Introduction
The Goods and Services Tax (GST), India's largest indirect tax regime, has paved a new way. The work for GST in India is to put in place a convenient indirect tax plan, and to reduce a large number of exemptions, and various rates, and to improve tax compliance.
GST vs SST
GST is a unified and indirect tax applied to the provision of goods and services, whereas SST is a separate tax. SST is a sales tax charged once only on any taxable service provided by a taxable individual and a service tax assessed on any taxable service provided by a taxable individual.
Differences Between GST and SST in a Tabular form
| Parameter of Comparison | GST | SST |
| Definition | It's a single indirect taxes scheme based on consumption. It is available over the whole national market. | It's a sales and service tax charged on products and services produced locally and imported from other countries. |
| Tax Base | With a nationwide market and a large tax base. | With a small tax base and a local market, |
| Taxation Methods | To promote transparency, it is assessed at several stages. | Only at the producing or sales stage is it imposed. |
| Impact of Cascading and Compounding | Eliminated | Exists |
| Exports | Exports are zero-rated and eligible for input tax credits. | There is no comprehensive relief for exporters due to varying tax rates and cascade effects. |
What is GST?
GST is a unified and indirect taxes system. It is imposed on the provision of goods and services, such as sales, transfers, supplies, leases, exchanges, and disposals. GST does not apply to alcoholic beverages for human consumption, petroleum, natural gas, or real estate.
GST benefits include decreased tax incidence, lower costs for products and services, the creation of a shared national market, enhanced ease of doing business for industries, reduced tax multiplicity, and transparency. GST was initially implemented in France and was later in India in 2017. In India, the system is particularly distinctive. Canada and Brazil, like India, have implemented a GST dual taxation structure. Tax is collected by the union/central authority and dispersed to the states/provinces under a unified GST system.
In a dual GST system, however, the center and the states each collect their part independently. While all nations that use the GST system have a single rate, the concept in India has been altered. There are three types of GST: Central GST, State/Union Territory GST (SGST/UGST), and an Integrated GST that applies to interstate supplies and is paid to the central government. Except for gasoline, alcohol, tobacco, and stamp duty on real estate, all goods and services are taxed at rates of 5, 12, 18, and 28 percent.
However, most everyday items such as fruits, vegetables, handicrafts, and sanitary napkins are GST-free. The GST rate in Canada is 5%, while some provinces impose a state GST known as the provincial state tax (PST). The PST is calculated at a rate of between 7% and 10%.
Before the GST, all countries had varying degrees of SST. Several federal and state taxes existed. Central excise duty, cesses, surcharges, service tax, and other taxes were among them. Along with other taxes, states imposed a Value Added Tax or Sales Tax. A similar approach was used in India as well.
Types of GST
There are four main forms of GST under the newly adopted tax system:
IGST (Integrated Goods and Services Tax) - A GST-based tax, the Integrated Goods and Services Tax is imposed on goods and services imported and exported between states as well as interstate (between two states). It is governed by the IGST Act. Taxes under the IGST are collected by the Central Government. The Central Government divides the taxes collected among the states when they are collected. For example, if a merchant from West Bengal sells items worth Rs.5,000 to a consumer in Karnataka, IGST will apply because the transaction is an interstate transaction. The dealer will charge Rs.5,900 for the products if the GST rate on the commodities is 18 percent. The IGST collected is Rs.900, which will be paid to the government of India.
SGST - The State Goods and Services Tax is one of the forms of GST imposed by a state's government. The state government levies taxes on products and services within the state (intrastate, for example, in Mysore), and the collected income is only used by the state government.
The SGST replaces several state-level taxes, including lottery, luxury, VAT, purchase, and sales taxes. If the items are sold interstate (outside of the state), both the SGST and the CGST are charged. When goods and services are exchanged inside the state, however, just the SGST is applied.
The GST rate is split evenly between the two types of GSTs. When traders sell their goods within their state, for example, they must pay SGST and CGST. The state government receives SGST money, whereas the federal government receives CGST revenue. The SGST on various products and services is determined by government notifications that are released regularly.
CGST - The intrastate (inside the state) supply of goods and services is subject to the central goods and services tax. It is taxed by the federal government. This sort of GST is governed by the CGST Act. The CGST money is collected together with the SGST revenue and shared between the federal and state governments. When a merchant transacts inside the state, for example, the items are subject to SGST and CGST. The GST rate is split evenly between the SGST and the CGST, with the CGST money going to the federal government.
