What is GST and it's implications

About GST and it's implications

What is GST ?

GST is an Indirect tax which has replaced many tpes of indirect taxes.The Goods and Service Tax Act was came in the forced in parliament on 29th March 2017.

And it's effect on 1st July 2017. Goods and service Tax is comperhensive and that is levied on every addion of value of Goods and Services.

GST is only indirect Tax in substance of all other indirect Taxes.

Journey of GST

The GST journey started in the year 2000 when a committee was established for draft law. and it's took 17 years from then for law to effect.

And in 2017 GST bill was passed in the lok Sabha and rajya Sabha.
And 1st July 2017 it was came into force.

Advantage of GST ?

GST has mainly removed cascading effects on the sale of Goods and Services.

Cascading effects has removal and impacted the cost of goods. Since the GST regime eliminate the Tax on Tax,it's effect cost of Goods is decreases GST rates and How its impact.

And GST is also mainly technologically drive. All activities are easily way with technology like Registration, payment,file returns etc. All are done easily in GST portal.

Taxes and types of taxes

What is Tax?

Tax is a compulsory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures. A failure to pay, along with evasion of or resistance to taxation, is punishable by law Tax word generation.

Types of Taxes

There are mainly two types of taxes, Direct Tax and Indirect Tax.

What are Direct Taxes ?

Direct taxes are one type of taxes an individual pays that are paid straight or directly to the government, such as income tax, poll tax, land tax, and personal property tax. Such direct taxes are computed based on the ability of the taxpayer to pay, which means that the higher their capability of paying is, the higher their taxes are.

For example, in the case of income taxation, an individual who earns more pays higher taxes. It is computed as a percentage of the total income. Additionally, direct taxes are the responsibility of the individual and should be fulfilled by no one else but him.

Example of Direct Taxes

As mentioned above, one good example of direct taxes is a person’s income tax. Usually, income tax is filed annually although deductions from one’s salary can be done on a monthly basis. If, for example, an individual incurs tax amounting to $30,000 a year for his annual salary of $120,000, the $30,000 is his direct tax.

Types of Direct Taxes

1. Income tax

It is based on one’s income. A certain percentage is taken from a worker’s salary, depending on how much he or she earns. The good thing is that the government is also keen on listing credits and deductions that help lower one’s tax liabilities.

2. Transfer taxes

The most common form of transfer taxes is the estate tax. Such tax is levied on the taxable portion of the property of a deceased individual, including trusts and financial accounts. A gift tax is also another form wherein a certain amount is collected from people who are transferring properties to another individual.

3. Entitlement tax

Such type of direct tax is the reason why people enjoy social programs like Medicare, Medicaid, and Social Security. The entitlement tax is collected through payroll deductions and is collectively grouped as Federal Insurance Contributions Act.

4. Property tax

Property tax is charged on properties like land and buildings and is used for maintaining public services like the police and fire departments, schools and libraries, as well as roads.

5. Capital gains tax

Such type of tax is charged when an individual sells assets such as stocks, real estate, or business. The tax is computed by determining the difference between the acquisition amount and the selling amount.

Advantages of Direct Taxes

Though it is strictly implemented on every individual who does not qualify for an exemption, there are actually numerous advantages of paying taxes directly. They include:

1.  Promotes es equality

Since direct taxes are based on the ability of a person to pay, it promotes equality among payers and citizens. Every person is charged a different amount, depending on how much they make.

2. Promotes certainty

The good thing about direct taxes is that they are determined and made final before they are even paid. In the case of income tax, the annual tax is the same every year as long as the salary does not change.

3. Promotes elasticity

Taxes are the earnings of the government, and when they fluctuate, the earnings also change. It can go higher or lower.

4. Saves time and money

The government does not need to spend on the collection of taxes because they are already taken right at the source of the income. Some companies use automatic payroll deduction systems, which help save time and money.

