GST and Its Impact on Indian Economy

GST and Its Impact on Indian Economy Gourav Research Scholar, Department of Management, CRSU, Jind [email protected] Abstract Introduction of Goods and services Tax (GST) in India is one of the biggest taxation reform since 1947. The journey of implementation of GST is very long. The main idea of GST is to replace existing indirect taxes. It is levied on manufacture, sale and consumption of goods and services. More than 150 countries have already implemented GST so far. The goods and services Tax will surely be a significant improvement towards a comprehensive indirect tax reforms in the country. The introduction of goods and services taxation would give India a world class tax system and improve tax collections. The objective of paper is to study the conceptual framework of GST and its impact on various sectors of the economy. Secondary data is used for this study, and collected from various reputed research journals, articles and internet. Keywords: GST, Indirect tax, Goods. Introduction Taxation system plays an important role in the economic development of country. Because taxes are only means for financing the public goods because they cannot be properly priced in the market. Taxes are the drivers of the economy. The Tax regimes should be designed in such a manner so that it can raise a sufficient amount of revenue in an efficient , effective and equitable manner. Good tax system should kept in view the issues of income distribution and should also focused on strategies to generate tax revenues to support government expenditures on public services and infrastructural development . With much awaited GST system and in-depth analysis, finally we are having with GST bill passed by the parliament. GST is more convenient and efficient way of taxing the consumption. Basically there are very few exemptions because it has single rate and it becomes a proportional tax on consumption. One level of tax is efficient way of collection, because it either goes to the state or central level. The introduction of Goods and Services Tax on July1, 2017 was a very significant step in the field of indirect tax reforms in India, since 1947. By the integration of a large number of Central and State taxes into a single tax, the aim is to avoid double taxation in a major way and pave the way for a common national market. GST has changed the whole scenerio of current indirect tax system. GST has unified all the indirect taxes under an umbrella and has create a smooth national market. Experts said that GST will help the Indian economy to grow in more efficient manner by improving the tax collection as it will disrupt all the tax barriers between states and integrate country via single tax rate. GST was first introduced by France in 1954 and now it is followed by more than 150 countries. Review of Literature Vasanthagopa(2011) studied in his paper entitled, “GST in India: A Big Leap in the Indirect Taxation System” and investigate that move on to GST system from present complicated indirect tax system in India would be a positive step in booming Indian economy. GST is accepted by more than 150 nations and it would be new experience for India. Gupta (2014) in her study highlighted that implementation of Goods and services tax in the India will lead to commercial benefits which were earlier untouched by the VAT system and would essentially leads to economic development. It will be collective gain for industry, commerce, consumers, state government as well as central government. Venkadasalam, S. (2014) has analysed the effects of after applicability of GST, on the national growth on ASEAN States using Least Squares Dummy Variable Model (LSDVM) in his paper He stated that seven of the ten ASEAN nations are already implementing the GST. He also suggested that the household final consumption expenditure and general government consumption expenditure are positively significantly related to the gross domestic product as required and support the economic theories. But the effect of the post GST differs from country to country. Philippines and Thailand shows significant negative relationship with their nation’s development. Meanwhile, Singapore shows a significant positive relationship. Pinki, Kamma and Verma (July 2014) in their research paper titled, “GST- Panacea For Indirect Tax System in India” highlighted that the new NDA government in India is positive towards implementation of GST and it is beneficial for central government, state government and as well as for consumers in long run if its implementation is supported by strong IT infrastructure. Poonam, 2017 in her study, finds that GST would be a very important and significant step in the field of indirect taxation. The cascading and double taxation effects can be reduced by consolidating central and state taxes. Objectives of Study: To study the concept of GST. To study the benefits of GST. To study the impact of GST on different sectors of economy. Research Methodology: Secondary data is used for this study which is gathered from various sources such as Research papers, Articles, website of CBEC etc. What