Need for Goods and Service Tax (GST)

GST stands for Goods and Service Tax. The government of any country needs revenue for functioning and it’s major source for revenue is tax. The taxes thus collected are spent by Govt. on the public.

Taxes can be broadly classified into two categories.

types of tax

 

  1. Direct Tax: It is imposed on the income of an individual. Amount of tax payed varies depending on several factors like income, rent, saving etc. Person with higher income pays more tax than the person with lower income.
  2. Indirect Tax: It is not imposed directly on income of individual but it is imposed on goods and services, which leads to increase of MRP of good and service. Unlike direct tax, indirect tax should be borne by the end customer, rich and poor alike.

So, before Goods and Service Tax, the pattern of tax levy was as follows:

There are multiple change-of-hands an item goes through along its supply chain: from manufacture to final sale to the consumer.

old_tax_levy

Let us consider the following case:

  • Purchase of raw materials
  • Production or manufacture
  • Warehousing of finished goods
  • Sale to wholesaler
  • Sale of the product to the retailer
  • Sale to the end consumer

Each change leads to value addition which leads to increase in MRP of item.

One Nation , One Tax!

GST (Goods and Services Tax) has been introduced to replace multiple indirect taxes levied by State and Central Governments in order to simplify the indirect tax system.

GST has replaced almost 17 of the existing state and central indirect taxes such as central excise duty, additional customs duty, VAT, entertainment tax, service tax etc.

GST is one indirect tax for the entire country.

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