GST: Is this a benefit to the Economy?

GST or the Good and Services Tax came into the common man’s life as a tactic to eliminate all the indirect taxes and make tax-paying an uncomplicated one-step process. But since its launch way back in July 2017, there have been as many criticisms for this move as much as there have been compliments. People are torn between deciding whether GST is really offering a helping hand in the taxpaying ordeal or not. After all, is it benefiting the economy of the country?

What is GST?

Calculating GST was supposed to be way easier than recording each and every tax that the Centre and the State imposed on goods and services as they saw fit separately. Previously, the Centre and the State devised systems to calculate taxes such as Excise duty, Customs, Services, Luxury, Entertainment, State Value Added Tax, and the list goes on and on. The Goods and Services Tax consolidates and combines all these varied taxes and offers one homogenous value that is levied on goods and items. Furthermore, there are 3 sub-types of GST, and each of these determines what kind of transaction or exchange of the goods has taken place, i.e. intrastate or interstate.

• SGST or The State Goods and Services Tax
• CGST or The Central Goods and Services Tax
• IGST or The Integrated Goods and Services Tax

GST: Economic Triumph or Turmoil?

As is understood, GST has the collection range from 0% to 28% that is imposed on items and goods. The government defended this launch by stating that GST would simply mitigate the hordes of taxes that are imposed on goods and services. As a consequence, there would be an easy and transparent relationship between the taxpayer and the tax collectors. The 3 different types of GST would actually enable the taxpayer to understand where exactly their money is going!

Here are some aspects that have drastically changed (for the better) after the GST scheme was launched all over Indian in 2017.

Before VS After:

The one valued GST came to symbolise ‘One Nation, One Tax.’ It subsumed the countless taxes from before and emerged as a simplified tax value free of any complication and confusion. GST was required as an alternative to ‘subsume and simplify’ the financial chaos that was on the rise in the Indian economy in the form of corruption and money laundering. After GST’s implementation, about 22 states in India abolished their commercial tax check posts. This decision ensured free, fast, and smooth movement of goods. Under the GST scheme, after filing GST online, Electronic Way Bills or W-way bills would be secured preceding the movement of goods. These bills would be the only documentation that would be inspected during the transit of goods. This would subsequently eliminate the hurdles that spring up during transportation of goods and managing tax-paying during the transit.

Input Tax Credit (ITC) and GST:

Before GST, one of the major tax-related complaints of businesses in India was that they had to pay taxes twice for the same product or service. Once during purchase and then again during the sale. This problem was eliminated with the introduction of the Input Tax Credit or ITC. The Goods and Services Tax Act provided a viable register for who could avail the Input Tax Credit and who could not.

Input Tax Credit is yet another benefit offered to businesses registered under the GST Act. Input Tax Credit allows a trader or a seller, registered under the GST act, to avail discount while paying tax on the sale of a product or service if they have already incurred taxes on the input of that specific product or service. This allows businesses that act as caterers or intermediaries for other goods to save a significant amount of money. Let us explain Input Tax Credit (ITC) with an example.

Imagine that you are a businessman who has to pay a tax of 400 rupees on the sale of a finished product. You have already paid 250 rupees tax during the purchase of that product. In this situation, if you are registered under the GST Act, you can apply for an ITC of 150 rupees (400-250). Thus, you’ll end up saving 250 Rupees that you would have had to pay otherwise.

Also, remember to always clear your taxes before the due date in order to be eligible to avail Input Tax Credit (ITC).

Economical Perks:

The primary economic boost that GST offers is that it eliminates the multiple point taxation system and presents a uniform tax collection system that is fair and just. The uniformity, in turn, transforms India into a common market and helps accelerate export, business, and trade. Thus, the overarching impact is on the GDP of India. In fact, studies from back then had predicted that GST will give the GDP a boost by 1-2% and that it would remove inflation by approximately 2%. Besides this, the Goods and Services Tax also anticipated a reduction in corruption, tax frauds, and tax evasion through a sturdy IT infrastructure, very simplified tax return system, minimum human intervention, and overall transparency between the taxpayer and the collector.

Also read:
Goods & Services Tax: The Ultimate FAQ Guide
Foreign Direct Investment(FDI) 101: A Complete Guide

FAQs

Q. Who has to pay GST?

A. If you are an individual with a business or if you supply goods and services in India above Rs. 20 Lakh, then you are obligated to file for GST. Apart from this, there are also certain other cases where an individual must pay the GST irrespective of whether they have surpassed the threshold value mentioned above.

Q. What will happen if you don’t pay GST?

A. If one escapes paying the GST, there are chances of them being burdened with penalties on the grounds of tax evasion. A person evading tax payments has to pay a penalty of Rs. 10,000 or 10% of the total tax amount that is due (whichever amount is higher). This extra penalty adds up cumulatively till one finally pays off their tax, fair and square.

Q. What products and services levy GST from consumers?

A. Products that include GST are household products, electronic products, makeup products, furniture, and everything that falls in the range in between.