Goods and Services Tax is one single tax which subsumes all other Indirect Taxes in India. It has aimed to bring a “one nation, one tax” law in the country. GST is a unified, destination-based indirect tax. This kind of tax is imposed on the value added to goods and services at each step of the supply chain, starting from the manufacturer until it reaches the final consumer. The primary purpose behind implementing GST in India is to change India into a global market and simplifying the taxation system in the country.
To achieve such a purpose, GST has helped by subsuming a host of taxes and reducing the tax compliance. Centre and State taxes such as Excise Duty, Service Tax, VAT, Central Sales Tax, etc. have been consolidated which has in turn reduced the cost of locally manufactured goods and services. This is believed to facilitate the increase in competitiveness of Indian goods and services in the International market and give a boost to Indian exports.
10 of the major benefits of the Goods and Services Tax in India-
Formation of a Common National Market-
Previously, state and local governments practiced sovereignty in the taxation system. Each individual state, with their strong taxation rights used to levy indirect taxes such as the Central Sales Tax, Value Added Tax, Service Tax, Excise etc. State Governments also depended on incentives to attract investments in their respective states as a result of which the prices of the same goods and services varied from state to state. Even though the state benefited from such a tax structure, the economy suffered. But with the GST, there is a uniform tax on goods and services across the country. Every state participates in the formulation of the indirect tax policy of the country.
Small Businesses benefit from the Composition Scheme-
The Composition Scheme was introduced under GST to encourage reduced taxes and tax compliances. Small business owners who are registered under the scheme are required to pay a fixed percentage of tax on their turnover. These small businesses registered under Composition Scheme need to file one quarterly return, unlike the regular GST taxpayers. To tally GST rates, the tax rates under the Composition Scheme are:
- The GST rate for small businesses with a turnover of 1.50 crores is flat 1%. They are required to file only one tax return.
- The GST rate for small service providers with an annual turnover of 50 Lakhs are required to pay 6% instead of the previous 18%.
Boost to “Make in India” initiative-
The Goods and Services Tax has given a major boost to the “Make in India” initiative. It is an initiative of the Government of India to make goods and services produced in India competitive in the National as well as International market. Along with that, imported goods are charged Integrated Goods and Services Tax (IGST) which is equivalent to Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST). This is done to bring equality with taxation on local products. Read more about Composition Scheme under GST on Khatabook blog now.
Easier and simpler compliance procedure-
The harmonisation of laws, procedures and tax rates makes compliance simpler and easier. There are common interfaces through Goods and Services Tax portal, which results in efficiency across the board. This also facilitates the removal of multiple taxation of the same transactions and inter-state disputes, such as the entry tax and e-commerce taxation.
Eliminating of Cascading effect on taxes-
The Cascading tax or the “tax-on-tax” effect is when a good is taxed on every single stage of its journey from its production to its final consumer. In this situation, each succeeding transfer of good is taxed including the taxes charged on the previous stages of transfer. As a result of this, the final consumer bears the burden of multiple taxes imposed on the final product because of all the preceding taxes, leading to inflationary prices.
The GST, eliminates this tax-on-tax effect as it is a unified tax that eliminates all other Indirect Taxes which causes a reduction in the prices of goods and services.
Global competitiveness of business-
The “one nation, one tax law” aims to prove India’s competitiveness in global markets. The elimination of the cascading effect and the relative reduction in the overall prices of goods and/or services leads to the reduction in the overall cost of doing business.
Growth of GDP-
The introduction of Goods and Services Tax has helped in reducing the tax rates, removing multiple point taxation and increasing revenues. India as a common market has boosted the trade, commerce and export. Together, these contribute to economic growth and boost in the Gross Domestic Product (GDP) of the country.
Increase in Investment in India-
GST helps create jobs, promote education, promote domestic manufacturing, increase revenue, etc. GST is a stable and transparent tax regime, therefore, it leads to a strong business sector which encourages local and foreign investors to invest on Indian goods and services.
Resourceful administration by Government:
Previously, the management of indirect taxes was a complicated task for the Government but under the establishment of GST it has become easier. With the integrated tax rate, simple input tax credit mechanism and a Goods and Services Tax (GST) Network, the administration of resources is well-organised for the Government.
Increased efficacy of Input Tax Credit:
The GST eliminates the Cascading effect and incentivises the dealer to avail more benefits upon revealing his transaction. It not only adds transparency but also acts as a self-policing mechanism. Economic incentive to avoid taxes has also come down.
GST is thus, a unique and ambitious implementation in India and it is still in its nascent stages. It will be presumptive to evaluate its performance at such an early stage. Despite the mixed and heavy criticism, the economy seems to be hopefully benefitted from the GST. Its positive impacts are expected to become more prominent with time to come. A proper analysis of the impact can be done only when the policy has taken full shape. However, the nation must take pride in where we have arrived today with the implementation of such a large scale rollout. A lot more changes are yet to come.