GST or Goods and Services Tax is one of the biggest and strongest reform step undertaken by the Indian government. It has almost transformed all the taxation regime of Indian taxation structure. The concept of GST was introduced in the year 2000. Since then the process started to implement GST in the Indian taxation system so that the ill effects like double taxation can be mitigated. After all the process had been finalized, GST was put into effect from 1st July 2017.
As there are both the positive and negative sides of a coin, in the same way, GST also has both the sides and in this article we will see how will GST impacts on the Indian economy and the benefits of GST that common people will get with this reformed taxation system.
Although this tax is very new to India so a series of amendments were also taken by the Indian government so that maximum benefits could be given to the citizens and shopkeepers. The government also benefitted from this scheme as the number of GST taxpayer almost increased by 50%. Once the system stabilizes we will see an increase in the GDP from 1 to 1.5 percent. We also get a transparent taxation system which resulted in an increase in the revenue that the government gets from the system.
How has GST benefitted the Indian Economy?
Since the implementation of GST in the Indian taxation system, it is worthy to note that the taxation structure has been simplified a lot. With the ease of doing business, we got a better handle on the size of various business sectors and get Small Business loan easily.
Technological Support: In the growing digital era, the new system has also got technological support.
- Less dependent on Tax Gurus: The MSMEs now are less dependent on the tax experts as the tax filing system has simplified.
- Elimination of Double Taxation: Both the indirect and direct tax is now under one umbrella i.e. double taxation has been eliminated.
- Higher Threshold for SMEs: Earlier in the VAT system, if you are doing business with a turnover of more than 5 lac then you were liable to pay VAT also. Although this limit differed in different states across India more or less the threshold was same. But in the GST system, this threshold was increased to 20 lac giving more room to the small business enterprises and service providers.
- Composition Scheme: A composition scheme was launched where businesses having a turnover of 20 to 75 lac are benefitted as the taxes can be lowered by this composition scheme.
- Simplified Online Procedure: With GST the entire process of filing the details is now online. This is beneficial for the small startups which now do not have to run from window to window to get registration of different taxes such as VAT, excise, etc.
- Less Number of Compliance: In the VAT system there was different compliance and returns for different taxes. But with GST there is now one unified return to be filed. Out of 11 returns, 4 are basic returns which is applied to all persons who pay taxes.
- E-commerce taxation is unified: Online industry has also benefitted a lot from GST. Earlier in the VAT system, the online websites had to pay different taxes while delivering their products in different states. Sometimes the tax inspectors seized the goods when the company was unable to produce the valid documents.
But with the implementation of GST, there is no complication of interstate movement of goods and the taxes are the same according to the type of products. The goods can be moved across states by producing the e-way bill.
- Clarity for IT Industry: Earlier the IT sector was under confusion as to whether they should apply for the VAT system or Service charge on their goods but with the implementation of GST, the products have a distinguished clarification between the products and the services of software.
- Input Costs Reduced: When single taxation was implemented then the cost of input also decreased as taxes such as VAT and excise duty is now eliminated and no longer a headache for the service providers.
The competition has also increased since the cost of production has gone down which also leads to a positive impact on the market domestic as well as international. The service providers who were giving the services will now also get the benefit of credit of input and credit of input services. Now the public has to shed less money in buying the same product. So GST has benefitted a lot to the Indian market, reducing the time as well as energy in filing various taxes that they had to pay at different levels.
Negative Impact of GST
Though GST is already implemented successfully in the Indian economy, there was a buzz from the opposition side that there are more ill effects of GST rather than providing ease to the businesses in India. But that is totally not correct as now you can see how good GST has been implemented in the economy. Here we have listed some of the flaws of GST that you should know:
- Increase in burden for Businesses: Now the businesses have to purchase and renew the license of the software of GST so that the accounting ERP can be updated. This will lead to an increase in the burden on the SMEs and the vendors who do not know how to operate the internet.
But this disadvantage has also been eliminated as now a software called as Clear Tax GST software is in the market which is ready to use GST software which helps various SMEs to smoothly operate the GST procedure. The business owners only update the invoice in filing the returns and making payments.
- SME will have to pay higher Taxes: The small and medium businesses now facing a lot of difficulties in filing returns and making payments especially the manufacturing sector. Earlier the business which had a turnover of more than 1.5 crores had to pay excise duty also. But with GST the businesses of turnover exceeding 20 lac also has to pay GST.
- Difficult to Adapt: As the system came in the middle of the financial year, businesses had a tough time to adapt to this new system. AS this is an online system, the business owners are facing some difficulties in making a switch from pen and paper to the online system.
- Lack of Centralized System: Every state has to maintain personalized record and accounts have a separate system for the state and central authority. As your business expands into a new state you have to pay the SGST or the state goods and service tax for that state also. This could be very hectic for the business that has multi-state business.
Impact of GST on Indian Economy
It is although a noteworthy step by the Indian government by refining the tax system of India where the corruption had piled up to the roots. This significantly increased the ease of doing business in India and the elimination of double taxation and make the overall taxation and filing easy for the industries. With GST the domestic and international market will be more competitive. Once the GST is successfully implemented in the Indian industry it holds a great promise in terms of GDP growth as well as an exponential increase in the economy.
About the author:
Khalid Ahmad is an MBA and finance enthusiast with 10 years as a financial consultant and a passionate blogger, running the personal finance blog. He shares knowledge and simplifies things in the field of finance and investment for the common people