Critical Analysis of Goods & Services Tax (GST)

Introduction

India is a nation which is capable of rendering a beacon of endurance to all the citizen of the nation amidst a divergent economic crisis evolving day by day in the nation. It is a nation which put in force many of strategic endeavours such as the ‘Make in India’ and ‘Digital India’ campaign. In addition to this strategic undertaking, India has implemented a very significant effect on taxation in the nature of “One nation, One market and One tax” i.e., the Goods and Services Tax (GST). This tax regime stimulates the economic progress in the society which involves the process of transforming the existing basement of indirect tax regime into the free flow of goods in the market. The most important role played by GST is that it eliminated the cascading effects of tax which is considered to be a rivalrous effect as it imposes a tax on the tax basis. The implementation of GST enabled the Indian products to be well competing in both domestic and international markets. This new tax regime is most expected by each and every individual in the society to have a sustainable economic growth in the whole nation. The main object of GST is to fill all the loopholes prevailing in the society and to boost the nation’s economy by unifying the indirect tax for entire states all over India.

Benefits of GST on Indian Economy

It is a very known fact that the final price of the goods in the market cannot be determined by GST alone but is dependent on some other determinants like seller’s profit margin, etc. The following are the benefits which are derived from GST.

  • GST will boost the economy in the long run;
  • There exists a lesser and simplified tax compliance policy in comparison with the previous tax regime;
  • A complete removal of the cascading effects of tax;
  • A comparatively lower burden on the shoulders of the common man. For instance, that means public will shed lower price on the similar products which were much costly in the previous tax regime;
  • Upsurge in the demand and consumption of goods due to which there is automatic upsurge in the supply of goods which ultimately paved the way for rise in the production of goods[i];
  • Eradication of indirect taxes like VAT, Service tax, Excise, CST, CAD AND SAD;
  • Also, an effective control on the circulation of black money as there exists a mandatory check upon every traders and manufacturer in the market.

The above-mentioned benefits of GST can be derived only if the actual benefit of GST is moving forward to the final consumer in the market.

GST purged the Indian economy by framing the compliance bar high

GST has been described as a technology-driven and a self-policing system. Technology is considered as the only interface between the authorities and the taxpayerwhich is ushered by a new paradigm variation in the taxation system. But how so ever, the difficulties which arise during the process of catering to this new tax regime by the taxpayers cannot be completely blamed upon the technology glitches. Earlier,during the previous tax regime, the tax credits were made available merely by the existence of invoices issued by the supplier, though the supplier has not submitted the tax to the government himself which he received from his customer. This process had the chances of involving huge risk of fraud during transactions. Thus, such fraud risks are substantially reduced under the new tax regime, as GST is described to be the ‘watchdog and game changer of the Indian economy’. The significant features of GST are as follows:

It involves the acquiescence of details of all the transaction at a more advanced level.

The learning curve of tax practitioners and assesses are taken up to a steep level thereby ensuring a level of complete discipline under the regime of GST. Benefits of GST are apparently visible in sectors like that of logistics in terms of effectiveness which also enhances the economic growth rate in the entire nation. GST had largely eradicated the inefficiencies of the tax system which exists in the nation. It has been seen as the biggest tax reform in independent India by bringing together the entirety of India’s 1.3 billion population into a common market in one stroke by demolishing interstate tariff barriers. The tax slabs of 0%,0.25%,3%,5%,12%,18%,28%,31% was subsumed by the central, state and the local taxes into the line of ‘One nation, one market and one tax’ system. The businesses have also acquired a rebate for the taxes paid on the raw materials and services which makes them more competitive in the market. Severance in the GST is directed towards the informal sector of the nation’s economy and has enabled the informal sector to be integrated with the formal sector by way of tax rebates to the registered assesses. And this process has left small firms with two options, i.e., to either sign the GST or to lose the competitiveness.

The overall impact of GST on the Indian economy

It should be understood that GST is not a tax concession system but a single Revenue Neutral Rate (RNR) on the goods and services in the society so that the total tax revenue of the central and the state prevails the same. The previous tax regime was considered as a major impediment to India’s economic growth and competitiveness. For instance, the cascading effect on taxes had made the indigenous manufactures less attractive in the market. In such a scenario, for the growth of the Indian economy, the implantation of GST is considered crucial. The tax barriers with seamless credit are replaced by GST which leads India in the common market as an economy which scales in production and efficiency in the supply chain, thereby expanding the trade and commerce in the market. By the introduction of GST in the economy sectors like organized, logistics, industry, and modernized warehousing, have received the favourable impact. The cost of tax compliances and transaction tax by a single tax has reduced the integration of multiple taxes. Ease of doing business in the country has also been facilitated by the new tax regime.

