With GST round the corner (target date 1st July), the confusion about its understanding still exists. Though the concept is simple, but many (especially the laymen), find it difficult to comprehend. The purpose of this note is to explain it in simple terms, the advantage of GST compared to the conventional system.
GST (Working Principle)
GST works on the principle of ONLY taxing the vendor’s contribution to the “overall product’s value”. Also, the tax paid is not included in the price of the product sold to the vendor next in the chain. This uniformly distributes the burden of taxation to all vendors (in the chain) in proportion to their contribution (value added) to the end product – leveling the playing field especially for vendors at the end of the product chain. Also, the tax rate for a product category is same across the country – preventing arbitrage.
