Impact Of Gst On Indian Taxation System
The Author is Aparajita Jha, a penultimate year student of National Law University and Judicial Academy, Assam
GST stands for Goods and Services Tax. The lower house of the Indian Parliament, that is the Lok Sabha passed the GST Act on 29th March 2017. This was done to ease out and simplify the multilayered union, state and local indirect taxation structure (like Service Tax, VAT etc.,) in India. Before the introduction of the GST any product reaching the hands of the customer had to go through the levying of several taxes at different stages which increased the cost of the product for the consumer significantly while on the other hand with the introduction of GST now, the same product reaches the consumer at a relatively cheaper rate in certain cases, as it has replaced the old various multilayered taxes imposed on the goods. Thus, by regularizing GST the cost of the products can be said to be reduced as before the implementation of GST, every purchaser (wholesaler, retailer, consumer) had to pay up the tax that was calculated on each stage respectively while after the implementation of GST only the final consumer, once has to pay the tax.
EXAMPLE FOR BETTER UNDERSTANDING –
This would be easier to understand through following before and after implementation of GST examples:
(1) Before GST: – A manufacturer buys raw materials from vendor paying VAT (@12.5%) upon the cost of the raw material. The manufacturer makes some goods out of that raw material by incurring additional cost and then further sells the goods to the wholesaler at a cost that has his profit margin + VAT (@12.5%) + Excise Duty (@12.5). The wholesaler then adds up his share of profit to the actual cost of the product before selling it to the retailer, where the retailer also has to pay up a VAT (12.5%). Then the retailer adds his profit margin and finally sells the product to the consumer. Now, by the time the product has reached the consumer its cost has been increased drastically.
(2) After GST – In places of VAT, Service Tax etc., the government has now imposed a Central GST and State GST (12% + 12%). In this case, all the sellers right from the vendor to the retailer all of them only add up their share of profit margin to the cost of the good and sell the good further and only the retailer at the final stage adds up the Central and the State GST to the final cost of the good. Thus, due to this process, the cost of the good significantly comes down.
India has chosen to follow the Canadian model of dual – GST to follow. The implementation of GST in the Indian economy has been done to implement proper well structures and efficient tax collection mechanisms. As a result of this, there has been a reduction in the cases of corruption at the middlemen level. Also, the implementation of GST has led to an easier movement of goods from one state to the other state.
ADVANTAGES OF GST-
There have been several advantages of implementation of GST on the Indian taxation system. Some of them are: –
(i) GST has reduced a lot of indirect taxes which has led to a transparent system of taxation in the Indian Economy.
(ii) As tax evasion drops, GST leads to improved revenue of the economy.
(iii) A boost has been given to the E-Commerce sector as well as the less developed states get a better chance in the Indian market.
(iv) Investment has also increased significantly for many capital goods as no input tax credit are there now.
(v) The efficiency of the inter-state movement of goods and logistics has improved.
DISADVANTAGES OF GST-
Along with the benefits, GST has come with its own share of shortcomings as well. To name a few of them: –
(i) GST as a process is difficult for a layman to understand.
(ii) Services like telecommunication, banking, airlines etc., have become expensive.
(iii) Small and Medium-scale enterprises (SMEs) are facing a higher tax burden.
In conclusion, it is important to understand that as GST is right now in its initial phase in the Indian economy, its effects on the Indian taxation system cannot be deciphered accurately so soon. It will take some time to get indulged in the Indian economy. With its implementation, it has been supposed that it will be beneficial for the Indian economy and the Indian taxation system in the long run and it will bring transparency along with a reduction in corruption level and tax evasions benefitting the government as well as the general populace of India.
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