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Why the market is so excited about the GST? Will it really be a change
maker? More importantly how will it impact on the Businesses?
GST aims to remove the tax barriers (reducing the cascading effect of tax
on the cost of goods and services). So, all goods and services will be
taxable with minimum exemptions.
Thus, GST is the most important reform that will foster the growth and
reduce the fiscal deficit.
Indirect taxes are taxes levied on manufacture of goods and services and
the consumption. The taxes levied on the manufacture of goods are the
exclusive domain of the central government and the consumption are the
exclusive domain of the state government. This results into 2 problems:
1. Multiple taxes
2. Increases cost for everyone.
Since states have their exclusive domain on consumption tax within their
borders, they treat goods coming from other states as imports. For
example, if a shirt maker in Punjab buys dye in Gujarat, he would have paid
central excise and Gujarats state taxes on the product. On this cost,
Punjab government would levy its tax if the shirt is sold in the state. If the
shirt is sent across Punjabs border and sold in Delhi, an export tax called
central sales tax is collected by Punjab.
By implementing the GST, the tax barriers between states, and central and
states will disappear.
1. First, all taxes will be collected at the point of consumption. It means that
if a shirt is taxed at 18%, it will include both central governments taxes and
state governments taxes.
SUPPLY
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1. Experts say that there are many ways in which GST will improve
Supply Chain Management (SCM) and logistics in the country. With
GST regime, the supply chain network design would be purely based
on logistics cost & customer service and provides a greater flexibility
into Supply & Demand matching.
Leads to,
With the GST, cost of any services, including logistics, will be a value add,
and the manufacturer will get tax credit for the service tax paid. In addition
the firms in the unorganized sectors, too, would be expected to improve
their services by using the technology.
3. GST improves the transit and delivery times because state border
crossings would likely to be uncomplicated.
References:
1.