Goods and Services Tax (GST) in Indias was implemented on July 1, 2017, to replace all indirect taxes with a single extensive tax. GST has been implemented by 150+ countries across the world with an aim to enhance their economic growth.
To understand the full impact of GST on the Indian economy, we need to know the different types of GST. We will then move on to discuss how GST rules impacted the Indian economy.
Categories of GST
GST is levied on each stage where manufacturing and sales of goods/services take place. It is levied upon the consumption of goods and services. It has three subcategories:
- Central Goods and Services Tax (CGST) - Central Government collects this tax on the inter-state sales of goods/services.
- State Goods and Services Tax (CGST) - State Government collects this tax on the intra-state sales of goods/services.
- Integrated Goods and Services Tax (IGST) - The Central and State Government collects this tax when transporting products/services from one state to another.
Impact of GST on the Indian Economy
In this section, we’ve provided some interesting points that correspond to how GST has impacted the Indian economy:
1. A much simpler tax structure
The taxation system in India became simple with the introduction of GST. Since its implementation as a single tax, it’s satisfying to know how much tax is being paid when buying specific products.
2. Enhanced production
Another major impact of GST on the Indian economy is the reduction of the taxable amount of money due to the absence of hidden taxes. Such funds can be invested into the manufacturing cycle to enhance the production of goods and services.
3. Increase in the goods to export
Upon implementation of GST, the customs duty on exported goods has been reduced (as per the report by the Central Board of Excise & Customs). The whole system now saves money when producing goods and shipping as well. These savings have been a big boost for manufacturing companies to export their goods with a higher export quantity.
4. Financial aid to small and medium enterprises
All the small and medium enterprises can register themselves under the GST’s Composition Scheme. It requires them to pay taxes as per their annual turnover. The higher their turnover, the lesser they have to pay GST. For example, businesses with a turnover of more than ₹50 lakhs have to pay a minimum GST liability of only 1% (Business Today).
5. Enhanced operations across India
With the implementation of GST, transporting goods across India has never become so simple. It is easy to boost operations across the country now.
6. Cascading effects have disappeared
GST has reduced the burden of taxes on buyers and sellers by removing the hidden taxes. With the cascading effects of taxes now having disappeared, it may look like you’re paying one big tax. However, a lot fewer hidden taxes.
Well, GST certainly has been said to achieve what was proposed. Let’s look at what the numbers tell us after four years of the GST being implemented.
4 Years of GST: Achievements, Challenges & Suggestions
Let’s glance at the four years of GST, its achievements, challenges, and suggestions:
- Automated Indirect Tax Structure– In addition to dealing with false invoices, electronic invoices have helped generate a significant portion of revenue by filing GST. The e-invoices guide taxpayers to a fully compliant structure. This further simplifies the calculation of tax obligations and the reconciliation of upfront tax credits.
- Simplify compliance– It has connected the customs portal to the GST portal. This connection provides the import credits, accesses the appropriate facilities to match upstream tax credits, and automates the customs procedures.
- Council functions– Council has revised the law to clarify complex issues such as simplifying the GST tariff and introducing mitigation measures to combat COVID-19.
India has set an example for the world by successfully implementing the most complex tax transition projects within the country.
2. Challenges faced by GST
- Financial relations between the Central and State Governments– The reducing GST revenues during the pandemic impacted the fiscal relations between the Centre and States. The fiscal power of the state has been taken over; the state cannot impose tariffs directly. The positives to the GST law see several obstacles. From technical issues to legal inadequacies, the Centre-State partnership needs to come forward in the decision-making process.
- Issues marked by 15th Financial Commission– The 15th Finance Committee has highlighted some concerns: tax rate diversity, inadequate collection of GST compared to forecasts, high volatility of GST collection, and several inconsistencies.
- Small, medium, and large enterprises– Continuity in the flow of credits entry and compliance procedures has been affected by IT glitches. Indirect taxes do not distinguish between rich and poor; therefore, it increases the burden on poor people. Moreover, SMEs are still struggling with the shift towards technology.
3. Suggestions for GST
- As the oil prices are now at an all-time high, policymakers should consider oil and related products in the GST law.
- It’s important to establish a GST court of appeal because taxpayers need the authorities to listen to the practical difficulties they encounter. Such processes need to be streamlined for the simplification of compliance procedures required by GST law.
The GST law is still in development mode, and evolution in such complex processes cannot be just ruled out. The Indian Government must continue to act to make this tax regime promising soon.
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Q. What is the primary objective of GST?
Ans. The main purpose of the Goods and Services Tax (GST) is to simplify the taxation process, reduce the tax burden, and clarify the opportunity to pay taxes.
Q. How good or bad has the implementation of GST been in India?
Ans. Currently, the implementation of GST has been good. As per the “One nation, One tax” principle, GST has effectively reduced the cascading tax effects. Moreover, it has automated the indirect tax-paying system for good. However, there have to be solutions framed out for the problems mentioned in this post above.
Q. What are the benefits of GST?
Ans. GST is beneficial in reducing tax evasions and running a corruption-free administration system, removing cascading effects, providing procedural benefits and enhancing Make in India campaigns, and many more.
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