The debate over the implementation of Goods and Services Tax (GST) has been tiresomely long. GST is a critical reform in spurring growth in the Indian economy. When it is introduced, GST is expected to make the tax system simpler and will also help in increased compliance, boost tax revenues, reduce the tax outflow in the hands of the consumers and make exports competitive. The new government will hopefully set forth a roadmap for the implementation of GST soon. Today’s lesson on GST attempts to simplify this concept for you.

1. GOODS AND SERVICES TAX (GST)

2. GOODS AND SERVICES TAX
Goods and Services Tax (GST) is a
single tax rate levied on the
manufacture, sale and
consumption of goods and
services at a national level.

3. GOODS AND SERVICES TAX
In this system, GST is levied only on the value-added at every
stage of production. This will ensure that there is no cascading
effect of taxes (tax on tax paid) on inputs that are used in
manufacturing of goods.

4. GOODS AND SERVICES TAX
For example: If a tax of 15% is levied on Rs. 2 lakhs at the first
stage, the tax outflow would be Rs. 30,000. At the next stage when
the same goods are sold for Rs. 2.5 lakhs the tax would have been
Rs. 37,500 (Rs. 2.5 Lakhs x 15%) but since there is a set off of Rs.
30,000 available, the actual tax at that stage will be Rs. 7,500 (Rs.
37,500 – Rs. 30,000).

5. GOODS AND SERVICES TAX
Simply put, when the final tax is
calculated, the tax already paid on
input / raw material is deducted
and then tax is levied only on the
cost of the goods produced.

6. How is the GST
different from
current system?

7. GOODS AND SERVICES TAX
Current GST
Nature of
Regime
A Combination of value added tax (VAT)
which is a destination-based tax and origin-based
taxes such as excise duties etc.
Tax incidence at the point of sale
Tax Base Goods & Services are taxed separately,
subject to some exemptions
Comprehensive base of goods &
services included
Multiplicity
of tax rates
Multiple tax rates Single tax rate
Tax
Cascading
Incomplete set off mechanism for tax paid in
the supply chain (e.g. no set off available for
VAT against service tax or excise duty)
Complete set-off should be
available in the entire chain of
production and distribution to
eliminate tax cascading effect

8. GOODS AND SERVICES TAX
Why is it considered a better
system?

9. GOODS AND SERVICES TAX
 Currently, there are multiple indirect taxes — Central taxes such as excise
duty, service tax and countervailing duty, and State taxes, such as VAT,
entertainment tax and luxury tax. This results in high tax rates.
Accordingly, GST seeks to eliminate multiplicity of taxes, rates, exemptions
and such exceptions to achieve uniformity of taxes across the country.
Further, it would provide greater certainty and transparency of taxes.
 Also, the differences across states fragment the national market along
state boundaries. GST is likely to replace all these taxes with a simple levy,
lowering effective tax on goods and creating a national market in goods
and services.

10. What is the GST model
India plans to adopt?

11. GOODS AND SERVICES TAX
 Most countries have a unified GST system. However, India has opted
for a dual GST system prevalent in Brazil and Canada. Under this
model, both the Centre and states have the right to levy and collect
tax on the sale of goods and services.

12. What are the key
benefits of
implementing a GST?

13. GOODS AND SERVICES TAX
 GST will simplify India's tax structure, broaden the tax base, and
create a common market across states. This will lead to increased
compliance and will support India's GDP growth.
 It will be beneficial for India Inc. as the average tax burden on
companies will fall due to transparent set-off mechanism and
elimination of cascading taxes leading to reduced production costs
and increased export competitiveness.

14. GOODS AND SERVICES TAX
 Implementation of GST may lead to a fall in costs in many cases
making several products competitive leading to benefits for the
manufacturers and also making some of them competitive on the
world stage. Over a period of time the consumer will reap the benefits
of the process through lower costs.

15. CURRENT ACCOUNT DEFICIT
GOODS AND SERVICES TAX
Let us see the formula of the Current Account Balance (CAB)
CAB = X - M + NI + NCT
X = Exports of goods and services
M = Imports of goods and services
NI = Net income abroad [Salaries paid or received,
credit / debit of income from
FII & FDI etc. ]
NCT = Net current transfers [Workers' Remittances
(unilateral),
Hope you have now understood the
concept of Goods and Services Tax.
Donations, Aids & Grants,
Official, Assistance and
Pensions etc]

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The views expressed in this lesson are for information purposes only and do not construe to be
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include several nuances that are associated and vital. The purpose of this lesson is to clarify the
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