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?

Old Style
Rs 100 + 10% tax + 40 Seller Margin + 10% VAT on total cost 150 = 165 Rupees 
New Style
Rs 100 + 10% tax + 40 Seller Margin + 10% of Margin 40 (Not on total cost) = 154 rupees
Now, the 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.



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