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Friday, 14 July 2017
GST – Goods & Services Tax Law
GST is a
multistage destination based tax that will be levied on every value addition.
Earlier we had VAT – value added tax. Buyer had to give VAT at all the stages.
It was a multistage tax law. What is the difference between VAT and GST? The
VAT calculation and GST calculation is different. The cascading effect of tax
liability added at the buyer end would be removed. It is not that a buyer need
not pay tax. It is just that, there was a compounding effect of tax calculation
on the total cost passed on to the buyer. There is also an interesting clause
of destination based GST. This means consumer states would also get certain
share of TAX from GST in the chain of business. There is no need of additional
VAT by state. Assume that margin added by a seller on a product is 40 rupees on
100. Earlier buyer had to pay 165 Rupees as compounded effect of calculation.
With GST, he would need to pay only 154 rupees. What is the difference of calculation?
Rs 100 + 10% tax + 40 Seller Margin + 10% VAT on total
cost 150 = 165 Rupees
Rs 100 + 10% tax + 40 Seller Margin + 10% of Margin 40
(Not on total cost) = 154 rupees
question will come from certain corners; what if the Cost Price Label is
manipulated by the seller. GST is not a mechanism to reduce fraudulent
activities. It is just a new Tax structure. Auditing is the mechanism to reduce
the tax evasion at various stages. Electronic identification of every product and transaction will bring down the fraudulent activities.