INTRODUCTION OF THE GOODS AND

SERVICES TAX REGIME AND ITS

IMPACT ON THE INDIAN ECONOMY

SUBMITTED BY,
RUQAIYA TAKREEM
ROLL NUMBER 46
VII SEMESTER (REGULAR)
B.A.LL.B. (HONS.)
 Table of Contents
1. Introduction ........................................................................................................................ 3

2. Origin of GST .................................................................................................................... 4

3. Constitutional Framework of taxation ............................................................................... 5

4. History of Indirect tax laws in India .................................................................................. 6

4.1 Prior to GST: Multiple taxes ............................................................................................ 6

4.2 Journey of GST into becoming a statute .......................................................................... 7

4.3 Rationale of GST ............................................................................................................. 8

4.3.1 Expected Benefits of GST ........................................................................................ 8

5. Challenges for GST and implementation ........................................................................... 9

6. Impact of GST on Indian Economy ................................................................................. 12

6.1 Increases competitiveness .............................................................................................. 12

6.2 Simple Tax Structure ..................................................................................................... 12

6.3 Economic Union of India ............................................................................................... 12

6.4 Uniform Tax Regime ..................................................................................................... 12

6.5 Greater Tax Revenues .................................................................................................... 12

6.6 Increase in Exports ......................................................................................................... 12

7. Impact of GST on Different Sectors ................................................................................ 13

7.1 Consumer Goods & Services ......................................................................................... 13

7.1.1 The GST journey this far ........................................................................................ 13

7.2 E-Commerce .................................................................................................................. 14

7.3 Businesses and their working capital ............................................................................. 14

7.3.1 Inventory Management ........................................................................................... 14

7.3.2 Procurement of Raw Materials ............................................................................... 15

7.3.3 Tax Payment Timeline ............................................................................................ 15

7.4 Entertainment & Hospitality Sector ............................................................................... 15

7.4.1 Items falling under 18% tax rate ............................................................................. 15

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 7.4.2 Items falling under 28% tax rate ............................................................................. 16

7.4.3 Additional tax by municipalities/dual taxation under GST .................................... 16

7.5 Export of Goods & Services .......................................................................................... 16

7.6 Affordable Housing ....................................................................................................... 16

7.7 Automobile Industry ...................................................................................................... 16

7.8 Stainless Steel Industry .................................................................................................. 17

7.9 Alcohol Industry ............................................................................................................ 17

8. Positive Impact of GST on GDP of the country .................................................................. 17

9. Negative Impact of GST on GDP of the country ................................................................. 18

10. Conclusion ......................................................................................................................... 19

10.1 Recommendations:- ..................................................................................................... 19

11. Bibliography ...................................................................................................................... 21

Research papers ................................................................................................................... 21

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 1. Introduction
GST stands for “Goods and Services Tax”, and is levied on supply of all goods and
services.1GST subsumed all associated levies of taxes state wise and nationally.2 The GST
Act was passed in the Parliament on 29th March 2017 but was rolled out on 1st July 2017 and
started a new era of economic policy reforms in the country. It has subsumed all central as
well as State taxes, bringing India into unified tax regime by replacing multitude of tax
structures. It is a destination based tax structure levied where the supplied goods and services
will be consumed. GST is a comprehensive value added tax. It is collected on value added at
each stage of sale and purchase in the supply chain without State boundaries

“The success of GST depends on proper administration. Much will depend on its simplicity
and efficient implementation, which are even more difficult in a disparate federal
setup”.3 Goods and Services Tax in India is a destination base comprehensive value
added indirect tax levied on manufacture, sale and consumption of goods and services
throughout India. It is levied and collected at each stage of value addition of sale of goods or
services.