is Goods and Services Tax (GST) Goods and Services Tax comes into effect from July 1, 2017 through the implementation of one hundred and first amendment in Constitution of India by the Indian government. GST is an indirect tax which includes almost all the indirect taxes of central government and states governments into a uniform tax. As its name suggests it is levied on both goods and services at all the stages of value addition. It has dual model includes central goods and service tax (CGST) and states goods and service tax (SGST). CGST includes indirect taxes like central excise duty, central sales tax, service tax, special additional duty on customs; counter veiling duties, whereas indirect taxes of state governments like state vat, purchase tax, luxury tax, octroi, tax on lottery and gambling will be replaced by SGST. Integrated goods and service tax (IGST) also called interstate goods and service tax is also another component of GST. Under GST, Goods and services are divided into five tax slabs for collection of tax - 0%, 5%, 12%,14%,18% and 28%. Petroleum product and alcoholic drinks are taxed separately by the individual state government. The tax rates, rules and regulations are governed by the Goods and Services Tax Council which comprises finance ministers of centre and all the states. Features of GST: GST is applicable on “supply” of goods or services as against the present concept of tax on manufacture of goods or on sale of goods or on provision of services. GST is based on the principle of destination based consumption taxation as against the present principle of origin-based taxation. GST is dual concept with the Centre and the States simultaneously levying it on a common base. The GST imposed by central government is called Central GST (central tax- CGST) and that imposed by the States [including Union territories with legislature] is called State GST (state tax- SGST). Union territories without legislature would imposed Union territory GST (union territory tax- UTGST). An Integrated GST (integrated tax- IGST) is levied on inter-State supply (including stock transfers) of goods or services. It is collected by the centre so that credit chain is not disrupted. CGST, SGST /UTGST & IGST will be levied at rates which is mutually agreed upon by the Centre and the States under the aegis of the GSTC. GST is apply on all goods and services except Alcohol for human consumption. GST on five specified petroleum products (Crude, Petrol, Diesel, ATF & Natural gas) is applicable from a date to be recommended by the GSTC. Tobacco and tobacco products comes under the scope of GST. In addition, the Centre would continue to levied Central Excise duty. E- filing (electronic filling) of returns by different class of persons at different cutoff dates. Different modes of payment of tax available to the taxpayer including internet banking, debit/ credit card and National Electronic Funds Transfer (NEFT) / Real Time Gross Settlement (RTGS). GST Structure in India Source: www.cbec-gst.gov.in Objectives of GST One Nation – One Tax Consumption based tax instead of Manufacturing based tax To eliminate the cascading effect of Indirect taxes on single transaction Merge all indirect taxes at Centre and State Level Reduce tax evasion and corruption Increase productivity Increase Tax to GDP Ratio and revenue surplus Reducing economic distortions Benefits of GST For business and industry: Easy Compliance: A strong and comprehensive IT system is the foundation of GST regime in India. Therefore, all tax payer services such as registration, return filing, payment etc., are available to tax payers online, which has made compliance easy and transparent. Tax rate and tax structures are uniform: GST has made ensures the indirect tax rate and structure are common across the country. Thereby it has increases certainty and easy of doing business. In other words, with the help of GST doing business in the county becomes tax neutral, irrespective of the choice of place of doing business. Removal of cascading effect: A system of seamless tax credits throughout the value chain, and across boundaries of states, has ensures that there is minimal cascading of taxes. It has minimise the hidden cost. Improved competitiveness: With the introduction of GST there is reduction in transaction cost of doing business which ultimately leads to an improved competitiveness for the business, trade and industry. Benefits to exporters and manufactures: The mergering of major central and state taxes in GST, complete and compressive set of input goods and services and phasing out of Central Sales Tax has reduce the cost of locally manufactured goods and services. This will increase the competiveness of Indian goods and services in the international market and give boost to Indian exports. For Consumers: One tax syatem: Due to various indirect taxes imposed by the central and state government the cost of most goods and services in the country were laden with many hidden taxes. But,under GST, there is only one tax from the manufacturer to the consumer, it leads to transparency of taxes paid to the final consumer. Relief in overall tax burden: Because of efficiency, gains and prevention of leakages, the overall tax burden on most commodities has come down which will automatically benefit the consumers. Impact of GST on Various Sectors 1. Fast Moving Consumer Goods (FMCG) Introduction of GST has impacted the number of industries. FMCG is one of them and has to do a lot more with the increased cost. The logistics and distribution cost has substantially come down. Earlier they were paying 24-25% excise duty, VAT and entry tax, but now they would pay 17.19%. Key beneficiary industries like HUL, Asian Paints, Etc. A downfall can be seen in Tobacco products. 