How Taxes would work in GST Part-II
Taking Same Example as was covered in previous Update of how it would work in GST
If suppose A is a Manufacturer of Goods in Rajasthan and is liable under GST for levy and payment of Tax.
The Tax Rate in the previous Example as the Revenue Neutral Rate (Rate at which similar revenue being generated previously would be generated in the new Regime) would be @ 22.5%
The Breakup of the same is as follows:
Purchase of Raw Material Rs 45.00
Services (Liable to Service Tax) Rs 25.00
Services (Not Liable to Service Tax) Rs 10.00
Profit Margin A to B Rs 21.50
Profit Margin B to C Rs 15.00
Total Taxes (Pls refer previous post) Rs 26.00
Gross Selling Price Rs 142.50
He purchases goods of Rs 45 on which GST would now be levied @22.5%. He has also availed Services for the Manufacture of Goods of Rs 25 wherein he would be paying GST @ 22.5%. Further he has paid other charges for Manufacture of Goods of Rs 10 which under GST are supposed to be covered Taxable Category as GST seeks to tax all supplies including Goods and Services excluding some exceptions. .
Thus total cost of Manufacturing would be
Cost of Raw Material Rs 45.00
GST Paid on Raw Material Rs 10.12
Services used for Manufacturing Rs 35.00
Add: GST on Services Rs 7.88
Total Cost of Finished Goods Rs Rs 99.13
Therefore Total Cost works out as follows:
Total Cost Excluding Taxes Rs 80.00
Creditable Taxes (GST) Rs 19.13
Total Cost Rs 99.13
A would be selling the Goods to B in Rajasthan after adding his profit margin as per previous example of Rs 21.5 i.e. Rs 80 Cost Price as above and Rs 21.5 Margin and total being Rs 101.50.
The sales price is as follows:
Sales from A to B Rs Rs 101.50
GST Rs 22.84
Total Selling Price Rs 124.34
Now B sells the Goods to C in Rajasthan. As B would be getting the credit of GST paid therefore his cost price would only be Rs 101.50 and after adding his margin of Rs 15, he sells the goods for Rs 116.50 to C who is a consumer.
Sales from B to C Rs 116.50
GST@ 22.5% Rs 26.00
Total Selling Price Rs 142.50
Therefore the total Incidence of Tax in the given matter would come as follows:
GST Paid by A on Purchases Rs 10.12
GST Paid by A on Services Rs 7.88
GST Deposited by A on Sales (22.84-10.12-7.88) Rs 4.84
GST Deposited by B on Sales (26.00-22.84) Rs 3.16
Total Tax Deposited on GST Rs 26.00
The Customer also knows clearly of the Taxes that he is paying and there is Transparency in the System as well. Both B and C were paying Excise and Service Tax Indirectly in their cost and both A and B collected Service Tax and Excise as part of their cost price as no Credit was allowed to them of the same. This would not happen in GST and all the taxes paid would be Creditable.
These were the two examples for Calculation under GST. In the Next post I would share that how GST would work in case of Expanding the Base and Reduction of Tax Rate.