per cent
3. Ukraine
There are two VAT slabs in Ukraine, which are 20 per cent for most goods and services and 7 per cent mostly for medicines
4. New Zealand
GST was introduced in New Zealand in 1986 at a rate of 10 per cent which was later increased to 15 per cent in 2010
5. Australia
Introduced in 2000, the rate has been set at 10 per cent
6. Vietnam
Three VAT rates of 0 per cent, 5 per cent and 10 per cent are applied to most goods and services in Vietnam unless stated otherwise
7. Singapore
Implemented at 3 per cent in 1994, GST was increased to 7 per cent in 2007
8. Malaysia
Introduced in 2015, Malaysia's GST is set at 6 per cent
9. Canada
GST is set at 5 per cent on supplies of goods or services and includes most products. In some provinces of Canada, a Harmonised Sales Tax of 15 per cent is also charged
(Source: India Today)
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