GST is one of the milestone in tax reforms by the Government of India. The main motto of GST is to maintain the uniformity of tax levied in all the parts of India and to avoid multiple taxation when a consumer buys a single product. It emphasizes on the fact “One Nation-One Tax”. It is an indirect tax levied on goods and services.
Right now, the central government and the state government levies multiple tax at multiple stages of a product development such as excise duty, VAT (Value added Tax), luxury tax, entertainment tax etc. All these taxes end up in 27-32% of rise in the cost of the product ending up as a burden to consumers and leads to inflation.
With the implementation of GST, a unified indirect tax of 18-22% can be imposed on a particular goods or service delivered. As of now there is no specific number for the percentage of tax. GST will be split into two as Central GST (CGST) and State GST (SGST). Both of the taxes will be levied simultaneously. If it is going to be 20%, the state and the central government will share 10% each maintaining the uniformity.
On the other side, the current rate of tax for services used to be around 15%. With the implementation of GST, the percentage of tax for services will go up. As India is a growing economy, there is a shift in work force from manufacturing of goods to service industry. The GST will not only favor the manufacturing industry, but also keep the tax revenue of the country stable.
How GST impacts on Export and Import Business:
As India is primarily an import based country, Indian government provides incentives to promote exports from India. The central government, along with the state government provides with many incentives and exemptions on current indirect tax structure, under Foreign Trade Promotion (FTP).
The tax incentives for exporters, provided by Indian government under FTP are exempted from Central Sales tax, Central Excise duty, Customs duty etc. Under GST, exports are zero rated and this provides Indian exporters with a competitive advantage over the international players. This might result in inverted duty structure as imports are taxed while exports are zero rated which might lead to accumulation of Input credit which needs to be regularly claimed for refunds.
Current indirect tax structure allows low or no import duty tax structure on Capital imports. But, under GST, capital imports would be subject to IGST (CGST + SGST) and additional levy or any exemptions or will not be provided for capital imports. This could result in a level playing field between importers and domestic manufacturers. With GST , the exporters are required to pay the interest at forehand and expected to claim it back. Saying that, the interest for delayed refunds of taxes is not so interesting like export incentives. So unnecessary blockade of working capital.