Goods and Service Tax (GST) has been advocated as the tax that will forever simplify the overly intricate indirect taxation system (viz. excise, VAT and Service tax) prevalent in India. It is said to curb 17 indirect taxes and bring the revenue from such taxes under the solo GST gamp. Though a month from its proposed application let us view the proposed advantages of GST:
Higher exemption thresholds:
In most states, the exemption for paying VAT is 5 Lakhs (annual turnover), whereas the exemption limit for Service tax is 10 Lakhs. The same for GST on the other hands is 20 Lakhs. Which would mean that there would be no indirect tax liability on traders with an annual turnover of less than 20 Lakhs.
No tax on tax:
According to the current system there is no provision for setting off VAT on your purchases against the Service tax on input services. But under GST owing to its single tax mechanism you can easily avail an input credit on your purchases for tax already paid.
GST will further introduce a Composition Scheme which will be especially beneficial for small traders and business. Under this scheme the GST rate would be lower than the applicable rates for suppliers. Under the scheme, traders whose turnover is more than 20 Lakhs but less than 50 Lakhs would have to pay GST at the rate of 1% for manufacturers, 2.5% for restaurant owners and 0.5% for other suppliers.
The entire process for GST i.e. from registration to payment to filing of returns can be done online. The procedures are fully web based and therefore they are free of any bureaucratic churns and leg work to Government offices.
Curb on compliances:
The filing of returns for each tax segment under the existing indirect tax mechanism is a tedious endeavour that will be limited by the unified GST policy. The number of returns to be filed will be lesser and simpler as compared to the current system.
Road map for e-commerce business:
There are a lot of compliance restrictions on the interstate transaction of goods, especially under the current VAT system. GST has set out a clear and uniform road map for hassle free interstate transactions.
Consolidation of logistics sector:
To avoid various state entry taxes and Central Sales Tax many logistic companies have warehouses in each state. This will not be the case once GST is rolled out. Warehouse consolidation would be made possible.
GST will help regulate the largely unorganised sectors such as textile and construction. For instance, the provision of providing input credit only on acceptance of the amount by the suppliers will in itself bring about accountability and organisation of these sectors.