It is a comprehensive indirect tax levied on the manufacture, sale and consumption of goods and services in a seamless national market.
What is GST
It is a comprehensive indirect tax levied on the manufacture, sale and consumption of goods and services in a seamless national market. It will merge all indirect central and state taxes such as value added tax (VAT), service tax, excise duty, entertainment tax, central sales tax, octroi and others into a single levy.
How does it work?
Businesses and traders can avail of input tax credit at every stage of value addition. This would result in the final consumers being charged only the GST borne by the last dealer.
What would be the benefits?
It will lead to higher tax compliance due to the input tax credit available at every stage of the supply chain, improved transparency, better collections and simplification of tax norms.
How does the consumer gain?
With state borders brought down, consumers will no longer have to access goods from far away markets to get a better price on a product. The benefit of lower prices would come only if the manufacturers pass on the gains from GST to them.
How will it be administered?
It consists of two components – Central GST (CGST) and State GST (SGST). These would be imposed by both states and the centre across value and supply chains. CGST will be levied and collected by the centre while the same would be done for SGST by the states.
What is GST Network (GSTN)?
It's a not-for-profit non-government entity created by the state and central government for developing an information technology (IT) backbone to provide shared infrastructure and services to the state and central governments, taxpayers and others.
What would be the economic impact?
According to finance minister Arun Jaitley, the unified tax can boost economic growth by as much as 2 percentage points. Some analysts say that the impact would be anywhere between 70 basis points to 1% as greater tax compliance will boost revenues for the government.
What about inflation?
A short-term spike in prices is expected. According to Citigroup economists, countries like Australia, New Zealand, Canada saw a one-time increase in inflation after GST implementation, which normalised in a year. PM's advisers say the impact will be negligible if the GST rate is capped at 18%, but if it is around 22%, the inflation would go up by 0.3% to 0.7%.
Why didn't we have a national sales tax right from the start?
The constitution laid out the method of taxation in 1950. At that time, different levels of economic development and local sensitivities necessitated a two-tier system.
-- By Praveena Sharma
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