ALLOCATION OF TAXES AS PER GOODS AND SERVICES TAX

Submitted By Mehak Agarwal

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 ALLOCATION OF TAXES AS PER GOODS AND SERVICES TAX

INTRODUCTION

Taxation is defined as a means of imposing charges on individuals or entities owned by the

government respectively. The objective remains to raise such revenue generated in order to
account for public purposed couples with government expenditures respectively.
Furthermore, the crux of any economy relies on its governmental revenue. The major point of
difference of taxes from other sources is the fact that they are mandatory levied upon the
individuals or the government entities.

Purpose of Taxation

The primary purpose of imposing any form of taxation is to finance the government of the
respective nation. The second reason is the redistribution of income which is meant to reduce
the inequalities in the distribution of income as well as wealth. The purpose is to implement
tax policies through stabilization

Classification of taxes

Taxes are commonly classified into Direct and Indirect taxes respectively. The former is taxed
on an individual or a natural person and is dependent upon income and consumption.
Examples of Direct tax includes income tax, corporation tax etc.

Indirect taxes are levied on the production or consumption of goods and services or on
transactions primarily consisting of imports and exports. Examples include general and
selective sales taxes, value added taxes (VAT), taxes levied on any aspect of manufacturing or
production, customs, import duties etc

In India, the taxation system is controlled, imposed and updated by the Central and State
government. Such an authority to impose taxes stems from the Constitution of India which
allocates such power to state and central government respectively. This system complicated
the taxation process and therefore, the government of India introduced a uniform tax in the
form of GST.

TAXATION SYSTEM (POST- GST)

GST is a value added tax levied on most goods and services sold for domestic consumption.
Its main objective is to consolidate multiple indirect tax into a single tax which improves the
efficiency in the administration of tax. Thus, it entails a host of taxes and overcomes the
limitation of the complex indirect structure.

Furthermore, the concept of GST entails two major principles1 i.e.;

(1) The Destination Principle.

(2) Value Added Principle.

Destination Principle

Goods and services are to taxed at the point of consumption. Therefore, the source-based tax
system is replaced.

Value Added Principle

This principle entails that tax shall be collected on value-added to goods or services at each
stage of the supply chain. Therefore, GST shall be collected from the original producer or
service provider to the ultimate consumer. Also, the GST paid on the purchase of goods and
services are set off against the output tax payable on the supply of goods and services. Thus,
such a system provides for a comprehensive and continuous tax throughout the supply chain
and eliminates the cascading effect of taxes respectively.

ASPECTS AND IMPLICATIONS OF GST MODEL

The base of tax would in 2014 to be implemented with effect from June 2016. The GST
implementation is “dual” in nature – one component is implemented by Centre (CGST) and
another component by State (SGST). The base of tax would be the same by Centre and State
governments. GST came into effect in India on July 1, 2017. With some major modifications,
the GST would now have three prime models2:
1) CENTRE GST : GST to be levied by the centre
2) STATE GST : GST to be levied by the States
3) DUAL GST : GST to be levied by the Centre and the States concurrently

PROPOSED GST RATE3

1 GST: Impact and implications in Indian economy, Journal of Internet Banking and commerce, Sankar R
2 GST- Benefits and challenges of implementation in India, International journal of economics and business
management, T.Venkataramana & T. mahvdeva Reddy
3 GST and its Impact on various sectors, Ms N.Ramya & Ms.D.Sivasakthi
 1. The rate of the proposed Goods and Services Tax for the certain goods and services
are laid down by the government which is as follows.

2. 1. For Goods the Total GST rate is 20 % in which 12% of the tax is levied by Central
while remaining 8% will be levied by the state.

3. 2. For Services the Total GST is 16% out of which 8% is for the Central and 8% is for
the state.

4. For the essential Goods the GST is levied at 12% in which is divided equally that is
6% for Centre and 6% for state.

5. Currently, it is collected in the form of VAT which is 26.5% that is Central Value
Added Tax is 14% and State VAT is 12.5%.

6. The above-mentioned percentage of Goods and Service Tax is just a proposed value it
may subject to change as per the revisions make up by the Executive Committee and
the government.

IMPACT OF GST ON VARIOUS SECTORS AS PER THE TAX ALLOCATION4

The present article will describe the impact of GST on three essential primary sectors
respectively:-

(A) IT

GST on IT sector attracts 18 % on software services provided by software companies. Earlier,

sale of software packaged software attracted both VAT and Service tax wherein the VAT rate
was around 5 % and service tax rate was 15 % with the applicability of Excise duty in
instances of manufacturing IT products.