The tax refunds through GST NET and the electronic processing of tax returns and tax payment and without human intervention have curbed corruption and tax evasion activities. The stable, transparent and predictable tax under GST has encouraged local and foreign investments in India, thereby creating significant job opportunities for the people of the country. Major beneficiaries under GST include FMCG [Fast Moving Consumer Goods], pharma, consumer durables, automobiles, logistics and the warehousing industry. The new tax regime has reduced the tax burden unlike the previous tax regime was myriad with tax clauses on the producers and foster growth through increasing the scope for production. During the chain of goods and services, GST has extended the tax base and provides credit for the producers on the taxes paid by them. It has further has removed the customs duty which was imposed on exports. Due to this, there are chances of the nation’s competitiveness increasing in the foreign market on the account of the lower cost of the transaction.

Conclusion

Thus, though GST is considered to be stringent in the economy, the benefits and impacts rendered in the economy are marvellous and mind-blowing. GST has made India a brighter economy by merging a large number of central and state taxes into a single tax system. Taxation was made very easy for the industries by eradicating the inconvenient cascading effects of the tax. As the nature of GST is transparent it is very easy to administer and thereby promote sustainable growth in the economy by making the products competitive in the domestic and foreign market. Though there may be drawbacks, the same can be fine-tuned like recent trimming of slabs in the hotels and restaurants. It should not be viewed as a tax collection system but a regime which has a huge social and business ethics implication as mentioned earlier. Thus, we can be said that through fear of possible retrospective tax inspection and survey lies at the heart of chorus against GST, it stands against this negativity by culminating and rendering the positive impacts and effects to the societies in the long run for sure.

Frequently Asked Questions (FAQs)

  1. When was the GST act implemented and what is objective behind it?

On July 1, 2017, The Goods and Services Tax (GST) was implemented and is regarded as a major taxation reform till date implemented in India since independence in 1947. GST is said to be planned before and was to be implemented in April 2010, but due to political issues and conflicting interest of stakeholders, it was postponed. The 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.

2. Mention few benefits of GST on Indian Economy.

Few benefits of GST on Indian Economy are-

  1. GST will boost the economy in the long run;
  2. There exists a lesser and simplified tax compliance policy in comparison with the previous tax regime;
  3. Complete removal of the cascading effects of tax;

3. How has GST purged the Indian economy by framing the compliance bar high?

GST has been described as a technology-driven and a self-policing system. Technology is considered as the only interface between the authorities and the taxpayer which is ushered by a new paradigm variation in the taxation system.Earlier, during the previous tax regime, the tax credits were made available merely by the existence of invoices issued by the supplier, though the supplier has not submitted the tax to the government himself which he received from his customer.

4. What are the significant features of GST?

The significant features of GST are as follows:

  1. It involves the acquiescence of details of all the transaction at a more advanced level.
  2. The learning curve of tax practitioners and assesses are taken up to a steep level thereby ensuring a level of complete discipline under the regime of GST.
  3. Benefits of GST are apparently visible in sectors like that of logistics in terms of effectiveness which also enhances the economic growth rate in the entire nation. GST had largely eradicated the inefficiencies of the tax system which exists in the nation. It has been seen as the biggest tax reform in independent India by bringing together the entirety of India’s 1.3 billion population into a common market in one stroke by demolishing interstate tariff barriers.

5. What is the impact of GST on Indian Economy?

GST is not a tax concession system but a single Revenue Neutral Rate (RNR) on the goods and services in the society so that the total tax revenue of the central and the state prevails the same. The previous tax regime was considered as a major impediment to India’s economic growth and competitiveness. For instance, the cascading effect on taxes had made the indigenous manufactures less attractive in the market. In such a scenario, for the growth of the Indian economy, the implantation of GST is considered crucial.

References

  1. GST Benefits and Impact on Indian Economy,http://www.deskera.in/gst-benefits-and-impact-on-indian-economy/.

2. GST shakes up Indian economy by setting the compliance bar high, http://www.livemint.com/Politics/O5U4s67gDJbXHPUYdSfYaK/GST-shakes-up-Indian-economy-by-setting-the-compliance-bar-h.html

3. A defining feature of India’s economy has just fallen prey to the beauty of GST, https://economictimes.indiatimes.com/news/economy/indicators/a defining-feature-of-indias-economy-has-just-fallen-prey-to-the-beauty-of-gst/articleshow/60763110.cms.

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