Goods and Service Tax (GST)

Goods and Service Tax (GST)

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.

Goods and Service Tax (GST)

Goods and Service Tax (GST) is a value-added tax that is levied on most products 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 standard 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 an individual 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 state-level taxes like 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 an individual 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 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 most significant 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 specific 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.

GST Council

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,

Criticism

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.