GST in India

GST i.e. Goods and Service Tax will be applicable in India from 01-04-2010 onwards replacing existing system of VAT, service tax, excise and other indirect taxes. There was a debate whether a single GST or a dual GST will be more feasible and doable in India in the present taxation scenario. But In this regard, the announcement that was made sometime ago by the Empowered Committee of State Finance Ministers was that it had accepted the recommendation of the Working Group that there should be a dual GST applicable.

However its not clear as yet how the dual system of GST will work since no draft of GST has been made available for the public review. Moreover its not clear that which goods and services will be under central govt or which will be under state govts. Although one thing is very clear that in dual GST both central and state govt will play a part in it. One thing that remains to be seen is that what rate would be applicable under GST.

Internationaly GST is applicable on supply of Goods and services rather than on manufacture or sales and there are detailed rules regarding the determination of taxing event and jurisdiction. On the rates currently any particular thing comes under a lot of taxes before reaching the final consumer. For example there is excise duty at the time of manufacture of a particular good and service tax is also charged if some service is involved in manufacturing or reselling such good apart from the VAT applicable at every stage of its sale.

The cumulative incidence of the excise duty and the State VAT at present works out to around 22 per cent to 24 per cent of the retail sales price. There is an expectation that under the GST, the aggregate incidence of the tax should be significantly lower.

There is much debate on what will be the rate of tax under GST. But it is expected that the rate under GST will be much lesser than the current cumulative tax rate. Under the GST the concept of Input tax credit is the same as is in the system of VAT. The difference is that both VAT and sevice tax will come under the one law.

Allthough the deadline for applicability of GST has been fixed to 01-04-2010 but evan no draft of GST has been made available for the public review. The finance minister has again stated in his latest budget speech that the GST will be applicable from April 2010 onwards. But given the fact that only 7 months are left for the deadline for applicability of GST and draft is still not seeming availble, it looks like a big challenge for the govt that the deadline for the GST is met.


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