Goods and Services Tax (GST), one of the most radical tax reforms in the history of Indian economy, has been effective from 1 July 2017.
Goods and Services Tax (GST), one of the most radical tax reforms
Goods and Services Tax (GST) is among the big tax reforms introduced in the history of the Indian fiscal evolution. In addition to the exceptional impact GST has on the economic growth of the country and the way business is done in India, it has achieved the following:
Dual GST structure
Under the new regime, the central and state governments are levying GST on every supply of goods and services at the same time, on a common taxable value. State GST and Central GST rates are the same
IGST - an Indian innovation
However, in the case of imports and interstate supplies, one single Integrated GST (GST) is levied only by the central government, proceeds of which are equally shared by the central and the recipient state governments. IGST is an Indian innovation which is helping tax credits move along with goods/services, across states and therefore, has reduced refund situations at state borders.
GST has brought a significant shift from origin-based taxation to a destination-based tax structure. This has impacted not only the operating business models but also the revenues of the centre/states. It has the potential to improve cash flow, pricing, working capital, supply chain and fine tune IT systems and hence provide an opportunity to transform businesses.
Goods and services taxed by both the governments
Unlike in the earlier regime where services were taxed by the central government, sale of goods was taxed exclusively by the states and the manufacturer was taxed only by the central government, GST allows equal opportunity to the centre and the state to tax all supplies of goods and services at the same time. This demonstrates the true federal character of the Indian fiscal system.