GST &

Effect on Indian Economy

Submitted To Submitted ByMr. Karan Sabharwal Lalit Chaudhary

What is GST

GST stands for “Goods and Services Tax” and is proposed to be a comprehensive indirect tax levy on manufacturer, sale and consumption of good as well as the services at the national level. It will replace all indirect taxes levied on goods and services by the Indian central and state governments. Goods and services tax would be levied and collected at each stage of sales or purchase of goods or services based on the input tax credit method

NEED OF GST IN INDIA

• The mechanism of imposing taxes, exemptions, abatements, other benefits are different in state and centre

• India needs comprehensive levy and collection of both goods and services at the same rate with the benefit of input credit.

• Existing law has resulted in significant number of issues related to interpretation and the category of products and the nature of services

• GST will ensure boost to exports. When the cost of production falls in the domestic market, Indian goods and services will be more prices competitive in foreign markets.

• A simple tax structure can bring a greater compliance, thus increasing number of tax payers and in turn tax revenues of government

CHALLENGES FOR GST IN INDIA

• Passing of Bill in Rajya Sabha – Since central Government is not having sufficient majority in Rajya Sabha

• Consent of states – For implementing it is critical that GST bill is passed by the respective state government in state assemblies so as to bring majority.

• Threshold Limit in GST – While achieving broad based tax structure under GST, both empowered committee and Central Government must ensure that lowering of threshold limit should not be a “taxing” burden on small businessman in the country.

• Revenue Neutral Rate – It is a most prominent factor for its success. We know that in GST regime, the government revenue would not be the same as compared system. Hence, through RNR Government is to ensure that its revenue remains same despite of giving tax credits.

• Robust IT sector – Government has already Goods and Services tax network (GSTN). GSTN has to develop GST portal which ensure technology support for registration, return filing, tax payments, IGST settlements etc.

Benefits

• A Simple life for Indian Taxpayer: There are a total of 17 indirect taxes levied on the Goods and Services sector of India and thus the tax collection system is also complex. GST Bill will replace all those indirect taxes

• Decreased costs for Inventory and Logistics: The state checks the trucks and transporting vehicles at the borders which result in slowing down the movement of trucks. In the US, the trucks travel at least 800km a day as compared to the Indian trucks, who travel only 280km a day. So, the logistics costs will reduce.

• Increased Revenue Collection: The evasion of tax will decrease and the input tax credit will encourage the suppliers to pay their fair share of taxes. Due to GST bill, the number of tax-exempt goods will decline and also, the centre and state will have a dual oversight over the payment and collection of taxes.

• No Cascading Effect: The cascading effect of the tax on tax will diminish and the manufactured goods will become cheaper with lower logistics and tax costs for Indian consumers.

• Help to E-Commerce Industry: The several E-Commerce companies were not even able to ship to some states due to state restrictions and levies. They have basically complicated the e-commerce activity. Now, the levy of GST Bill will convert India into one uniform market.

• Push to “Make in India”: The GST applicability will invite more competition in the manufacturing sector as it will address the issues of cascading effect, inter-state tax, fragmented market and high logistics costs.

Impact of GST in Indian Economy

• Reduce tax burden on producers and foster growth through more production. This double taxation prevents manufacturers from producing to their optimum capacity and retards growth. GST would take care of this problem by providing tax credit to the manufacturer.

• Various tax barriers such as check posts and toll plazas lead to a lot of wastage for perishable items being transported, a loss that translated into major costs through higher need of buffer stocks and warehousing costs as well. A single taxation system could eliminate this roadblock for them.

• A single taxation on producers would also translate into a lower final selling price for the consumer.

• there will be more transparency in the system as the customers would know exactly how much taxes they are being charged and on what base.

• GST provides credits for the taxes paid by producers earlier in the goods/services chain. This would encourage these producers to buy raw material from different registered dealers and would bring in more and more vendors and suppliers under the purview of taxation.

• GST also removes the custom duties applicable on exports

Impact on different sectors

• Food Industry: The application of GST to food items will have a significant impact on those who are living under subsistence level

• Housing and Construction Industry: In India, construction and Housing sector need to be included in the GST tax base because construction sector is a significant contributor to the national economy.

Conclusion

• Goods & Service Tax (GST) would be to eliminate the cascading effects of taxes on production and distribution cost of goods and services. The exclusion of cascading effects i.e. tax on tax will significantly improve the competitiveness of original goods and services in market which leads to beneficial impact to the GDP growth of the country