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Impact of Goods and Service Tax (GST) on Indian Economy

By - Nandini Tripathy


Source : Outlook India


GST also known as the Goods and Services Tax is defined as the giant indirect tax structure designed to support and enhance the economic growth of a country. More than 150 countries have implemented GST so far. However, the idea of GST in India was mooted by Vajpayee government in 2000 and the constitutional amendment for the same was passed by the Lok Sabha on 6th May 2015 but is yet to be ratified by the Rajya Sabha. However, there is a huge hue and cry against its implementation. The Goods and Services Tax (GST), implemented on July 1, 2017, is regarded as a major taxation reform till date implemented in India since independence in 1947. GST was planned to be implemented in April 2010 but was postponed due to political issues and the conflicting interests of stakeholders. The primary objective behind the development of GST is to subsume all sorts of indirect taxes in India like Central Excise Tax, VAT/Sales Tax, Service tax, etc. and implement one taxation system in India. The GST based taxation system brings more transparency in the taxation system and increases GDP rate from 1% to 2% and reduces tax theft and corruption in the country. The paper highlighted the background of the taxation system, the GST concept along with significant working, comparison of Indian GST taxation system rates with other world economies and presented in-depth coverage regarding advantages to various sectors of the Indian economy and outlined some challenges of GST implementation. It would be interesting to understand why this proposed GST regime may hamper the growth and development of the country.


A new system is always introduced to rectify the lacunas of the old ineffective system. Similarly, the GST system was introduced in India with the idea to revamp, reshape and repair the indirect taxation system of India. Therefore, in order to recognize the effects of the revamping and reshaping of the indirect taxation structure of India, it is imperative to understand the pre-GST regime, post-GST regime and to draw a comparative analysis of the same. The previous structure has a multi-tier taxation structure which has been adversely affecting the economy in the long run. The tax ecosystem levied taxed on two levels i.e., the Central and the State level which resulted in the imposition of several taxes, thereby leading to a ‘cascading effect of taxes. The cascading effect of parallel taxation had been making tax as a cost of the product resulting in a burden on the pocket of the consumer. For example, in the earlier tax regime, a product X was manufactured and sold by manufactured for Rs 100/-. That product was added with the burden of excise duty of 12%, Central VAT tax of 5%, State VAT of 14% and the trader was not permitted to claim an input tax credit with respect to services opted by him/her in their business. The input tax credit could be availed only when the input and output tax is of the same head. However, in the Pre-GST regime from manufacturer to the consumer at every stage, there was a different head of indirect tax which failed to provide an input tax credit to the businesses resulting in tax being a cost and a heavy burden on the pocket of the consumer and therefore, the GST regime was introduced whereby the indirect taxes were made uniform so that the input tax credit facility can be availed from manufacturer to the consumer at every stage which ultimately reduced the burden of tax being a cost on the pocket of the consumers.


Several countries have already established the Goods and Services Tax. In Australia, the system was introduced in 2000 to replace the Federal Wholesale Tax. GST was implemented in New Zealand in 1986. A hidden Manufacturer’s Sales Tax was replaced by GST in Canada, in the year 1991. In Singapore, GST was implemented in 1994. GST is a value-added tax in Malaysia that came into effect in 2015.


July 2000, is the year of origin of Goods and Services Tax, the Empowered Committee of State Finance Ministers with the Hon’ble State Finance Ministers of West Bengal, Karnataka, Madhya Pradesh, Maharashtra, Punjab, Uttar Pradesh, Gujarat, Delhi and Meghalaya were set up as members by the Government of India with the following objectives:

  • to monitor the implementation of uniform floor rates of sales tax by States and Union Territories.

  • to monitor the phasing out of the sales-tax based incentive schemes.

  • to decide milestones and methods of States to switch over to VAT.

  • to monitor reforms in the Central Sales Tax system existing in the country.

The growth and prosperity of any economy in the World is exclusively depending upon the revenue generated from both indirect and direct taxes. Finance is the pre-requisite strength for creating the basic and core infrastructure in order to facilitate trade, industry and other ancillary services. The taxation policy of Govt. aims to meet its legitimate need to collect the tax revenue to fund public services and develop core infrastructure in a phased manner which is the important instrument for stimulating industrial growth, promotion of trade and commerce and generating employment opportunities for young India. The structure of Indirect Taxes as existing up to 30.06.2017 was based on three lists in Seventh Schedule to Constitution of India in 1950, which was based on the Government of India Act, 1935. The Ministry of Finance, Govt. of India has initiated many tax reforms and made structural changes in economic policy in a phased manner in order to strengthen our tax regime.


