Arvind Subramanian and Kapil Patidar’s report back in June 2018 about GST showed that the new taxation regime increased the buoyancy ratio by 1.20. Before GST, the buoyancy ratios for central taxes like service tax and excise duty along with state taxes like VAT were less than 1.
A rising buoyancy ratio indicates the growth of Government revenues, which improves the tax-to-GDP ratio. The 11.9% increase in income during the first year of GST shows precisely the same.
The above is the current impact of the implementation of Goods and Service Tax. Some of the other effects and benefits of this new taxation system are mentioned below.
- Only four tax slabs
GST has introduced the following four tax slabs:
- 5% – Toran, handmade braids, hand-woven tapestries, handmade lace, handmade carpets, phosphoric acid, knotted caps (under Rs 1,000), handloom dari, ethanol, footwear (under Rs. 1,000), etc.
- 12% – Wax articles, worked vegetable or mineral carvings, handcrafted lamps, aluminium, silver handicraft, nickel handicrafts, copper, brass handicrafts, iron handicrafts, glass handicrafts, stone handicrafts, cork handicraft, wooden frames, ornamental framed mirrors, bamboo flooring, purses, handbags, etc.
- 18% – Hand dryers, hairdryers, immersion rods, shavers, juicers, mixers, hair clippers, food grinders, refrigerators, water coolers, vacuum cleaners, washing machines, etc.
- 28% – Automobiles, yachts, aircraft for personal use, tempered glass, revolvers, dishwashers, vending machines, aerated water, dental floss, etc.
Other than the above, a 3% rate is only applicable to items like gold, diamonds, precious stones, silver, platinum, base metals, etc.
- No tax on several goods and services
One of the ways Goods and Service Tax impacts businesses is with the applicability of no tax in several goods and services. Such items are known as zero-rated supplies.
There are more than 130 services that are treated as zero-rated supplies. Also, goods and services exported overseas are zero-rated.
In the case of export, traders can claim a refund after paying IGST. Or, they can claim the refund on input tax credit by issuing a letter of undertaking or bond. In both the situation, taxpayers have to file the relevant GST form and mention their GSTIN.
- A single registration for multiple businesses in a state
Companies had to register all of the places of firms within the same state. However, GST requires them to register only once even if they have several outlets or factories in a state.
Entities only have to go through a separate GST registration procedure online if they have different business verticals in the same state.
- Only three types of taxes
GST has consolidated the earlier 17 indirect taxes into one. Taxpayers only need to file three taxes now:
- CGST – Central Goods and Services Tax.
- SGST – State Goods and Services Tax.
- IGST – Integrated Goods and Services Tax.
Hence, GST has eliminated the need for businesses and individuals to pay tax on tax, thereby lowering the burden even more.
- High threshold for registration
Businesses only need to register and pay GST if their annual turnover is Rs. 20 Lakh or above (Rs. 10 Lakh for special category states and Himachal Pradesh).
The GST Council has increased this threshold to Rs. 40 Lakh (Rs. 20 Lakh for special category states and Himachal Pradesh). However, the decision to increase the limit rests on the states.
Entities under this threshold don’t have to register for Goods and Service Tax and pay taxes. It also provides them with the option to easily avail external funding without any financial burden.
The GST Council is also making changes with each meeting to increase the benefits of Goods and Service Tax. Knowing all about GST can help taxpayers understand more about this system.
