Goods and Services Tax (GST) is an indirect tax levied on the sale, manufacture, and consumption of goods and services. Since its introduction in 2017, GST has simplified the country’s erstwhile fragmented and complex indirect tax system. With the introduction of GST, multiple indirect taxes, such as Central Excise Duty, State Value-Added Tax, Service Tax, Luxury Tax, Octroi, Entry Tax, Purchase Tax, etc., were abolished.
This article discusses the top advantages of GST in India and explains its effects on the Indian economy.
Goods and Services Tax – A Primer
Goods and Services Tax is an indirect tax levied on the interstate and intrastate supply and consumption of goods and services within the territorial boundaries of India. GST rates and laws are fixed and monitored by the GST Council, a body established under Article 279A (1) of the GST, Constitutional (122nd Amendment) Act, 2017. The GST Council comprises 33 members, including the Union Finance Minister, the Union Minister of State In-charge of Revenue of Finance, and the Minister In-charge of Taxation or Finance in respective states.
With the introduction of GST, the indirect tax ecosystem has undergone a paradigm shift. It has not only streamlined the tax system but also increased tax compliance and formalised the economy, besides boosting India’s economic growth.
The Top Advantages of GST in India
From increased foreign investment and uncomplicated tax structure to less compliances, simple access, and logistical efficiency, there are many advantages of GST in India:
More Foreign Investment
Thanks to GST, India has developed into a single market. As a result, foreign investment has grown in India in recent times. Since GST has rationalised the tax structure, India’s competitiveness has increased significantly in the world market, leading to higher exports than previously. GST has put the Indian tax system on par with those of major global economies, making it more convenient for enterprises to supply their products to other countries.
One Nation One Tax
The primary objective of GST was to abolish multiple taxes and make the tax structure uniform. Before the introduction of GST, there were numerous taxes, such as service tax, excise duty, entry tax, VAT, etc. However, GST has said goodbye to all these taxes. Although GST has several slabs and types, such as CGST, SGST, IGST, and UTGST, it is much easier to understand than a plethora of indirect taxes.
Less Number of Compliances
Before the introduction of GST, there were several indirect taxes. Naturally, there were many compliances. GST has simplified all these by bringing the most indirect taxes into its net. So, nowadays, most taxpayers need to file only one unified return. Although there are around eleven (11) returns in GST, only four (4) are basic taxes all registered taxpayers must file. It is important to note that GSTR-1 is populated manually, while GSTR-2 and GSTR-3 are populated automatically.
Gone are the days when taxpayers had to visit multiple offices and fill out various forms to pay their taxes. Now, you can access the all-in-one GST Portal to check your tax status and pay taxes. You can also use the ‘Help and Taxpayer Facilities’ to lodge your complaint.
Enhanced Speed of Delivery of Goods
Earlier, businesses had to pay taxes to the centre and the states at entry. Since GST has assimilated all these taxes into its fold, businesses do not need to pay state-level taxes during interstate movement of goods. This has improved the speed of logistics to a great extent.
Removes the Cascading Effect of Taxes
Seamless tax credits across state lines and value chains ensure no tax on tax, i.e. tax cascading. So, businesses can save more by paying only one uniform tax.
Boosts the Revenue of the Government
GST boosts the government’s revenue by decreasing slippages. Since taxation has become much less complicated, businesspersons are encouraged to pay their taxes on time. The government has also established a strong vigilance mechanism to ensure GST evasion comes down to zero.
The Effect of GST on Various Sectors of the Indian Economy
GST has positively benefited all sectors of the Indian economy. While some sectors took a while to adjust to the new normal, the transition has proved to be a blessing for some sectors. The following sections explain the effect of GST on three top sectors of the Indian economy:
Before GST, taxpayers had to pay multiple taxes like service tax, VAT, registration fees, etc. GST has lowered the cost of home purchase, primarily if you do it before the construction. Moreover, developers can claim input credits.
GST’s simple tax structure has opened the room for pharmaceutical companies to lower the cost of their products. The government has offered the pharma sector a tax respite primarily to make healthcare accessible for all.
The Indian textile sector contributes 10% to the country’s overall exports. The replacement of customs duty with GST has led to a big boost to small and medium businesses in the textile sector.
The advantages of GST far exceed the problems associated with it. On the positive side, it simplifies the indirect tax structure and increases India’s competitiveness in the global markets.
However, on the flip side, GST increases the operational cost of businesses and increases the risks of being penalised for not being GST-compliant.