The passage of the Goods & Services Tax creates a single Indian market entity instead of several subcategories which are then revised for each state. The 122nd Constitutional Amendment Bill 2014 which was passed in both Houses of Parliament with a two-thirds majority paved the way for the GST Bill on August 3, 2016.
The GST bill will help reduce a compounded 25-30% computed tax slab overall goods payable by your small business and to end-consumers provide a uniform tax regime of 18%. Here are four reasons to celebrate the GST and what it means to you:
Lower tax burden:
We could look at a minimum of a 7% reduction in the tax rate with a GST that may be fixed at 18%. This will help reduce the total taxes paid by the producer, trader and end consumer drastically. Taxes are now paid by the trader on purchases against sales the number of sales made. For your small business, the tax on procuring materials and the sale of produce will be reduced gradually.
For the consumer, this would mean that the costs of all products and services like FMCG or perishables would be significantly cheaper. Earlier, taxes would be set off on sales against taxes on trade purchases. With the GST bill, taxes are now based on purchases based on the cost of sales.
Reduction in Corruption:
There are several points where vehicles carrying goods are stopped by officials at checkpoints. Most traders have to cough up heavy bribes in order to continue their journey past these check posts. The amount that has to be paid between check posts will now be standardized as a part of GST.
Pay 1 GST tax not 8:
GST has paved the way for the modification of the Value Added Tax (VAT) by the Central and State Governments as CENVAT and VAT. Small businesses, consumers and traders have to pay tax on previously levied tax for several goods and services that were produced. These were then turned into numerous taxes and cesses that were levied by the previous government.
The Union and Federation of States will have one GST tax instead of seven. These taxes comprise of the Excise Tax, Service Tax, VAT, Central Tax, State-Tax, OCTROI Tax, and Luxury tax. Additionally, tax is charged on the Swacch Bharat Cess and the Customs Duty at the border.
The easier flow of goods: Prices of electronics are likely to go up by around 4%. E-commerce will see an increase in prices, but there will be a free movement of goods through a unified market. The cost of purchasing automobiles could see a drop of 8% in the final price. Demand for commercial vehicles may be hit in the medium term but logistic hurdles may be eased. Flights to become more expensive with a GST of 15-18%. Goods excluded from GST are petroleum products, entertainment and amusement tax, tax on alcohol, Stamp duty, and Customs Duty and Tax on consumption and sale of electricity.
GST brings with it an 18-20% tax rate based on fee-based transactions. Initially, your small business may see a rise in inflation and on processing fees for electronic transactions. As the cost of financial services decreases, the prices of commodities will reduce significantly. This will help your small business save on the difference between the GST and the multiple taxes that your small business pays today.