CASCADING EFFECT PRE & POST GST

What is cascading tax?

Pre GST scenario in Indian taxation
Central Government levied taxes on the
following:
 Income Tax: Tax collected on the income of an individual

 Customs duties: Duties collected on the exports and imports

of goods

 Service tax: Taxes gathered on various services

 Central excise: Taxes on Manufacturing of dutiable goods

 State Governments levied the following
taxes:
 Value Added Tax (VAT): Sales of goods involve the particular tax. The sales of
the goods in intrastate are covered by the VAT Law of that state, whereas those
among the inter-state is levied by the Central Sales Tax Act. Even the revenue
gathered as per the Central Sales Tax Act is done by the State Governments and
the Central Government has no role in it.

 Stamp duties and Land Revenue: Since land is a matter on which only State
Governments can govern, thus the Stamp duties on transfer of immovable
properties are levied by State Governments.

 State Excise on Liquor and certain agricultural goods.

NEED OF GST
 GST is a Comprehensive Indirect Tax

 GST is a value added tax

 GST Paid is not Cost

 Uniform GST Rate on Goods and Services Across all States

 Better Tax Management

 Goods becoming cheaper.

PROPOSED GST TAXATION SYSTEM
Under the new tax regime, there will be 3 kinds of
Goods and Services Taxes:

 CGST: where the revenue will be collected by the central

government

 SGST: where the revenue will be collected by the state

governments for intra-state sales

 IGST: where the revenue will be collected by the central

government for inter-state sales
The notion of having one merged indirect tax in place of
several previously existing indirect taxes is to benefit the
Indian economy in a number of ways:

 It will help the country’s businesses gain a level playing field

 It will put us on par with foreign nations who have a more

structured tax system

 It will also translate into gains for the end consumer who not have
to pay cascading taxes any more

 There will now be a single tax on goods and services

Simplification of Indirect Taxes under
GST Regime
CASCADING EFFECT UNDER CURRENT
INDERCT TAX REGIME
PRE GST SCENARIO
UNDER GST
This is just one example and a very
small value chain, in contrast usually
movement of goods takes longer
channel. Thus, it will not be unfair to
say that end consumer are going to get
most out of GST, and once these prices
fall, demand will rise and the economy
will blossom.
BEFORE GST, TAX STRUCTURE IS INHERITED WITH THE
FOLLOWING WEAKNESSES
 CENVAT structure does not tax value addition post the stage of production.

 Credit for Service Tax paid is being allowed to Manufacturer/ Service Provider to a limited extent

 State is charging VAT on the Excise Duty paid to the Central Govt. hence double taxation. For
Example A car manufacturer or a any manufacturer pays excise duty in order to remove the goods
from the factory. After paying the excise duty the dealer charges VAT on the sale of that car . The
Excise duty is not cenvated against the VAT liability that tax on tax. The Finance minister has
announced that there will be “no tax on tax” in GST regime

 Tax is being levied on Interstate Transport of Goods with no provisions of taking Input Credit on
CST.Presently in case of Inter state sale there is no cenvat credit for CST hence cascading effect of
taxes.
 States continue with various types of Indirect Taxes such as Luxury tax, Entertainment Tax etc.

 With the implementation of GST there will be “no tax on tax “. There will a seamless credit across
the journey of the transaction .
 https://www.youtube.com/watch?v=a7y7ECcyz9c