Indian GST is dual GST which has amalgamated several central and state taxes in a single
without cascading effect facilitating a common national market. Taxes or levies subsumed in
GST are in the part of transaction chain with commences with import,
manufacture, production of goods or provision of services at one end and the consumption of
goods and services at the other. It ensures free movement of goods and services from one
state to another without stopping at state borders for payment of state tax or entry tax and
reduction of paperwork to a large extent. Indian dual GST ensures one unified market, digital
transaction and e-governance. Every tax payer under purview of GST regime has to report
GST return electronically and monthly basis of every transaction or aggregate with a single
common portal called GST Network (GSTN). The taxpayers are required to pay net GST
calculated as GST on output supply over GST on input supply. As all GST transaction in
value chain is PAN linked, the income tax authorities have fully visibility to ensure income
tax compliance. As per draft rules the central government is compensating revenue losses of
the state from the impact of GST and it would be continues for a period of 5 years from the

1
R, B., & Kameshwar, P. G. (2016). Introducing GST and Its Impact on Indian Economy. Introducing GST and
Its Impact on Indian Economy. (pp. 106-114). Bengaluru: Niruta Publications
2
Grag, G. (2014). Basic Concepts and Features of Good and Service Tax In India. International Journal of
Scientific Research and Management (IJSRM), 542-549.
3
Sukumar Mukhopadhyay -Former Member, Central Board of Excise & Customs,” Business Environment,
Chartered Financial Ananlysts, April 2008, P.16

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date of introduction of GST in India. In keeping with the federal structure of India, GST is
levied concurrently for the Central government (GST) and state government (SGST)at equal
proportion.4 The interstate supply is under the purview of integrated GST (IGST) which is the
aggregate of CGST and SGST and the SGST of the destination state. Taxes on entertainment
at panchayat and municipality, stamp duty in state level, tax on petrol and diesel in central
and state level is still continued.5The Indian GST rate structure is four-tier consisting of 5%,
12%, 18%, and 28% besides 0%on essentials.

2. Origin of GST
Goods and Services Tax also known as the Value Added Tax (VAT) or Harmonized Sales
Tax (HST) was first devised by an economist, Maurice Laure, during the 18th century. He
envisioned a sales tax on goods that did not affect the cost of manufacture or distribution but
was collected on the final price charged to the consumer. The numbers of transactions are
immaterial and the tax is at a fixed percentage of the final price.

Tax policies play an important role on the economy through their impact on both efficiency
and equity. A good tax system should keep in view issues of income distribution and, at the
same time, also endeavour to generate tax revenues to support government expenditure on
public services and infrastructure development. Cascading tax revenues have differential
impacts on firms in the economy with relatively high burden on those not getting full offsets.
This argument can be extended to international competitiveness of the adversely affected
sectors of production in the economy. Such domestic and international factors lead to
inefficient allocation of productive resources in the economy. This results in loss of income
and welfare of the affected economy. Value added tax was designed such that the burden is
borne by the final consumer. Since VAT can be applied on goods as well as services it has
also been termed as goods and services tax.6 During the last four decades, VAT has become
an important instrument of indirect taxation with 130 countries having adopted this, resulting
in one-fifth of the world’s tax revenue. Tax reform in many of the developing countries has

4
Singh, S. (2017). GST (Goods and Services Tax) - A Game Changer for India. International Journal of
Accounting and Financial Reporting, 140-147.
5
Sharma, S., & Yadav, D. R. (2017). Goods and service tax “one nation one tax” in India. International Journal
Of Advance Research, 152-156.
6
Dr.Ansuman Sahoo, Anasuya Swain, Implementation and its Impact of GST on Industrial Sectors: An
Analytical Study, International Journal of Innovative Research in Science, Engineering and Technology, Vol. 6,
Issue 7, July 2017

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focused on moving to VAT. Most of these countries have gained thus indicating that other
countries would gain from its adoption.

3. Constitutional Framework of taxation

India is a Socialist, democratic and republic country. The federal structure of India comprises
the central government, the state governments and the local governments. Both the
Governments, share the prime responsibilities including meting out the increasing
development needs of the country. The primary source of revenue is the levy of taxes only. In
fact, in order to stimulate economic growth and to fulfil socio-economic objectives, the tax is
considered to be the most important source of revenue for the Government.

