The Goods and Services Tax (GST) law came into effect from July 1, 2017. This marks a historic development in the taxation sector of the country and is being purported to be the biggest tax reform that has come into effect since India’s independence. GST is found on the notion of “one nation, one market, one tax.”
GST consolidates the indirect tax sector by abolishing other forms of taxes such as VAT, CST, Service Tax, CAD, SAD and Excise and removes the cascading effect of double taxation. It has the ability to ease the trade between different states of India as a unified and consistent tax law will be applicable all over India. The impact of GST is dependent upon various sectors in the economy. While some sectors will benefit, others will have to shell out higher taxes.
It has revived India’s fiscal reform program which will strengthen and boost the Indian economy globally as well as internally. It will cause a bit of hardships for the citizens and manufacturers in the country to make a transition into this new reform. Some of the major impacts of GST on the Indian economy are –
- The introduction of GST will increase the GDP of India by 1-2%.
- The tax burden of certain manufacturing sectors will be decreased as double taxation will be avoided. Erstwhile, manufacturers had to pay certain taxes on their production which retarded their growth. GST will provide tax credit to the manufacturers which will increase production.
- The benefit of single taxation on the manufacturing sector will in turn lead to a reduction in the selling price for the consumers.
- There will be an increase in Foreign Direct Investment as more companies abroad will find it more easy and convenient to deal with a single unified tax law rather than multiple and complex tax laws as presented earlier.
- The government revenue will be increased by widening the tax base as tax credits will be provided to the manufacturers which would lead them to purchase raw material from different dealers and therefore more vendors and suppliers will come within the ambit of taxation.
- GST has abolished the custom duties on exports which will increase foreign market exports, boost employment and growth, due to low cost of transaction. It is estimated that India could get a revenue of $15 billion.
- Prior to the GST regime, there were numerous exemptions and concessions available across goods and services under the various central and state level taxes. The GST will bring about a single unified list of concessions and exemptions.
- GST will increase tax compliance and more assesses will come into the tax net as there will be uniformity in tax laws.
- There will be simplified tax laws which will reduce litigation and frivolous litigation. Present law presents a larger problem for the judiciary at the appellate and adjudication levels. A single uniform law will be easier for implementation as it covers pan India.
- Check posts and toll plazas lead to wastage of perishable items which are transported through various states. It also increases the need for buffer stocks and warehousing costs. The rolling of GST will eliminate the roadblock of such vehicles as a single tax system will be in place.
The success and benefits of this new tax reform will be seen over a period of time. While the benefits will definitely be seen in favour of the government and international markets, it will also encourage the growth of Indian products both domestically and internationally. The consumer will have to pay less tax on certain goods and services.