(B) AUTOMOBILES

The respective GST rate pertaining to the automobile sector is deemed to range between 20-
22 % post its implementation. Furthermore, prior to the commencement of GST, its rate
ranged between 30-47%. The overall cost cutting is around a value of 10 %. The
implementation of GST has been beneficial in the automobile sector since the transportation
time is deemed to be less as well.

(C) BANKING AND FINANCIAL INSTITUTIONS

4 GST in India: Benefits, Challenges & Way forward, Gurmeet Singh

The GST rate in the Banking and Financial institutions is deemed to be 18-20%. Prior to
commencement of GST, the tax rates were 14%. The input expense of operations post GST is
likely to increase and hike in the transactions that are financial in nature. These transactions
include, loan processing fees, debit/credit charges, insurance premium etc.

CONCLUSION
Scope of the Study
This paper provides a detailed insight regarding implementation of GST tax among various
sectors of the country.
GST after implementation will bring uniformity with tax rates and will also overcome lots of
shortcomings in the
Indian taxation system with regard to indirect taxation. The Good and Services Tax
would surely be highly
advantageous for major areas of the India economy
Scope of the Study
This paper provides a detailed insight regarding implementation of GST tax among various
sectors of the country.
GST after implementation will bring uniformity with tax rates and will also overcome lots of
shortcomings in the
Indian taxation system with regard to indirect taxation. The Good and Services Tax
would surely be highly
advantageous for major areas of the India economy
Scope of the Study
This paper provides a detailed insight regarding implementation of GST tax among various
sectors of the country.
GST after implementation will bring uniformity with tax rates and will also overcome lots of
shortcomings in the
Indian taxation system with regard to indirect taxation. The Good and Services Tax
would surely be highly
advantageous for major areas of the India economy
Conclusion
Primarily, the concept of GST was introduced and proposed in India a few years back, but
implementation has
been done by the current BJP government under the able leadership of Prime Minister Shri
Narendra Modi on July
1, 2017. The new government was in strong favor for the implementation of GST in India by
seeing many positive
implications as discussed above in the paper. All sectors in India - manufacturing, service,
telecom, automobile
and small SMEs will bear the impact of GST. One of the biggest taxation reform- GST will
bind the entire nation
under a single taxation system rate. As forecasted by experts, GST will improvise tax
collections and boost up
India's economic development and break all tax barriers between Central and State
Governments. No doubt, GST
will give India a clear and transparent taxation system, but it is also surrounded by various
challenges as discussed
in this paper. There is need for more analytical based research for successful implementation
Primarily, the concept of GST was introduced and proposed in India a few years back, but
implementation has
been done by the current BJP government under the able leadership of Prime Minister Shri
Narendra Modi on July
1, 2017.
Primarily, the concept of GST was introduced and proposed in India a few years back, but
implementation has
been done by the current BJP government under the able leadership of Prime Minister Shri
Narendra Modi on July
1, 2017.CONCLUSION
Implementation of GST was strongly supported by the government of India due to its
different positive implications. All the sectors, as mentioned above, like IT, B\banking and
financial institutions, automobile and small SMEs in India will bear the GST impact. GST,
being a major tax reform will make the entire nation follow a unique and single taxation
system rate. According to the study, proper follow up of the GST will lead to improvised tax
collections and boost up the economic development of India and break all the tax barriers
between central and state government. GST with providing a clear and transparent taxation
system in India also has certain loopholes to be looked into by the government of India.

The major benefit of the GST is that it affects the indirect taxation system and helps the tax
payers with burden. GST also helps to reduce the burden of record and hence the burden on
the tax payers. Approximately, around 10-12 taxes are covered under GST (VAT, excise duty
etc.). GST works by the method of reducing the price of various goods and increasing the sale
thereby. This efficient formulation of GST will lead to resource and revenue gain for both
centre and states mainly through certain improvement in tax compliance and widening of tax
base. It can thus be concluded that GST have a positive impact on various sectors and
industry.

As no reform can be accurately perfect, likewise GST implementation might also lead to
some difficulty, especially in relation to services taxation by the states. But, this problem can
be solved to a certain extent by the implementation of the GST Model. Further, transparent,
fair, and credible compensation will create the conditions for effective implementation by the
states and for engender trust between the centre and states. Certain steps towards the
achieving a success in the implementation was taken by the GST system by eliminating al
taxes on inter-State trade (including the 1 percent additional duty and replacing them by ne
GST will be critical to achieving this objective.