Impact & Effect of GST on various sectors of Indian Economy
HDFC, Tester
The Goods and Services Tax (GST) is the biggest indirect tax reform to be introduced in the country post-Independence. A destination-based tax, GST has subsumed indirect taxes of both central and state governments, as in excise duty, service tax, customs duty, and VAT and luxury tax, among others.
Apart from contributing to the country’s economic growth, the implementation of GST is expected to link the functioning of state economies.
At the time of launch, expectations from the new tax regime were immense. There was a belief that “There will be a check on inflation, tax avoidance will be difficult, rates will be lower as compared to earlier, the country’s GDP will benefit, and the extra resources of states and the Centre will be used to serve the poor.”
Looking at the bigger picture, GST comes across as a big positive, for both the Government and the common man. This is owing to the fact that it has subsumed 17 taxes and 23 cesses, bringing the cascading of taxes – the effect of ‘tax on tax’ – to a close.
One year down: Looking at both achievements and blips
Though post-implementation, GST has faced a fair share of hiccups, the new tax regime can be said to be up and running. Though many tricky issues have yet to be resolved, the Government’s hands-on approach gives the assurance that as in other cases, these would also be tackled deftly.
GST is not a small-scale reform. Thus, the results and advantages are not expected to be visible instantly.
- Eradicating the cascading influence of tax: Initially, there was a situation where tax was levied on an already taxed product. This would result in a much higher tax burden. Apart from eliminating the cascading effect of taxes, GST has also resulted in the lowering of the production cost of commodities and brought in transparency in the process of taxation.
- No threat of higher inflation: One threat that GST was believed to bring with it was that of a hike in inflation. This was the case in other countries that have adopted a single tax regimen. However, this was not the case in India, owing mainly to the multi-slab structure. This allowed the quantum of tax levied to be in the realm of the existing rate, thereby nullifying the possibility of higher taxes.
- Reduction in tax evasion: Post-launch, GST has reduced the ease of tax evasion, which is now visible in greater compliance levels. Further progress is expected with the streamlining of the e-way bill structure, and the implementation of the invoice-matching procedure, wherein suppliers would need to upload their invoices on the GSTN portal (website managed by the Goods and Service Tax Network) on a monthly basis.
- Anti-profiteering provisions: A pertinent step in this process was to ensure that the benefit of tax cuts is passed on to consumers. The use of anti-profiteering provisions is expected to enable this. The ‘Anti Profiteering’ online community was launched by the National Anti-Profiteering Authority (NAA) in association with a citizen-engagement platform. This platform was launched to facilitate the swifter and simpler reporting of cases of illegal profiteering, wherein sellers were charging GST over the maximum retail price (MRP) of products.
The consumers’ involvement in the GST process has been encouraged. They have been asked to insist on being given a bill for every purchase they make in order to help the Government identify tax evasion. There are plans to ease the procedure of filing complaints by the simplification of the anti-profiteering application complaint form.
India Inc is looking for a further easing of processes, namely a simplification in the procedure of filing taxes, reduction in the number of slabs and a widening of the tax base. Additionally, an uninterrupted flow of input tax credit would call for an increased number of goods (such as electricity, alcohol, petroleum goods and real estate) coming under the GST domain.
The implementation of GST has come with a set of glitches for various industries in its realm. The Government has set up eighteen sector-specific groups to address these concerns.
Sector-wise impact of GST
- FMCG: The FMCG or Fast Moving Consumer Goods sector is the fourth-largest in the country. Post GST implementation, most products, and services in it are being taxed under 18 to 20%.
- IT: As against 14% earlier, the IT & ITES industry is being taxed at 18% after the imposition of GST, which is also expected to bring to an end the contentious issue of canned software taxation.
- Textile/Readymade garments: The Textile industry has benefitted through GST implementation. Input credit allowed on the capital goods and readymade garments up to Rs 1,000 is exempted from GST, and branded garments above Rs 1,000 will be taxed at 12%.
- Telecom: As against 15% earlier, the Telecom sector now pays 18% tax, which it then passes on to its customers.
A year after the implementation of the new tax regime, it can be said that despite the odds borne by both the Indian taxpayers and Government, GST will prove to be beneficial for the Indian economy in the long run.
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