A tax is a compulsory contribution from a person to the expenses incurred by the state in
common interest of all without reference to specific benefits conferred on any individual. The
tax cannot be regarded as voluntary payment or donation. Rather, it is enforced contribution
which is exacted through legislative authority.

The seventh Schedule of the Constitution of India had divided functions and financial
resources between the Centre and the states. It had contained three lists, namely: List I or
union list of taxes, List II or state list of taxes and List III or concurrent list of taxes.

Before GST regime, fiscal powers between the Centre and the States were clearly demarcated
in the Constitution.7 The Centre had the powers to levy tax on the manufacture of goods
except alcoholic liquor for human consumption opium, and narcotics while the states had the
power to levy tax on sale of goods for intra states supply. In case of inter-states supply, the
Centre had the power to levy a tax the Central Sales Tax, but the tax was collected and
retained entirely by the originating states. In case of services, it was the Centre alone that was
empowered to levy to service tax. The Centre also levied and collected additional duties of
customs, basic customs duty on import and export. As in the seventh schedule of the Indian
Constitution, taxes of the Centre and the States were clearly stated, so before the introduction
of GST in India some constitutional amendments were required.8

To address all these and other issues, the Constitution (One Hundred and One) Amendment
Act 2016 was finally passed in the Rajya Sabha and thereafter by Lok Sabha inAuguest,2016,

7
Brodeur M, Pierre L (2002): Statistical Use of Goods and Services Tax Data in Statistics Canada’s Monthly
Economic Surveys
8
Sharma, D. G., & George, M. (2017). GST-A Game Changer in Indian Tax Structure. Journal of Business and
Management (IOSR-JBM), 55-62

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and received assent of the President on 8thSeptember, 2016 and has since been enacted as
Constitution(101stAmendment) Act, 2016.

4. History of Indirect tax laws in India

4.1 Prior to GST: Multiple taxes

The Indian indirect tax regime was previously characterized by multiple levies, such as excise
duty, customs duty, VAT, Central sales tax, service tax, and including local levies, such as
octroi and entry tax. Historically, none of these taxes were creditable against one another,
barring a part of the Customs duty and excise. Over the last few years, service tax has also
been brought into the creditable basket. The excise duties, customs duties and service tax
belonged to one basket of creditable taxes, VAT, central sales tax and octroi belonged to
another basket of entirely non-creditable taxes.

The Central Government to levy certain taxes, and the State Government to levy certain other
taxes-this distribution of power was clear and unequivocal.9 As a result, over the last six
decades, both the Central and the State Governments have steadfastly worked at refining and
expanding their respective tax regimes, but as the saying goes, the twain never met. In fact,
until the introduction of VAT recently, even a single regime such as sales tax often entailed
multiple levies, since sales tax levied across different States was largely non-creditable.

By the turn of the century, it was largely recognized that the existing regime of multiple (and
largely non-creditable taxes) needed to go.10 Hence, the Central and State Governments
worked at arriving by evolving a new regime; while there were considerable hiccups in the
process, States eventually agreed to a gradual overhaul of the indirect tax regime in two
significant phases11:

• The first being the replacement of the erstwhile sales tax regime with a relatively
more uniform VAT regime across many States coupled with the gradual elimination
of the Central Sales Tax, and
• The second being the eventual merger of all of these into an integrated system of
Goods and Services Tax (GST) by 2012. The proposed goods and services tax (GST)

9
Jain, T. (2012). Harmonized Goods & Service Tax In India: A Backgrounder. SSRN Electronic Journal, 12-15.
10
Das, A. S., & Tiwari, D. (2016). Proposed Goods and Services Tax in India: A Rosy Beginning or Are There
Thorns Too? Intertax, Issue 12, 980-984.
11
Sahoo P, Sarkar A(2013); Changing Dynamics of Centre-State financial Relation, Yojana, pp 18-23[3]

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 is in fact the brainchild of Ex-Finance Minister Mr. P. Chidambaram. It is be a multi-
stage consumption tax to be imposed on wide range of goods and services. The
process of introduction of VAT started in2003 but was completed recently. The rate
of Central sales tax has been reduced from 4% to (proposed) 2%, and is expected to
be fully removed by the time GST is introduced.

