Goods and Services Tax (GST) is an overarching indirect tax regime against manufacturing, consumption, and sale of goods and services throughout the nation. Since its enactment, it has replaced multiple taxes levied by the central and the state governments. Legislated through the 101st Constitutional Amendment Act, it is based on the principles of One-Nation One Tax that urges the Indian market to be unified. It has been established as a destination-based taxation system, i.e. the burden falls on the consumer. It is calculated only on the value addition at different stages of the product cycle, eliminating the cascading effect that previous taxation regime had. As a result, the consumer pays less tax compared to the former taxation framework.
Types of Unified GST Rate
1. Multi Slabs GST
In economies where more than one slab of tax-rate exists for the manufactured products and services, the respective tax structure is categorised under multi slab GST. Indian GST falls in this category with a seven-rate structure for goods (nil, 0.5, 3, 5, 12, 18, and 28) and five for services (zero, 5, 12, 18, and 28).
2. Unified GST
Countries accommodating a single rate GST have all manufactured products and services consumed under a unified GST rate. The tax-rate in such a system is usually on a higher side. Such a system has its own benefits and disadvantages such as:
- On the lines of One-Nation – One – Tax: The current tax structure is not synced with the theme of one nation one tax due to the presence of multiple tax slabs. A a single-slab GST has the potential to unite the market in essence and also promote unity.
- Avoids confusion: A unified GST rate eases administrative bottlenecks and helps in a seamless performance. Confusion arises with commodities have a potential of falling under different slabs. In such a scenario, uncertainty and confusion prevail among dealers, and chances of inspector-raj increases. In a country burdened with red-tapism, subjectivity over any entity can hinder economic activity.
- GST filing: A unified GST rate allows traders to easily file GST online. It eases up the process as it eliminates issues pertaining to the multiple slabs. Most of the traders in India are not computer-trained. As a result, a complex slab structure forces these traders to take external help, inflating the business cost.
- Ease of Doing Business: A single-slab GST structure gives a fillip to the Ease-of-Doing-business rankings. India recently witnessed a quantum jump in its global rankings — 63 out of 190— owing to its economic and political reforms.. Grow your business in such a favourable environment by availing easy business loans on Finserv MARKETS with low-interest rates of 18% onwards.
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- Regressive in nature: A standard or unified GST rate is considered to be highly regressive in nature as the incidence of taxation on articles consumed by the common man rises, while the rate of tax on luxuries falls. Such a scenario becomes unfavorable for the population living in rural areas ( about 65% ) that pay the same amount of tax on all commodities – including articles of daily consumption.
- The tax rate of single-slab GST is kept according to the “Revenue-neutral-rate”. In most scenarios, such a tax-rate, under this regime is usually higher for common day-to-day use articles.It has been witnessed that a higher tax-rate is unviable for the economy as it discourages consumption. This directly affects economic output. In a few cases, it also prompts to inflationary pressure as tax in India is a major component of the supply price. Conversely, a moderate tax-rate ( present under multi slab GST ) encourages consumption and discourages hidden supplies as low tax rate take away any incentive for smuggling.
Fig 1: Moving towards a single slab structure.
Earlier in 2019, former Finance Minister, Late Arun Jaitley hinted that policymakers could merge the 12% and 18% slabs, effectively taking the current structure a step further towards a single slab GST. This statement received a mixed bag of reactions from the economists and political pundits alike. A diverse country like India has its own problems, hence amassing all products under a single-rate GST can pose challenges. Notwithstanding the future economic conditions, availing business loan on Finserv MARKETS will continue to be the most attractive option for business persons. It offers an easy online process with zero collateral requirements. Giving more flexibility, you can even choose your repayment tenure from 12-60 months. With minimal documentation and an attractive rate of interest (starting from 12.99% p.a), growth your business like never before.
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