Role of GST and its Impact on Indian Economy

 

Introduction to
GST

Goods and Services Tax replaced many Indirect Taxes in
India w.e.f. 01.07.2017 and is levied on the supply of goods and services. It
is much needed Tax reform which will lay path to aligning the Indian Economy
and the Indian Accounting standards with the International systems and
standards. It is the biggest Tax reform in India based on “One Nation, One
Market, One Tax”.

                                                                                  

Impact
of GST on Indian Economy

The instant impact of GST was that it resulted in fall
in the GDP. People were not prepared for the enormous change in the tax
structure. The Indian GST system is extremely complicated and requiring
specialized systems and softwares and many small businesses were forced to take
expensive services of professionals because understanding and handling GST is
beyond their capacities. The implementation of GST was neither effective nor
efficient with many changes taking place ion the framework and policies
continuously. 

With the coming in Force of GST there was an initial set back to
the Indian Economy. With the passage of time things are  improving, the processes have smoothened out.
The GDP is slowly recovering and improving. Gradually there is a steady
increase in the FDI and people migrating to India. On the flip side for a
common man at the micro level GST will translate into the common man paying
more taxes. There is also an increase in the cost of compliances for smaller
businesses which will translate into higher cost of production.

                                                                                 

Advantages of GST

 

GST has replaced about 16 different types of taxes which
were paid by Indian Businesses.  This has
reduced the burden on the tax payer in terms of no need to  file different returns for different taxes.
Hiring different professionals for different taxes. Compliances reduced because
one ACT one Rule has to followed. For the Government it has resulted in faster
detection of tax frauds and faster recovery mechanism by the government because
now various departments like (Sales Tax, Excise etc.) are unified under one
department of GST.

                                                                           

                                                                           

    

Down side of GST

 

In other countries like Singapore and Australia GST
works under a single tax rate which means that all the goods and services are
taxed under a single rate. However, in India the there are five tax slabs (nil,
5%, 12%, 18% and 28%) with 3 rates (IGST, CGST and SGST) because the single tax
slab will not work in the Indian economy since we follow the concept of
equitable distribution instead of equal distribution to ensure that tax
benefits are passed on maximum to the poorer sections of the society.

 The GST
common portal is still not equipped to handle traffic of more than 50 lac users
at a time resulting in huge glitches. Petroleum products and Alcohol have yet
not been covered under GST resulting in benefits not being passed on to the
customers in case of fall in the global crude oil prices.

Role of GST in the future of Indian Economy

 

It is anticipated that the Indian Economy will reap
benefits of GST which is the biggest Tax reform in Indian History in the long
run. With the removal of cascading effect of taxes, reducing and lowering tax
rates, single tax net in operation it is estimated that the prices will greatly
reduce leading to decrease in inflation. Due to its wide nature and since
the entire functioning of the GST is IT based monitoring and curbing of Tax
evasions will become very easy. This will result in increase of the revenue of
the Government. 

The entire economic operations of the country will be
streamlined and fine tuned to become an extremely efficient system. Red - tapism
and harassment at the hands of the Tax officials will be greatly reduced.
Fiscal Deficit will be kept in check. Exports are bound to increase due to
increase in the production capacities. Indian Industry will attract larger
number of FDIs and all in all the Indian Economy will see an upward growth
trend.

 Over the last few months it has been observed that the already volatile
stock market becomes extremely sensitive when any changes in the GST rate,
structure or policies are made for a particular industry. Therefore GST has
become a crucial factor in determining the net worth in an industry.

                                                                               

Conclusion

It is believed that GST which is the
biggest Tax reform of India will have positive impact on the Economy in the
long run with making it simpler with fewer tax slabs, reducing compliances and
streamlining and smoothening the implementation.