Direct Taxes vs. Indirect Taxes

There are basically two types of taxes – direct and indirect taxes. The following are the differences between the two:

• Direct taxes refer to taxes that are filed and paid by an individual directly to the government. Indirect taxes, on the other hand, are taxes that can be transferred to another entity. Therefore, the burden of paying it can be put on another person’s shoulders.
• Direct taxes can be evaded in the absence of proper collection administration. Indirect taxes cannot be escaped from because these are charged automatically on goods and services.
• Direct taxes can help address  while indirect taxes can lead to inflation.
• Direct taxes lessen the savings of earners, but indirect taxes encourage the opposite because it makes products and services more expensive and unaffordable.
• Direct taxes are imposed only on people that belong to various income brackets. Indirect taxes, on the other, can be felt by everyone who buys goods and avails services.

What are indirect taxes

What Is an Indirect Tax?

An indirect tax is collected by one entity in the supply chain (usually a producer or retailer) and paid to the government, but it is passed on to the consumer as part of the purchase price of a good or service. The consumer is ultimately paying the tax by paying more for the product.

 

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Indirect Tax

Understanding Indirect Tax

Indirect taxes are defined by contrasting them with direct taxes. Indirect taxes can be defined as taxation on an individual or entity, which is ultimately paid for by another person. The body that collects the tax will then remit it to the government. But in the case of direct taxes, the person immediately paying the tax is the person that the government is seeking to tax.

Import duties, fuel, liquor, and cigarette taxesare all considered examples of indirect taxes. By contrast, income tax is the clearest example of a direct tax, since the person earning the income is the one immediately paying the tax. Admission fees to a national park is another clear example of direct taxation.

Some indirect taxes are also referred to as consumption taxes, such as a value-added tax (VAT).  

Examples of Indirect Taxes

The most common example of an indirect tax is import duties. The duty is paid by the importer of a good at the time it enters the country. If the importer goes on to resell the good to a consumer, the cost of the duty, in effect, is hidden in the price that the consumer pays. The consumer is likely to be unaware of this, but he will nonetheless be indirectly paying the import duty.

Essentially, any taxes or fees imposed by the government at the manufacturing or production level is an indirect tax. In recent years, many countries have imposed fees on carbon emissions to manufacturers. These are indirect taxes since their costs are passed along to consumers.

Sales taxes can be direct or indirect. If they are imposed only on the final supply to a consumer, they are direct. If they are imposed as value-added taxes along the production process, then they are indirect.

Regressive Nature of Indirect Taxes

Indirect taxes are commonly used and imposed by the government in order to generate revenue. They are essentially fees that are levied equally upon taxpayers, no matter their income, so rich or poor, everyone has to pay them. But many consider them to be regressive taxes as they can bear a heavy burden on people with lower incomes who end up paying the same amount of tax as those who make a higher income. For example, the import duty on a television from Japan will be the same amount, no matter the income of the consumer purchasing the television. And because this levy has nothing to do with a person's income, that means someone who earns $25,000 a year will have to pay the same duty on the same television as someone who earns $150,000 — clearly, a bigger burden on the former. 

There are also concerns that indirect taxes can be used to further a particular government policy by taxing certain industries and not others. For this reason, some economistsargue that indirect taxes lead to an inefficient marketplace and alter market prices from their equilibrium price.

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Related Terms

Consumption Tax

A consumption tax is a tax on the purchase of a good or service—or a system taxing people on how much they consume rather than what they add to the economy (income tax). 

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Direct Tax

A direct tax is a tax paid directly by an individual or organization. 

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What Is a Value-Added Tax (VAT)?

A value-added tax is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale. 

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What Is a Cascade Tax?

A cascade tax is a system that imposes sales taxes on products at each successive stage in their progress from raw material to consumer purchase.

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Understanding Taxes

An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government activities. 

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Sin Tax Definition

A sin tax is an excise tax levied on goods and services deemed harmful to society, such as tobacco, alcohol, and gambling. 

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