UGST - The Union Territory Goods and Services Tax (UTGST) is a form of GST that is applied to goods and services in the union territory. This tax is identical to the SGST, however, it only applies to union territory.
Dadra and Nagar Haveli, Chandigarh, Andaman & Nicobar, Pondicherry, and Delhi are all subject to the UGST. The Union territory government owns the money earned by the government. The UGST is collected alongside the CGST since it is a substitute for the SGST.
What is SST?
The manufacturing sector is subject to sales tax, whereas the service industry is subject to service tax. When sales to retail traders are made, the manufacturer is only charged once with sales tax. The merchant or seller will not be charged sales tax on subsequent sales of the products.
Only some services or taxable services are subject to service tax. In the eyes of a layperson, services here refer to aid in any task, labor was done with individual expertise, taking up work on behalf of others, intangible services, and so on. Cooking, painting, music, and medical aid, for example, are all intangible services that benefit others in many ways.
There are several sorts of sales taxes. If the buyer is a final consumer, the manufacturer is subject to sales tax. If not, there are generally multiple middlemen involved, and sales to firms that later resale the items are not taxed. A resale certificate is given to them.
Manufacturers' sales tax, Wholesale sales tax, Retail sales tax, excise duty, VAT, octroi, and other forms of sales taxes exist. Most people consider sales taxes to be regressive. The rate of sales tax is the same for all social classes. It is unaffected by income levels, putting a heavier burden on the poor.
Types of Sale Taxes
Although each country's sales tax rules are unique, there are several common forms of sales taxes that apply to all countries. They are:
- Tax on wholesale sales - Wholesale Sales Tax is a tax paid on individuals that deal in the wholesale distribution of commodities.
- Sales Tax on Manufacturers - Makers' Sales Tax is a tax imposed on manufacturers of certain items.
- Tax on Retail Sales - Retail Sales Tax is a tax placed on the sale of retail items that are paid directly by the ultimate customer.
- Use Tax - This is a charge imposed on consumers who purchase items without paying sales tax. This is frequently the case when items are purchased from sellers outside of the tax jurisdiction.
Main Differences Between GST and SST in Points
Taxable products and services - Unless otherwise specified, all products and services are subject to the Goods and Services Tax. This is a bad idea. While the premise is the same for sales tax, if there is no stated exemption, all items are presumed to be taxed. The Goods and Service Tax system would be advantageous since it would be good in both monetary and administrative terms. In comparison to the present sales and service tax system, the proposed approach has a better possibility of capturing a larger revenue base.
Goods and services imported - Imported products and services are subject to the service tax since the current tax regulations are different for imports. In India, the favored GST bill keeps customs charges out of the Goods and Services Tax. It will be handled independently by the customs authority. While in many nations, a "reverse charge" provision exists, where the GST is applied as a tax due.
Payment of taxes and accounting periods - Knowing the time of supply is critical for accounting for GST and filing GST returns, and it is one of the most significant components of the planned GST regime. Many nations apply for the Goods and Services Tax before the three events listed below.
- A customer is sent an invoice.
- Whenever the provider receives any type of payment.
- When a taxable supply occurs.
According to the current sales tax, it becomes due and payable after a transaction or special circumstance. Service tax, on the other hand, is payable when payment is received; if not, it is due from the date of invoice, and the tax is accounted for after the three months.
The Goods and Services Tax, on the other hand, is far more user-friendly and comprehensive than the present sales and service taxes. Due to the substantial variability in cash flow, invoice issuance, and working capital requirements, businesses must consider GST as a major consideration.
Conclusion
SST is predicted to produce more disposable money, resulting in increased consumer spending and corporate activity. Additionally, private consumption and corporate growth would be encouraged.
To address the shortcomings of SST, more than 160 nations have established GST. Malaysia, on the other hand, has lately decided to return to the SST system. As a result, the current requirement is to balance the drawbacks of GST and SST to lessen the consumer burden.
During this era of tax system transition, you should expect possibilities for noncompliance and profiteering. Because prices are falling, many monitoring and enforcement programs will be able to function effectively.
