The concept of GST is to simplify multiple levels of taxation. The simplest way to explain is when you go to a restaurant your Bill breakdown will read like Service tax - 6% (not with hotels though which is exempted up to 60%), VAT - 14.5℅ levied on liquor, and 5.5% VAT will be levied on food. So for a bill of Rs.100, 60 which consists of liquor and 40 is reserved for food, you will be paying a tax of 16.9.
Here is a lowdown on the details of the bill,
Service tax should read as - 6% of 100 = Rs.6. (With exemption)
Without the exemption, it should be 15℅ of Rs 100 = Rs. 15.
VAT (value added tax) on alcohol - 14.5℅ of 60 = 8.7
VAT levied on food - 5.5℅ of 40 = 2.2
So, the total tax should read as (with exemption) = 16.9
Total tax should read as (without exemption) = 25.9
Things have changed drastically under the GST regime and it will be taxed at a flat rate of 18-19%, that is, Rs.18/ Rs.19.
So, this example would have you thinking that you might think GST isn't making things any simpler for you but for a great number of products, the cascading taxes will be replaced with a single tax, and it will bring down the tax that you need to pay in some cases.
It is a move hailed by most economists, as the tax compliance will be relatively easier, the cascading effect of taxes will also be reduced and the tax collection and remittance will go up significantly. As a consumer, it is certainly a sign of good things to come.
This is an assumption that Liquor will come under the purview of GST. Even otherwise, the same concept holds good for another sale of Goods and services provided.
All the political leaders have indeed regarded GST as a positive reform for the Indian economy but GST rates in India are considered to be the highest in the world among the 140 countries that have implemented the taxes so far.
As per the new tax system in India will have four tax slabs: 5%, 12%, 18% and 28% which puts India at the top, on the basis of all countries with the highest GST rate toppling Argentina on the way. European countries have one rate of GST as they don’t have to worry about a huge country like India. Also, a majority of Indian population stays in rural areas and their economic condition is not too great.
India followed in the footsteps of Canada and introduced a dual structure where both Centre and the states have the power to levy and also collect the taxes.
The key issue why India has such high GST rates is because we tend to rely more on indirect taxes rather than direct taxes.
There are chiefly two ways in which the government can tax you:
In developed economies, the tax structure is different as the majority of the tax revenues will be direct. Most pay income taxes barring a few exceptions.
In India, the majority of the tax revenues is not direct mostly it is indirect. Farmers and many others don’t pay income taxes in India and it is less than 3% who pay income tax.
So the government have to earn their revenue from taxing your purchases and that is a little difficult to cheat on. Since the government has to pay a large number of employees, provide subsidy and freebies to everyone and provide infrastructure and other things, high indirect taxes are a reality in India compared to most countries. This has always been the case and the scenario has not changed much. But things are changing and the price of most things are reducing.