Goods and Services Tax will unite the Indian economic system into one commonplace marketplace under a single umbrella of taxation quotes, leading to the easiness of beginning and doing groups, leading to a boom in savings and price discount among numerous sectors. Some industries can be empowered by using GST because of reduction in tax quotes, whilst some will lose because of a higher charge of GST pursuits. Various taxes are imposed on the Indian populace through Central and State Governments like Central Excise, Service Tax, VAT, and so on. Before the creation of VAT in Sales Tax and CENVAT in Central Excise and Service Tax, the Indian Taxation System changed into very complicated, and this had cascading results. The tax imposed on one destination turned into additionally taxed on every other. However, in recent times, the taxation device has seen awesome revolutions. Many adjustments in taxation have been applied, this is, VAT, and implementation of Service Tax by using Central Government. In the Central Excise taxation machine, the authorities brought CEVAT via placing off taxes on inputs, whilst producing output merchandise. With the advent of VAT based taxation gadgets in India, the inspiration stone of GST implementation became laid.


Is GST helping the Indian economy for the better?

When country and centre have the autonomy to levy costs based on their options, the complete system is distorted, and the motion of goods also will become hard. Therefore, rooting out redundancy in a tax regime is essential to escape the tax-on-tax effect. GST has installed area easy and homogeneous tax, the spoils of which may be utilized by the nation and the centre similarly. A wide rate drop throughout the spectrum is considerable, something that was absent in the preceding tax regime. The creation of a unified countrywide market across the use of a -under the banner of GST has increased manufacturing activities. In the current GST council meet, the important thing area of cognizance turned into the cottage industry. The quotes for several uncooked substances have been rationalized in a bid to enhance the country’s small-scale enterprise. In these elements, it resonates with the Make in India Programme which pursuits at making India a production hub.


How will GST impact the Indian Economy?

  • Reduces tax burden on producers and fosters increase via greater manufacturing. The modern taxation structure, pumped with myriad tax clauses, prevents producers from producing to their highest quality capacity and retards growth. GST will deal with this problem by means of supplying tax credit to the manufacturers.

  • Different tax boundaries, inclusive of test posts and toll plazas, cause wastage of unpreserved items being transported. This penalty transforms into predominant fees due to better wishes of buffer stock and warehousing fees.

  • There might be greater transparency within the machine as the clients will recognize precisely how a whole lot of taxes they may be being charged and on what basis.

  • GST will upload to the government sales via extending the tax base.

  • GST will offer credit scores for the taxes paid by using producers in the goods or services chain. This is anticipated to encourage producers to buy raw material from distinctive registered dealers and is hoped to herald more companies and suppliers below the purview of taxation.

  • GST will take away the custom duties relevant to exports. The country’s competitiveness in overseas markets will increase attributable to decrease expenses of transactions.

The proposed GST regime is a 1/2-hearted try to rationalize oblique tax shape. More than a hundred and fifty international locations have carried out GST. The government of India need to have a look at the GST regime set up through diverse nations and their fallouts earlier than enforcing it. At the same time, the authorities need to try to insulate the extensive terrible population of India in opposition to the probable inflation due to the implementation of GST. No doubt, GST will simplify the present oblique tax device and could help to take away inefficiencies created by means of the present modern heterogeneous taxation machine most effective if there is a clear consensus over problems of threshold restriction, revenue rate, and inclusion of petroleum merchandise, energy, liquor and actual property. Until the consensus is reached, the government need to face up to enforcing such a regime.


Nandini Tripathy is a first-year student at JGLS.

 

References:

1.https://www.academia.edu/39722032/THE_STUDY_OF_IMPLEMENTATION_OF_GST_AND_ITS_IMPACT

2.https://www.researchgate.net/publication/323007997_A_Comprehensive_Analysis_of_Goods_and_Services_Tax_GST_in_India

3. https://www.omicsonline.org/open-access/a-research-paper-on-an-impact-of-goods-and-service-tax-gst-on-indianeconomy-2151-6219-1000264.php?aid=82626

4. https://cleartax.in/s/gst-analysis-and-opinions

5. Dani S (2016) A Research Paper on an Impact of Goods and Service Tax (GST) on Indian Economy. Bus Eco J 7: 264. doi: 10.4172/2151-6219.1000264

6. Garg, Girish (2014), “Basic Concepts and Features of Good and Service Tax in India”, International Journal of Scientific Research and Management, volume 2, issue2

7. Kumar, Raj. "Comparison between Goods and Services Tax and Current Taxation System A Brief Study." International Journal of Allied Practice, Research and Review III, no. IV (2016): 9-16.

8. P, Lourdunathan F and Xavier. "A study on implementation of goods and services tax (GST) in India: Prospectus and Challenges." International Journal of Applied Research, 2017: 3(1): 626-629.

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