Get Smart Fast | Six things you have to know about GST

GST

 

Goods and Services Tax (GST)

Before delving into what GST is, let’s understand how taxes are collected in India. Taxes can be broadly classified under three buckets – income, production and consumption. The central government has the complete right (almost) to tax income and production in the form of income tax and excise duty. When it comes to consumption, both the central and state governments levy taxes in the form of service tax and Value added Tax (VAT). Income taxes are directly collected from people who earn salaries or companies that report profits. The others are paid by producers (Maruti Suzuki) or service providers (restaurants) but are collected from buyers. These are called indirect taxes.

 

What would the GST do?

It would merge almost all the indirect taxes into one tax that will be applicable all over India at a single rate. A car produced by Maruti would attract a single tax rate irrespective of where it is purchased.

 

Why do we need this Constitution Amendment Bill?

With GST, both the centre and the states will have powers to tax both production and consumption. States, at present, don’t have the powers to levy taxes on production, except on alcohol. Changing this means amending the constitution. And, amending the constitution requires two-third majority in both the Lok Sabha and the Rajya Sabha. Plus, half the states have to ratify the bill.

 

What happens next? Will GST be implemented from next month?

  • The Constitution Amendment Bill is like an enabling Act to roll out GST. The next steps include:
    50% of states have to approve the bill.
  • Once approved, both the centre and states will come out with laws that will administer GST.
  • The final decision on what the GST rate will be is yet to be taken. It could be 15% or 18%.
  • The technology and administrative platforms are being developed to handle paperwork but it remains to be seen when these could be rolled out.

Nevertheless, the Constitution Amendment Bill was the biggest task and it sorted out major issues. Now that there is a consensus, the rest would fall in place.

 

How will it benefit me?

It depends on the GST rate, which is yet to be agreed upon.

In 2010, Maruti’s Ritz attracted an indirect tax of 24%. This includes 12.5% VAT, 9% excise duty, 1-2% entry tax, 2% CST (Central Sales Tax), and registration charges.

Let’s say if the GST rate is 16%, then there will be a Rs 30,000 reduction in taxes. Of course, it depends on whether Maruti decides to pass on the benefit of this tax reduction.

If the GST rate is fixed at 18%, then all services will become costlier – from eating out to telephone bills – as the current service tax is at 15% including cess.

 

How will companies benefit from GST?

  • Optimal location of warehouses – at present, companies have warehouses in each of the states they operate. If they don’t do so, the dealer (who buys goods from the producer) has to pay CST of 2%. Now, CST would be absorbed into GST. Therefore, companies can locate warehouses to optimally distribute their goods.
  • Lower price could lead to higher demand – A reduction in price because of lower taxes will stimulate demand, and this in turn could lead to higher investments.

 

Are there any negatives?

Yes. Services account for more than half of the Indian economy. If the GST rate is higher than the 15% being levied now, then inflation will go up.

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News in Numbers, May 2, 2016: Gujarat’s 10% quota for poor, Uttarakhand’s forest fire crisis…

10%

What is it? Reservation quota in education and jobs for those with less than Rs 6 lakh of annual family income in general category, as announced by Gujarat government on Friday.

Why is it important? This is a move to appease the protesting Patel community, which has been demanding ‘Other Backward Class’ status to avail reservations in education and jobs. This comes ahead of the state elections next year, and after Congress won 23 of 31 district panchayats in the civic polls last year. The BJP has been in power for the last 18 years in the state.

Tell me more: The Patels are unhappy with the state government’s offer and have demanded that its community get a separate quota, similar to what the Haryana government has offered the Jats. The reservation move will exceed the 50% reservation limit set by the Supreme Court but the BJP says it is ready to go legal to defend its move.

7.5 tonnes

What is it? The quantity of gold Tirumala Tirupati Devasthanam (TTD), which manages the famous temple on the hill in southern Andhra Pradesh, is considering moving under the Indian government’s gold monetisation schemes.

Why is it important? This would be biggest mobilisation under the schemes launched last November. Over 1.5 tonnes have been deposited so far, and the board may move its entire reserves of 7.5 tonnes. The schemes are aimed at lowering India’s gold imports, which form the second highest component in the imports bill after crude oil. India imported 926 tonnes of gold in 2015-16, 16% less than the previous fiscal.

Tell me more: TTD wants the government to pay the interest component on medium and long-term schemes to be paid in gold instead of cash and also, calculate the interest on gold at the time of return instead of at the time of the deposit. This, on top of some changes the government had announced on Friday.

6,000

What is it? The number of people from state agencies involved in putting out the forest fire in Uttarakhand.

Why is it important? This is one of the biggest disaster the state has faced with 1,233 cases of fire covering 1,900 hectares of forest. While the effective area under fire has come down by 70%, the government hopes to put out the fire in the next 3-4 days by putting  10,000 more people on the job.

Tell me more: The area under fire is many times more compared to previous two years- 930.3 hectares in 2015 and 384.5 hectares in 2014. On Sunday, the government announced a pre-fire alert system that will issue warnings to the concerned departments via text messages. As on April 21, 20,667 forest fire incidents have already been reported, compared to 15,937 in 2015 and 19,054 in 2014.

1.25 crore

What is it? The number of people who paid taxes in 2012-13.

Why is it important? This was just 1% of India’s population at that time, indicating the extent of domestic tax evasion. Direct taxes accounted for 51% of the total tax revenue in 2015-16, the lowest since 2007-08. Indirect taxes (levied on goods and services) puts a greater burden on the poor.

Tell me more: Only 2.9 crore individuals filed their income tax returns in 2012-13 and nearly 89% of them paid taxes less than Rs 1.5 lakh with the average tax outgo being less than Rs 21,000.

13.2 lakh

What is it? The number of individual household toilets built in urban areas in 2015-16.

Why is it important? This is just around 53% of its 25 lakh target for the year and indicates that India would be hard-pressed to achieve open defecation-free status by 2019.

Tell me more: 11 states reported they have not constructed even a single household toilet. Gujarat accounted for around a third of the total individual household toilets last fiscal. States were also unable to meet their targets in the community and public toilet category where they have reported construction of only 68,500 toilets as against the target of 1 lakh.

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