Know about effects of GST on Indian Economy

GST has introduced in India for unification of indirect tax and improvement simplicity in the business.  

In simple term GST is paid by Manufacturer, trader, dealer, service provider but actually collected from ultimate consumer. Example if Mr. Ram, purchase cloths of Rs. 500/- then he will pay for GST @ 12% on cloth 6% as CGST and 6% as SGST. Likewise GST is paid on the product by buyer.

GST collection of since 2017 is as follows:

• 2000: Former Prime Minister Atal Bihari Vajpayee discussed the idea of GST with his economic advisors, including economists like C. Rangarajan and Bimal Jalan.
• 2004: A task force led by Mr. Vijay Kelkar was formed to study the existing tax structure. They identified limitations in the current system and recommended the introduction of a new tax system.
• 2005-06: During the budget session, the Finance Minister announced a deadline of April 1, 2010, for the introduction of GST.

In essence, the concept of GST was initially proposed in 2000 by Atal Bihari Vajpayee’s economic advisors. This idea gained momentum over the years, with committees and task forces studying the existing tax structure and recommending the implementation of a new system. Finally, in the budget session of 2005-06, the Finance Minister set a deadline of April 1, 2010, for the introduction of GST.

But due to non -coordination among government and opposition party and opposition of state governments, GST law did not come into force at that time. In 2016 government has accepted demand of opposition party that rate of GST will not more than 18% and GST come into force.

Changes to Constitution: Imagine the rules of a game getting updated. The 122nd amendment bill was like a proposal to change the game’s rules. When it got approved, it became the 101st amendment Act. This means changes were made to the country’s main rulebook, the constitution.

Laws for GST: In 2017, the government made four new laws for GST. These laws explained how GST would work in detail, like how to collect taxes, who pays, and how much.

So, think of it as first changing the big rulebook (constitution) and then making smaller rulebooks (laws) in 2017 to make GST a reality.

• Central Goods and services Act
• Integrated Goods and services Act
• Union Territory Goods and services Act
• Goods and services Act (Compensation to states)

India has introduced GST on 1^st July 2017. GST first introduced by France in 1954. Following are introduction years of GST in some countries:

Goods and Service tax is Indirect tax

Indirect tax refers to a type of taxation where the responsibility for paying the tax is passed on to someone other than the person or entity directly being taxed. In other words, the burden of the tax is shifted from the taxpayer to another party, usually a consumer or a business, who then includes the tax in the price of goods, services, or transactions.

The introduction of the Goods and Services Tax (GST) in India brought about several benefits for the Indian economy. Here are some of the key advantages:

• Simplified Tax Structure: GST replaced a complex web of multiple indirect taxes with a single, unified tax system. This simplified the tax structure, making it easier for businesses to understand and comply with tax regulations.
• Reduced Tax Cascading: In the pre-GST era, taxes were levied at each stage of the supply chain, leading to a cascading effect where taxes were levied on top of taxes. GST eliminated this cascading effect by allowing businesses to claim input tax credit, ensuring that taxes are only paid on the value added at each stage.
• Wider Tax Base: GST widened the tax base by including more sectors and businesses that were previously not covered by other indirect taxes. This increased the government’s tax revenue.
• Enhanced Ease of Doing Business: With a simplified tax structure, reduced paperwork, and a streamlined tax collection process, GST improved the ease of doing business in India. This has attracted more investments and boosted economic activity.
• Promotion of Formalization: GST incentivized businesses to register and operate formally. This has led to better compliance, increased transparency, and a reduction in the informal economy.
• Reduced Tax Evasion: The digital nature of GST transactions and the matching of input and output credits helped in reducing tax evasion and fraudulent practices.
• Boost to Manufacturing and Export: Under the previous tax regime, taxes on interstate movement of goods were a challenge for manufacturers and exporters. GST simplified these processes, leading to a smoother movement of goods across states and reducing logistical bottlenecks.
• Uniform Tax Rates: GST brought uniform tax rates across states, eliminating the variations and complexities associated with different state-level taxes. This has encouraged trade and reduced price disparities.
• Increased Government Revenue: While GST rationalized and simplified taxes, it also contributed to higher tax revenue for the government due to a broader tax base and better compliance.
• Positive Impact on GDP Growth: The implementation of GST helped in formalizing the economy, reducing tax evasion, and increasing tax collections, which in turn contributed to higher economic growth.
• Better Data Management: GST relies on digital records and transactions, leading to improved data management and analysis, which can aid policy decisions and economic planning.
• Reduced Check Posts and Delays: The abolition of state-level check posts and the implementation of GST reduced the time and costs associated with the movement of goods across state borders.

Overall, the GST implementation in India aimed to create a more efficient, transparent, and accountable taxation system, contributing to the growth and development of the Indian economy.

GST is a comprehensive indirect tax that replaced several other taxes like sales tax, excise tax, and more, making the tax system simpler and more unified. Here’s how it works:

1. Multiple Stages: When something is produced and sold, it goes through different stages – from raw materials to the final product. Each of these stages adds some value to the product.
2. Tax at Each Stage: At each stage, a small percentage of the value added is collected as GST. This means that every time a business adds value to the product (by processing, manufacturing, or selling), a portion of that value goes as tax to the government.
3. Cascading Effect Reduced: Before GST, there were multiple taxes, and each stage of production would accumulate these taxes. With GST, this is reduced because the tax is applied only to the value added at each stage.
4. Input Tax Credit: Businesses can deduct the GST they’ve already paid on the things they bought for their business activities. This way, they only pay tax on the value they’ve added, not on the taxes they’ve already paid.
5. Consumer Pays End Tax: Eventually, when you, as a consumer, buy the finished product, you pay the accumulated GST included in the price. The businesses then pass on the collected GST to the government.
6. Different Rates: GST isn’t the same for everything. Different items have different GST rates. Essential items might have lower rates, while luxury items could have higher rates.
7. Digital System: GST uses technology and online platforms to make the tax process smoother, from registering for GST to filing tax returns.

In essence, GST simplifies the tax system by making it more transparent, reducing the cascading effect of multiple taxes, and promoting a unified tax structure for the entire country.

Conclusion:

The Goods and Services Tax (GST) implementation in India marks a significant milestone in the country’s economic reform journey. As the complexities of the pre-GST tax system were replaced with a unified and simplified taxation framework, India experienced a range of positive impacts on its economy. In conclusion, the introduction of GST has brought about several important changes and benefits for India.