Indirect Taxation: Unraveling the World of GST and Customs Duties
Introduction:
Indirect taxation plays a pivotal role in the financial landscape, shaping the way businesses operate and consumers experience the economy. In this article, we’ll delve into two significant components of indirect taxation: Goods and Services Tax (GST) and customs duties. These pillars of fiscal policy have a profound impact on our daily lives, influencing everything from the cost of goods to the competitiveness of businesses on a global scale.
Table of Contents
Goods and Services Tax (GST):
Goods and Services Tax, commonly known as GST, has been a game-changer in the realm of indirect taxation. Its essence lies in simplicity and uniformity. Unlike the complex web of taxes that existed before, GST consolidates multiple taxes into one comprehensive system, aiming to streamline the taxation process.
One of the key features of GST is its “value-added” structure. At each stage of the supply chain, businesses pay tax only on the value they add to the product or service. This not only reduces the cascading effect of taxes but also encourages transparency and compliance.
For the average consumer, the impact of GST is evident in the prices of goods and services. While some items remain exempt or fall under lower tax slabs, others may have higher rates, depending on their classification. This classification is often a subject of debate, with policymakers aiming to strike a balance between revenue generation and ensuring affordability for the masses.
One of the most praised aspects of GST is its digital nature. The introduction of technology has automated many processes, making compliance easier for businesses. However, this transition wasn’t without its challenges, as many small businesses initially struggled to adapt to the new digital era of taxation.
Customs Duties:
On the other end of the spectrum, we find customs duties – a traditional form of indirect taxation that predates the digital age. Customs duties are levied on goods imported or exported across international borders. These duties serve a dual purpose: generating revenue for the government and protecting domestic industries.
Customs duties can be a labyrinth of complexities, with various types such as basic customs duty, additional customs duty (Countervailing Duty or CVD), and special additional duty. The rates of these duties depend on factors like the nature of the goods, their origin, and international trade agreements.
One of the primary objectives of customs duties is to regulate the flow of goods in and out of a country. By imposing duties on certain imports, governments can safeguard domestic industries from unfair competition. Conversely, reduced duties or exemptions may be granted to encourage the importation of essential goods or promote international trade relations.
The Impact on Consumers and Businesses:
Both GST and customs duties directly influence the cost of goods and services. For consumers, the cumulative effect of these taxes can be observed in the final price tag of products. A delicate balance must be struck to ensure that taxation is fair and does not unduly burden the end consumer.
Businesses, especially those engaged in international trade, must navigate the intricate landscape of customs duties. The cost of compliance, coupled with the actual duty rates, plays a crucial role in determining a product’s competitiveness in the global market. Striking the right balance between protecting domestic industries and fostering international trade is a perpetual challenge for policymakers.
Conclusion:
In conclusion, the world of indirect taxation is multifaceted, with GST and customs duties playing pivotal roles in shaping economic landscapes. GST, with its emphasis on simplicity and transparency, has revolutionized the way taxes are levied within a country. Customs duties, on the other hand, continue to be a crucial tool for governments to regulate international trade and protect domestic industries.
Understanding these two components is essential for both consumers and businesses, as they directly impact the prices of goods and the competitiveness of products in the global market. As we navigate this intricate web of indirect taxation, the challenge for policymakers is to strike a harmonious balance that fosters economic growth, ensures fair competition, and ultimately benefits the well-being of society as a whole.
The government introduced the Goods and Services Tax (GST) from July 1, 2017 which has subsumed all the indirect taxes imposed by Centre and States. Thus, from 2017-18 onwards, discussion of sources of tax revenue of Centre and States has been changed drastically.
Prior to the introduction of GST (Goods and Services Tax) on July 1, 2017, there were a number of indirect taxes like excise duty, additional duties of excise, service tax, VAT (value added tax), sales tax, luxury tax, customs duties, etc. Now, all these taxes (except customs duties) have been subsumed under GST and customs duties.
Goods and Services Tax (GST)
Goods and services tax (GST) is a tax levied when a consumer buys a good or service. It is meant to be a single, comprehensive tax that subsumes all the other indirect taxes on consumption like service tax, etc. Thus, GST is a single national uniform tax levied across the country on all goods and services. The objective is to end the regime of multiple taxes on goods and services and bring them under one rate. The motto is ‘One Tax, One Market, One Nation’.
Implementation of GST:
GST was introduced in India on July 1, 2017, after more than a decade of efforts. In particular, the indirect taxes subsumed under GST are as follows:
Central taxes: (1) Central excise duty; (2) Duties of excise (medicinal and toilet preparations); (3) Additional duties of excise (goods of special importance and textile and textile products); (4) Additional duties of customs; (5) Special additional duty of customs; (6) Services tax; (7) Cesses and surcharges related to supply of goods or services.
State taxes: (1) State VAT; (2) Central sales tax; (3) Purchase tax; (4) Luxury tax; (5) Entry tax (all forms); (6) Entertainment tax (not levied by the local bodies); (7) Taxes on advertisements; (8) Taxes on lotteries, betting and gambling; and (9) State Cesses and surcharges.
Administration of GST:
The administration of GST has been harmonised between the Centre and the States using a common IT system and common rules with the powers to audit being shared. A GST Council has been created for coordination between the Centre and the States, and between States, under the chairmanship of the Union Finance Minister.
Benefits of GST:
All business processes have been made common, including the IT processes relating to registration, return, payment and refund of taxes. This has paved the way for making the whole nation a common market. As a result, most physical restrictions and taxes on inter-State trade will be eliminated.