Goods and Service Tax – GST – By: – Nagesh Bajaj – Dated:- 5-8-2011 Last Replied Date:- 30-12-1899 – GST is a destination based consumption tax. Consumption taxes are regressive in nature. It increases the gap between the rich and the poor. The pertinent point is whether such tax would be fruitful for the economy as a whole or not? Is it not so that shift towards the consumption tax would increase inequality? However, there are different ways to combat this inequality. For example, reduced rate of goods and services tax may be applied to certain necessities in order to reduce tax burden on the poor. But it is not an effective way to deal with the problem as the rich typically consume more of the necessities than the poor. Also it is difficult to ensure that none of the poor people lost out. This is the biggest concern that the oppositions use to oppose a tax on consumption. The poverty reduction will continue to remain the central objective of the economic policy making in India. Any
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olicy initiative since expenditure on food constitutes a large proportion of the total consumption expenditure of the poor. In any case, the poor will continue to have accessibility to these items at subsidized prices through the public distribution system. Basic health and education services are expected to be fully exempt in GST regime. Since these services are necessary to meet the basic human needs, the exemption for these services will enable the poor to have cheaper accessibility. In any case, as at present, these services will continue to be exempt from tax and therefore no additional burden will arise on account of the switchover to GST. Housing is yet another important item of basic needs of the poor. The Task Force recommended for the inclusion of transactions in real estate within the purview of GST. Therefore, for a registered real estate builder, all taxes on inputs (including on land) will be offset against the tax payable on the constructed property. This will effectivel
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erefore, the poor will also enjoy an increase in their income. Similarly, on account of increase in economic activity resulting in higher growth, there will be new opportunities for employment which will directly benefit the urban poor. According to the Task Force the benefit to the poor from the implementation of GST will flow from two sources: i) Through increase in the income levels and ii) Through reduction in prices of goods consumed by them. The proposed switchover to the flawless GST should, therefore, be viewed as pro-poor and not regressive. As per Task Force, prices of agricultural commodities and services are expected to rise. Most of the manufactured goods would be available at relatively low prices especially textiles and readymade garments. The prices of agricultural goods would increase between 0.61 and 1.18 percent whereas the overall prices of all manufacturing sector would decline between 1.22 and 2.53 percent. Hence, the terms of trade will move in favour of agricult
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