The global economic crisis has impacted businesses across the globe, irrespective of their size, industry vertical and key functional aspects. Amidst this, India is set out to achieve ambitious growth targets with several strategic initiatives such as Make in India and Digital India campaigns. The ‘Goods and Services Tax’ (GST) is one of the key initiatives that have the promise to uplift the Indian economy, gradually. Primarily aiming at eliminating the cascading effect of taxes, this initiative acts as a robust stimulant for economic growth. The introduction of GST and its impact in India has set high expectations for the neighboring countries as well.
The Goods and Services Tax or GST was brought into effect in July 2017, with the objective of introducing a single comprehensive tax. The idea was to replace all the existing indirect taxes such as central excise tax, service tax, VAT and entertainment tax. The comprehensive tax model is set out to make tax filing and management easy, hassle-free and productive for the Indian citizens.
As the name suggests, GST is levied on the manufacturing and sales of goods and services across the country. The tax is charged at every stage of the manufacturing process and is applicable to both the customer and the manufacturer. It is also referred to as a destination-based tax as it is to be collected at the point of consumption.
Here are some of the types of GST:
CGST (Central Goods and Services Tax): The Central Government is the sole authority, responsible for collecting the tax on the intrastate sale of goods and services.
SGST (State Goods and Services Tax): The tax based on the intrastate supply of services and products is collected by the respective State governments.
IGST (Integrated Goods and Services Tax): The tax is charged on the interstate supply of products and services and is shared between the central and concerned state governments.
Effect of GST on the Indian economy
The GST and its impact on the Indian economy are noteworthy. It has played a pivotal role in the simplification of the taxation system nation-wide. By eliminating several indirect taxes such as VAT, CST, Service tax, CAD, SAD, and Excise, GST has considerably reduced the tax calculation effort at multiple stages of the taxation ecosystem. In addition, it has enabled the manufactures of the goods and services as well as the customers to have clarity on the amount of tax payable/receivable.
The introduction of GST has helped businesses immensely by eliminating taxation roadblocks, such as toll plazas and check posts. Earlier, manufacturers had to incur the costs for the product damages during transportation and hence, they used to keep buffer stock to make up for the damages. In turn, these overhead costs of storing and warehousing impacted their profit margin. GST has emerged as the ultimate solution to remove these challenges, partially if not completely. Businesses enjoy the flexibility to transport their goods across the states without being worried about the previously imposing taxation system and are striving to boost their operations across PAN India.
GST has significantly reduced the tax component on the product cost as well as customs duty on exported goods. Local manufacturers also now have to pay a lesser amount of tax for their productions. The end-user also has to pay lesser taxes on consumable goods and services. This has resulted in the surge of exports in the country that has enabled businesses to go global. GST has enabled the SMBs to register themselves under the Composition Scheme to pay taxes based on their annual turnover. A GST of 1% is applicable for an annual turnover of INR 1.5 crores.
Apart from the bunch of positive impacts, there are negative implications of GST as well. Some of the inherent flaws in the recently launched GST systems are the lack of centralized registration for the taxpayers, lack of a centralized system of accounting, complicated tax returns filing and the most negative impact of GST is that the end consumer has to bear the burden of the highly-amplified tax on the products and services.
Despite the few negative implications, GST and its impact on GDP can’t be overstated. The implementation of GST will prove to be a noteworthy step in the right direction for indirect tax reforms in India with support from the stakeholders and citizens altogether.
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