Is GST one tax, one nation reform?

What is GST?

GST or Goods and Services Tax is a value-added tax levied on goods and services sold for domestic consumption. GST is normally paid by the consumers, but it is remitted to the government by the businesses selling the goods and services. In effect, GST provides revenue for the government.

GST came into effect from 1st July 2017, which replaced many central and state category taxes.

Why GST was introduced?

Before GST was introduced in India, taxes were taken on goods by both governments, viz., Central as well as State government. These taxes are mentioned as below:

Taxes to be paid to the Central GovernmentTaxes to be paid to the State Government
Central Excise dutyState VAT/Sales tax
Duties of excise (medicinal and toilet preparations)Central Sales tax(it is levied by the Central government to the states)
Additional duties of excise(goods of special importance)Luxury tax
Additional duties of excise (textile and textile products)Octroi and entry tax(all forms)
Additional duties of customsEntertainment and amusement tax(excluding tax by the local bodies)
Special additional duties of customsTaxes on advertisements
Service taxPurchase tax
Special taxes and cesses which relate to goods and servicesTaxes on lottery, betting, and gambling
State surcharges and additional cesses so far as they relate to supply of goods and services

  State surcharges and additional cesses so far as they relate to supply of goods and services

 Due to the conflict between the Central Sales tax and VAT, GST was introduced.

(NOTE: Entertainment tax, customs, and excise aren’t a part of GST tax.)

India decided to opt for a dual GST system based on State and Central government, where the customer pays through CGST (Central GST) and SGST (State GST).

Pros of GST:

  • GST is an indirect tax whose entire purpose is to bring all the indirect taxes under one roof. This causes to avoid the “Cascading effect” or the “Tax on tax” effect.
  • During the VAT-taxation period, any business with a turnover of 5 lakhs INR was supposed to pay VAT. But after GST coming into the picture, this constraint was changed to 20 lakhs INR. This new change gave relief to many small scale employers who got eliminated from paying the tax.
  • Under GST, small businesses (having turnover from 20-75 lakhs INR) are benefitted by paying lower taxes due to the Composition scheme, ultimately causing to lessen the burden of tax and compliance on many small scale businesses.
  • The process of GST is implemented online, which includes initial steps of registrations to further steps of tax payments and compliances.
  • GST, unlike the previous taxation system, has only single compliance to be filled, hence caused less time in filling the returns of the taxes.
  • Differential impact in the E-commerce sector was some of the major problems in the initial taxation system where rules and regulations weren’t offered. This was stopped by giving strict rules and regulations in the taxation of the E-commerce companies all over India.
  • Also due to GST, logistics are planning efficient distribution plans which helps them to reduce their logistic costs.
  • In the pre-GST era, it was observed that many industries were highly unregulated. This was reduced because of the ease of availability of online registrations of these industries on the GST area.

Cons of GST:

  • For the management of GST payments, the GSTN software was developed by Infosys. This software is expensive software, which increases the expenses of the business.
  • A quick grasping of GST and various terminologies revolving around GST would be done by smaller businesses as they need to file the GST invoices which would be used for digital tracking of these small businesses.
  • Now for businesses with medium and high turnovers need to assign the tax payments to an individual who is very much aware of the nuances of GST making it cause an increase in operational costs.
  • Businesses faced a lot of issues in adjusting with this change which was introduced in the middle of the year without any prior information which caused a lot of issues with adjusting with the new regulations of GST.
  • An online taxation system can be useful for smooth transactions if and only if the business people are literate enough to work with computers, which causes complications with the companies who aren’t well versed with computers.

Impact of GST on Indian economy:

On people:

People have given mixed opinions in terms of GST. The positive being the tax to be paid by the customer is reduced which helps them to save more as compared to the previous system while on the other hand, the different slabs had created more confusion in the minds of people.

On industries:

As discussed in the pros and cons the industry came up to become a little more organized but still faces problems in understanding GST as well as to GSTN. Also, a lack of people specialized in this new taxation system was faced for almost a year.

Conclusion:

So, overall, the steps taken by Indian Government to start taking taxes through a dual GST based system can be a successful step for leading to a more secure, organized and digitally stabled India, if and only if people of India and industries face the initial hiccups of the new taxation system effectively and as early as possible.

Author: Shraddha