The entire country knows that the Goods and Services Tax or GST came into effect on 1st July 2017. The main aim behind introducing this tax was to eliminate all indirect taxes and create a comprehensive tax for the entire country. After the tax came into effect, indirect taxes such as central excise tax, service tax, VAT all became consolidated into one single tax.
If you want to understand the GST economy you need to know what the tax is all about, the types of GST and the goods that are under the purview of the tax or not. Today we will try to do just that. This will enable you to utilize the benefits of this tax structure in the long run.
What is GST?
Goods and Services Tax is a tax levied on the manufacturing and the sale of goods and services in the country. The tax is charged at every step of the manufacturing process. Both the customer and the manufacturer has to pay GST. It is a destination-based tax to be collected at the point of consumption.
Types of GST
There are three types of GST. CGST, SGST, and IGST. The first one is levied on the intra-state sale of goods and services by the central government. The second on the same intra-state sale of goods and services, but by the state government and the third on the supply of goods and services in between two states. The tax is shared between the central and state government.
Goods exempt from GST
Under the GST Economy, there are certain goods and services that are exempt from the tax.
- Petroleum products like crude petroleum, motor spirit, high-speed diesel, natural gas, and aviation turbine fuel do not come under GST. Believe it or not, it is the most taxed product in our country. Its price does not drive its consumption. It means that if it gets expensive, we don’t start walking to our destination every day. We still have to use it.
The economy is reeling under the effects of rising petrol and diesel prices and inflation is at an all-time high. However, there is little possibility of it being included under GST.
A question most of you will ask is, why? The reason being, that if it is brought under the current tax structure, prices may rise further. Currently states charge sales tax in the range of 6% to 40% on petrol and 6% to 29% on diesel. Maharashtra charges about 40% on petrol and so on. If all the levies on petroleum are added up, it might cross the 100% mark, making you pay double.
If petroleum is brought under GST, then the rate will become uniform throughout the country. This will lead to a rise in the prices of fuel in states, where the rate is currently lower. Many of the states will not accept this. So, the center is also not taking any chances for fear of unrest. There seems to be no decision on the inclusion of petroleum within the umbrella of the current tax structure.
- Alcohol for human consumption does not come under GST but covered under state levies. Other types of alcohol like ethyl alcohol, denatured spirits, and others are covered at the rate of 18%. It was kept outside the purview, mainly because of two reasons.
- Firstly, so that the state government continues to get a steady inflow of revenue. Data has been obtained from records, that excise duty and VAT collected from alcohol gives revenue of approximately Rs 90,000 crores annually.
- Secondly, so that the high prices discouraged people from consuming it. At the end of the day, alcohol is harmful to the body, right?
Though alcohol does not come under GST directly, the rising prices can be attributed to the increase of taxation on inputs. Under the VAT regime, the tax rate was 12-15%. However, under the GST regime, the tax rate has gone up to 18%. So, even though alcohol is not under GST, it is still on the higher side rate-wise.
As per the recent discussions doing the rounds, many have suggested the inclusion of alcohol under GST. However, it may not be included anytime soon. This measure is being taken, in order to protect the revenue flow for the state. It is a demerit product, which means it is harmful to humans. Currently, alcohol sales are taxed at a floor rate of 20%. However, in some states, the rate is as high as 36%. The state is also collecting license fees from manufacturers and distributors, thus keeping it outside GST is beneficial to the state revenue.
So, these are the reasons why petroleum and alcohol are not a part of GST. The GST Council forms a panel of officials to discuss amendments, new inclusions and other possible changes in the tax structure. However, we don’t think petroleum and alcohol will be included in GST anytime soon. The demerits do not allow these goods to make it to the GST list.