GST: Beneficial to Indian Public?

Goods and Service Tax (GST) is a hot topic today and one of the biggest amendments in Indian constitution. GST is a consolidation of several indirect goods and services taxes levied on sales, manufactures and consumption of services and products. Replacing 14 indirect goods and service tax GST has been born and holds lots of advantages for the consumers – general public. Sign up

How GST works?

Let us understand how GST implementation is going to proof vantage and in favor of public at each stage of a product or good.

Stage 1

Imagine a manufacturer of, say, sari. He buys raw materials or inputs – cloth, button, thread, needle and tailoring equipment – worth INR 100, a sum that includes a tax of INR 10. He manufactures a sari with these materials.

In the process of creating the sari, the manufacturer adds value to the materials he used. Let us assume the value added by him to be INR 30. The gross value of the goods would become INR (100 + 30) = INR 30.

At a tax rate of 10% the tax on output (this sari) will then be INR 13. But under current GST, he discounts this tax (INR 13) against the tax he has already paid on raw material/inputs (INR 10). Therefore, the effective GST incidence on the manufacture is only INR 3 (13 - 10).

Stage 2

In the next stage the good is passed from manufacturer to wholesaler. The wholesaler purchases a sari from manufacture at, say, INR 130. After that he adds his net value, assume INR 20, on it and each sari costs to INR (130 + 20) = INR 150.

With a rate of 10% tax, a sari costs around INR 165 (150 + 15). However, again under GST INR 15 (10% tax) is set off against tax paid by manufacturer INR 13. Therefore, the effective GST on the wholesaler comes out INR 2 (15 - 13).

Stage 3

In the third stage, a retailer buys the sari from wholesaler. To his purchase he adds a value of, say, INR 10. The gross value of what he sells, hence, goes to INR 160 (150 + 10). The tax on this, at 10%, will be INR 16. But by setting off this tax (INR 16) against tax paid by the wholesaler, the net GST comes out be to INR 1 (16 - 15).

Stage 4

When it comes to final stage, the good or product is sold to general public by the retailer. At tax rate of 10%, general public is supposed to pay INR 16 as tax on top of base cost of INR 160. Once again, under GST, this tax is set off against tax paid by retailer, consequently, total tax comes out to be INR 0 (16-16).

In this way a general public does not have to pay any or  have to pay least indirect goods and service tax to the government after GST implementation. Yet, waiting to see if GST establishes itself as one of a great revolutionary changes in Indian Constitution? Then, keep following ... :)

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