The Goods and Services Tax (GST) law came into effect from July 1, 2017. This marked 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.” We will learn about positive impact of GST and its challenges in India here.
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.
Positive Impact of GST on the Economy
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
1. Simplified Tax System
Before GST, businesses had to comply with various taxes like VAT, service tax, excise duty, and octroi. GST merged these into a single tax framework, reducing complexities and making tax compliance easier for businesses of all sizes.
2. Removal of Cascading Taxes
Previously, taxes were levied at multiple stages without input tax credit benefits, leading to a “tax on tax” situation. GST resolved this by allowing businesses to claim tax credits on inputs, ultimately reducing the overall tax burden and making goods and services more affordable.
3. Strengthened National Market
With the introduction of GST, businesses no longer had to navigate different tax rates across states. This created a more integrated and competitive market, improving the ease of doing business and enhancing interstate trade.
4. Boost to Formal Economy & Compliance
GST incentivized businesses to register under the tax system, increasing transparency and reducing tax evasion. The adoption of digital tax filing and e-invoicing has further ensured better compliance and accountability.
5. Growth in Government Revenue
With a broader tax base and improved compliance, GST has contributed to steady growth in government revenue. The adoption of technology-driven tax collection mechanisms has helped minimize leakages and improve efficiency.
Challenges and Areas of Improvement
1. Initial Implementation Hurdles
Despite its long-term benefits, GST faced initial challenges, including frequent rate changes, complex return filing processes, and technological glitches in the GST portal. While many of these issues have been resolved, continuous refinements are necessary.
2. Impact on Small Businesses
Small and medium enterprises (SMEs) initially struggled with compliance due to the requirement for frequent tax filings and invoice matching. The government has since introduced measures like the composition scheme to ease compliance for small businesses.
3. Revenue Concerns for States
Since GST subsumed state-level taxes, some states faced revenue losses. To address this, the central government provided compensation, but as the compensation period has ended, states are now looking for alternative solutions.
Recent Developments in GST
- The government is considering including petroleum products such as natural gas under GST to bring uniformity in taxation and reduce price variations across states.
- The GST revenue collection continues to show strong growth, with recent months witnessing record-high collections.
- Efforts are being made to simplify the tax structure further by reducing the number of tax slabs and ensuring ease of compliance.
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.
Also Read: Union Budget 2025: Key Highlights, Expectations and Impact on Economy
