In this article, we have explained, Essay on GST (Goods and Service Tax), also its Council, Network and Criticism.
Goods and Service Tax (GST) is a value-added tax that is levied on most goods and services sold for domestic usage. GST is included in the final price and paid by the consumers at the point of sale, and it is passed to the government, GST provides revenue to the government. It is the common tax used by the majority of countries globally. It is usually taxed as a single rate across the nation.
Understanding the GST
GST is the indirect federal sales tax that is applied to the cost of goods and services. The business adds GST to the price of the product, and the customer who buys the product pays the sales price plus the GST. The GST portion is collected by the business or seller and forwarded to the government. It is also referred to as the value-added tax in some of the countries.
How does GST System work?
In most countries, GST has a unified single GST system, which means that a single tax rate is applied throughout the country. In the GST platform, all types of central taxes i.e., sales tax, excise duty tax, and service tax are unified with state-level taxes. ]
These taxes are entertainment tax, entry tax, transfer tax, luxury tax, etc. into a single tax and collected by the government. Most of the countries tax virtually everything at a single rate.
Dual Goods and Service Tax Structures
Only a handful of countries like Canada and Brazil have a dual GST structure. Compared to a unified GST economy where tax is collected by the federal government and then distributed to the states. In a dual system, the federal GST applied in addition to the sales tax.
For example, in Canada, the federal government levies a 5% tax, and some provinces/states also levy a provincial state tax (PST), which varies from 7% to 10%. In this case, the consumer’s receipt will clearly have the GST & P, combining ST rates that were applied to his or her purchase value.
More recently, the GST & PST have been combined in some provinces into a single tax known as Harmonized Sales Tax (HST). Prince Edward Island was the first to adopt the HST in 2013, combining its federal and provincial sales tax into a single tax. Since then, several other provinces have followed suit, including New Brunswick, Newfoundland and Labrador, Nova Scotia, and Ontario.
Which Countries Collect the Goods and Service Tax?
The first country to implement GST was France in 1954, and since then, an estimated 160 countries have adopted this tax system in some form or another. Some of the countries with a GST include Canada, Vietnam, Singapore, Australia, United Kingdom, Monaco, Spain, Italy, Nigeria, Brazil, South Korea, and India.
India’s Adoption of the Goods and Service Tax
Dual GST structures were established in India in 2017, which is considered as the biggest reform in the country’s tax structure in decades. The main objective of incorporating the GST was to eliminate the tax on tax or double taxation, which cascades from the manufacturing level to consumption level.
India has since launching the GST on 1st July 2017, implemented the following tax rates. There are four types of tax rates that were implemented in Indian 5%, 12%, 18%, and 28%.
0% tax rate was applied to certain essential needs like books, newspapers, food grains, cotton cloth, and hotel services.
5% tax rate was applied to household necessities such as sugar, spices, tea, coffee, etc.
12% tax rates were applied to electronics, computers, processed food, etc.
18% tax rates were applied to hair oil, toothpaste, soap, industrial intermediaries, etc.
The final bracket, taxing goods at 28%, applies to luxury products, including refrigerators, cigarettes, cars, and motorcycles.
In the previous system, with no GST implies that tax is paid on the value of goods and margin at every stage of the production process. Which would translate to a higher amount of total fees paid, which would, in turn, lead to the end consumer in the form of higher costs for goods and services? Thus the implementation of the GST system in India is a measure to reduce inflation in the long run, as prices for products will be lower.
The way-bill is an electronic permit for shipping goods. It has been made compulsory for inter-state transport of goods from 1st June 2018 for carrying goods beyond 10 kilometers and the threshold limit of Rs. 50,000/-.
It is a paperless technology and anti-evasion tool to check the tax leakage and clamping down on trade, which was carried out on a cash basis. A unique number is generated for every E-way bill required for the transaction, which is generated by supplier, recipient, and transporter.
Reverse Charge Mechanism
In GST, there is a reverse charge mechanism where the receiver pays tax on behalf of the unregistered smaller material & service suppliers. The receiver of goods is eligible for input tax credit while the unregistered dealer is not.
The governing body is known as the GST council, which contains 33 members of which two members are from the Centre, 28 members are from State, and three members are from Union Territories with legislation.
In the council, there are following members Union Finance Minister (as chairperson), Union Minister of States in charge of revenue or finance (as a member) and the ministers of states in charge of taxation or finance or other ministers as nominated by each states government (as a member).
It is an apex body which has rights to modify, reconcile, or procure any laws or regulation based on any context of goods and service tax in India. The council is headed by the Union Finance Minister of India, assisted by the finance minister of all the states and union territories of India. It is the responsibility of the council for the revision and enactment of any rate changes of the taxes for goods and services in India.
Goods and Service Tax Network
The software for Goods and Service Network was developed by Infosys Technologies and Information Technology network that provides the computing resources maintained by NIC.
It is a non-profit organization formed by creating a sophisticated network that is accessible to stakeholders, government, and taxpayers to access information from a single source portal. The portal is accessible to the tax authorities for tracking down every transaction, while taxpayers can connect for their tax returns.
The authorized capital of GSTN is Rs. Ten crores in which initially the central government held 24.5% of shares while the state government held 24.5%. The non-government financial institutes held the remaining 51%, HDFC and HDFC bank hold 20%, ICICI Bank holds 10%, NSE strategic investment holds 10%, and LIC Housing Finance holds 11%.
It was, however, later made wholly-owned government company having equal shares for central and state governments.
The Technicalities of the GST implemented in India was criticized by the global financial institution and industries, the section of media and opposition political parties in India.
It was described as too complex by the World Bank and noticed various flaws compared to the prevalent GST system in other countries. Indian businesspeople have further criticized it for problems like tax refund delay, too much documentation, and administrative effort needed.