Why GST implementation is a big reform?

Elections are over and Modi effect is gripping the world as expected, whether it is Obama or Tony. Time to act now, conditions are favorable (markets at its best, oil prices dipped). A long pending issue started in 2000, by vajpayee Government for reforming the tax system India by introducing GST in India.

But is it really critical and much needed agenda to be resolved under this era of BJP. Yes actually, as after a long time Indian politics is governed under one sky.  

First let’s understand what GST is and how it will work?

GST(Goods and Service tax) is a comprehensive tax levy on manufacture, consumption and sale of goods and services at a national level. The basic philosophy of GST is to tax every goods and services in such a manner that the producer at each stage of the value chain can credit for tax paid on his inputs. The system allows the set-off of GST paid on the procurement of goods and services against the GST which is payable on the supply of goods or services. However, the end consumer bears this tax as he is the last person in the supply chain.

That sounds great, but, why GST when we already have VAT? Isn't the VAT framework similar to that of GST? VAT regulations and rates generally vary across states. There is a tendency, as has been observed, that states may resort to undercutting of rates to attract more investors. This generally leads to a loss of revenue to both the state and centre. GST would introduce uniform taxation laws across states and different sectors. The taxes would be divided between the state and centre, based on a formula that would be acceptable to both. Also, it would be easier to supply goods and services uniformly across the country, as no additional taxes would have to be paid across different states. Currently, no tax credits are provided for interstate transactions.

India will implement a dual GST system. A Central Good and Service Tax and a State Goods and Service Tax will be levied on taxable value of transaction. All goods and services barring few like alcohol, tobacco and petroleum will be brought into the GST base. There will be no distinction between goods and services.

It will not be an additional tax. CGST will include central excise duty (Cenvat), service tax, and additional duties of customs at the central level; and value-added tax, central sales tax, entertainment tax, luxury tax, octroi, lottery taxes, electricity duty, state surcharges related to supply of goods and services and purchase tax at the State level.