2. Media Sector As service tax and entertainment tax has been removed, DTH, film producers and multiplexes players are taking benefit the most. There is a downfall of tax by 2-5% . Moreover, now the Film producers can claim credit under new tax regime. 3. Airlines Airline services has become expensive now. Earlier it was around 6% - 9% service tax, but now it is 15% - 18% service tax. 4. Telecom Sector Prices of handsets are likely to come down by the impact of GST. The warehouse cost and transportation cost will eventually come down. It will help them in ease of doing business and more and more people would have access to cheaper and high quality services. It may affect the call charges as it is 18% in GST slab. 5. Pharma Sector Pharma Industries are benefitting most since earlier 8 different type of taxes were imposed. but now only one tax would be applicable. GST would help the pharma sector in rationalizing their supply chain. The biggest advantage for the companies is that the reduction in the overall transaction costs with the withdrawal of CST (Central sales tax). It is also expected that it will lower the manufacturing costs. However,with the Increase in the rates of Life saving drugs (for cancer, kidney ailments, etc). Government has allowed the sale of Pre-GST MRP products till the stock lasts. But on the fresh manufacturing of these products, a new rate of 12% (essential medicines) and 5% (insulin and critical care products) would be applicable. 6. Hotel Industry and Travel Industry Hotel Industry is yet to discover that whether it will have positive impact or negative impact on their business but the owners are optimistic regarding the introduction of new tax regime. Travel industry would be little affected since the rates are marginally increased from 4.5% to 5% but it won’t have much impact on the demand. CONCLUSION: Taxation system plays an important role in the economic development of the economy. It is said that a good tax system is one which have control on income distribution and at the same time it also endeavour to generate tax revenue which supports government expenditure on public services and development of infrastructure in the economy. At present Indian economy have a major change in the taxation system. On 1st July,2017, a new tax system Goods and Services Tax (GST) has implemented. Obviously it is in the early stages now, but surely it will solve the problem of complexity of tax system because it has replaced the current tax system of India. By the implementation of GST, cost of manufacturing of goods and cost of consumer goods has reduce. The impact of GST on all sectors like FMCG, Pharma, Infrastructure, textile, IT, Agriculture, Food Industry, Transport, Real estate industry is positive and all the sectors are benefitted with the implementation of GST. No doubt that GST system will provide to India a world class taxation system by grabbing different treatment to manufacturing and service sector. GST is likely to improve tax collections and boost India’s economic development. It can be said that implementation of GST in Indian framework will lead to commercial benefits which VAT has not given and hence it would essentially lead to economic development REFERENCES: Vasanthagopal, Dr.R(2011) ,GST in India : A Big Leap in the Indirect Taxation System , International Journal of Trade, Economics and Finance. Vol.2,issue2,April 2011. Kamna, Supriya, Pinki, Verma ,Richa (2014) ,”Goods and Services Tax in India,” Tactful Management Research Journal .” volumel2 ,issue 10 ,July 2014. Gupta,N. Goods and Services Tax: Its implementation on Indian economy, CASIRJ Volume 5 Issue 3 [Year - 2014] ISSN 2319 – 9202, Pg. No.126-133. Saravanan Venkadasalam, Implementation of Goods and Service Tax (GST): An Analysis on ASEAN States using Least Squares Dummy Variable Model (LSDVM)International Conference on Economics, Education and Humanities (ICEEH'14) Dec. 10-11, 2014 Bali (Indonesia), Pg No. 7-9. Khurana ,Akanksha and Sharma ,Astha(2016),”Goods and Services Tax in India – A Positive Reform for Indirect Tax System , International Journals of Advanced Research , volume 4, issue 3, 2016. Poonam, M. (2017). GOODS AND SERVICES TAX IN INDIA: AN. 6th International Conference on Recent Trends in Engineering, Science and Management , 9. Goswami,KrishnaA. & Aggarwal,Himanshu (2017), “Impact of Goods and Services Tax (GST) On Various Sectors in India”, Imperial Journal of Interdisciplinary Research (IJIR), Vol-3, Issue-9. www.cbec-gst.gov.in