The much awaited and debated indirect taxes GST was finally implemented in India on July 1st, 2017. GST tax is mainly categorized into four slab rates: 5%, 12%, 18% and 28%. Though the main aim of GST remains one nation one tax, these rates are determined to keep the essential goods at a lower rate of tax and luxury items under the higher bracket.
The need and requirement for GST indirect tax were felt due to the following issues in the current indirect tax structure:
- Too many tax barriers fragmented the Indian markets
- The painful cascading effect of tax costs making the indigenous manufacture unattractive
- Multiple tax complications and rules which raised the cost of compliances
The Goods and Services Tax (GST) aims to subsume the indirect taxes such as Central Excise, VAT, service tax, central sales tax, Additional Duties of Customs (CVD), Special Additional Duty of Customs (SAD), Entertainment and amusement tax.
Overall GST will bring about the favourable impact to the Indian economy.
- GST aims removal of tax barriers and ensures seamless and less trouble credit. This, in turn, will enable the Indian markets to achieve economies of scale in production and supply and bring about efficiency overall.
- As the GST rates are flat and predictable, there will be increase in foreign direct investment in India which will increase the job opportunities
- Due to the integration of various indirect taxes into one tax, there will be ease of doing and expanding business mainly from unorganized sector to organized sector. Under the GST regime, there will be a substantial decrease in tax administration and compliance costs.
- GST will remove the troublesome cascading effect of taxes which are included in the cost of production of goods and services. Once this cost is curbed, production cost and price of the goods can be expected to decrease.
- GST will bring down the tax burden considerably from the producers which will, in turn, boost the growth. Small units situated in small pockets will open their horizon to a new sector or state due to the lesser tax burden and compliances. GST will ensure full tax credit irrespective of the different states to the manufacturers
- GST will help Central as well as state government to raise revenue with the implementation of GST
- There will be a seamless transportation of goods due to the elimination of various check posts and toll plazas which will ultimately lead to reducing wastage while transportation. Goods will be available to the consumers faster
- GST will also remove customs on the export of goods. This will further increase Indian product’s competitiveness in the foreign markets which will bring in more revenue to the economy
- The restriction of input tax credit will be eliminated and the full allowance of credit will be provided on inputs and capital goods. This will further bring down the tax costs which will bring down the final price of the goods and services
Thus it is expected that with the implementation of GST, there will major ease on the tax costs and burden of tax compliance. It will be much brighter for the overall Indian economy.