How GST will Impact Indian Economy

GST stands for goods and service tax. It is the biggest tax reform since 1947. Goods and Service Tax will replace all the indirect taxes levied on goods and services by the state and the central government of India. Indian economy is the eleventh largest economy in the world and the third largest economy by purchasing Power Parity (PPP). GST is the tax levied on manufacture, sale and consumption of various goods and services. In India central and state government has power to levy taxes.

After the implementation of GST a common market will be created across the country. There will be no unhealthy competition across the states, and there will be seamless input tax credit throughout the supply chain. Taxation will become more simplified. The implementation of GST will reduce the cascading effects of taxes. GST will replace central excise tax, sales tax, service tax etc. at central level and sales tax, entertainment tax, luxury tax and entry tax etc. at state level.

More than 140 countries have already adopted GST. France was the first country to adopt GST in 1954. Standard GST rate in most of the countries ranges between fifteen to twenty percent. GST has two components central and state that is Central Goods And services tax (CGST) and State goods and services tax (SGST) CGST is applicable when there is an interstate transaction of goods and services, central excise duty, service tax, CVD, SAD, excise duty in M&TP etc. SGST is applicable when the transaction of goods and services is intrastate. It covers taxes like entertainment tax, VAT/Sale tax, luxury tax etc. Integrated GST (IGST) is the sum of both CGST and SGST.

Benefits of GST:

After GST a large number of taxes will not have any existence. GST would reduce the transaction cost

Tax burden:

The main implication of Goods and Services Tax is that there will be less tax burden on the producers. Manufacturing is quite costly and the manufacturers were liable to pay more taxes as they were paying taxes on the purchase of raw material and on the final receipts by the sale of goods. Due to double taxation the producers were not producing to their capacity, due to which there is less growth in the economy. Moreover there was the absence of input tax credit during the interstate transaction because a manufacture producing in one state has to pay the sale tax on sale of goods in other state as well due to which the cost is increased and the productivity is reduced. The different obstacles like toll plaza many a times lead to the wastage of perishable goods being transported from one place to another. After the implementation of GST there would be no such types of losses.

Benefits for consumers:

The selling price of the goods and services will be reduced after the implementation of GST. it would increase the purchasing power of the consumer as the consumer can now buy more good with the same money.The demand of the consumer will increase which would lead to more production and directly more production will lead to growth of Indian economy. Implementation of GST will bring

Exports and imports

GST would lead to the increase in the number of exports and imports which would lead to increase in aggregate demand of goods in the economy of India.

Increased revenue from the taxes:

As the tax structure would become simpler with the help of GST and the taxes will be paid by all the taxpayers which would result in increasing the revenues of the government. As tax cascading effect will come to an end so more and more taxpayers will be interested in paying the tax returns.

Incentive:

Companies which are providing the goods or services will pay the taxes only on the value added so the actual tax paid will be less than that paid earlier which will in result reduce the evasion of incentive.

Transportation:

During the transportation of products taxes will be levied on the factory gate so during every dispatch GST will be applicable at every stage that is warehouse, factory etc therefore the registration is compulsory as every dispatch is taxable under GST.

Simple and easier life for taxpayers:

There are total 17 indirect taxes which are levied on goods and service before the application GST. Due to a large number of taxes the collection of taxes is also difficult. All the taxes will be replaced by GST and the collection system of taxes will became easier.

Affordable cost of logistics and inventory:

The state checks on the movement of trucks and the vehicles used for the transportation of products.The cost of logistics were reduced as in India the trucks travel only 280km per day due to which loses occurred as some perishable goods were wasted whereas in US the trucks travel 800km per day. The cost of logistics will be reduced as the state checks will reduce which will result in slowing down the movement of trucks.

Cascading effect:

The manufacturing goods will become cheaper as the logistics will become cheaper and there would be no tax calculated on tax.

Benefits to e-commerce companies:

Many companies dealing online are unable to provide goods and services due to the restrictions during shipment of the products such as state restriction and Levis. Now the implementation of goods and service tax will provide relief to such companies and will provide uniform market.

Make in India:

More and more manufacturing firm will come into picture which will increase the competition in the manufacturing world. As the issue of cascading effect, inter-state tax, fragmented market and high logistics costs will be resolved by the implementation of GST.

With the implementation of GST the purchasing power of the consumer will increase. GST will lead to growth in GDP of Indian economy. There would be more transparency and supply chain management will become easier. It would also become easier for taxpayers to calculate the taxes as unified rate of taxes.

I am Shreya Dey, with more than 5 years’ experience in financial writing. Currently, I am writing for allindiaitr.com. I have written several blogs, articles and informative pieces related to income tax filing, corporate laws and taxation.