4.2 Journey of GST into becoming a statute

GST’s initial journey started when the first committee was set by Vajpayee Government in
2000 to draft the GST law.12 An Empowered Committee was set up to form a basic structure
for GST. Vijay Kelkar, an advisory to Finance Ministry during the time led the force and
concluded in a report to ministry stating the need to implement GST to remove the cascading
effect of the taxes then.13

As a result, 1st April 2010 was set as the date of GST.14With all further discussions in
process, at the initial deadline of GST, computerization of commercial taxes led to a delay in
implementation by a year. The 115th Amendment to the Constitution, headed by Congress,
presented bill for GST implementation but was stalled over the clause 279-B which provided
excess powers to the Centre. In 2013, standing committee examined and submitted its report
to parliament and was approved with few amendments. February 2015, Finance Minister of
India, Arun Jaitely quoted in his budget speech that GST would be implemented by 1st April
2016. However, the disagreements between state parties and legal issues led to delay of a
year again and then was successfully implemented on 1st July 2017 after Parliament
underwent a seven hour debate on 4 supplementary GST Bills, namely-

• Central GST Bill,

• Union Territory Bill,
• Integrated GST Bill and
• GST Bill

All of which later became individual Acts.

It has taken seventeen long years to draft and implement Goods and Services Tax. All
activities such as registration, filing of returns, applying for refund is done on the GST portal
online first introduced by ClearTax which speeds up the process of levying tax.
12
Dahal, R. (2010). Constitutional Framework for Goods and Service Tax (GST) in India. SSRN, 32-41.
13
Keshap, P. (2015). GST Goods and Services Tax in India. Journal of Global Economics, 159.
14
Raghuram, G., & Deepa, K. S. (2015). Goods and Services Tax: The Introduction Process. IIMA, 1-43

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4.3 Rationale of GST
The six decade old indirect tax regime had become too cumbersome and obstructive for the
growth of our Nation, a major overhaul was required. This came in the form of GST which
was made effective from 1-7-2017. GST will subsume almost 17central and state taxes and
21 cesses and bring nation under united, common market with simplified tax structure, with
emphasis on greater self compliance environment. It shall ignite the growth of economy
through a comprehensive but simple indirect tax regime which, aims at enlarging tax base not
by coercion but compliance, ensures vertical equity of taxes yet lowers overall tax rates.

GST in based on the concept of Value Added Tax (VAT) whereby the cascading effect is
extinguished completely.

Also, GST is a consumption and “destination based” tax system, unlike the earlier System
which was based on origin of sale or manufacture. This feature reduces the regressive impact
of indirect taxes. So, GST brings benefits to all the stakeholders namely industry,
Government and consumer.

4.3.1 Expected Benefits of GST

1. Integrated National Market: GST aims to make India a common market with
common tax rates and procedures and remove the economic barriers thus paving the
way for an integrated economy at the national level. This will ensure seam less and
smooth movement of goods and service across the nation.15
2. Elimination of Cascading Effect: Cascading of tax occurs when each successive
transfer is being taxed inclusive of previous tax levied. At certain occasions, a
particular activity is taxed by both Center and State Government which leads to
duality of taxes. This results in cascading effects of Taxes. GST will overcome the
problem of tax cascading through Input Tax Credit Mechanisms and ultimate burden
of taxes to be paid would be on the consumer of Goods and Services.
3. Removal of Multiplicity of Taxes: GST will remove all the multiple taxes which are
levied in the present regime. Duties & Taxes like Excise Duty. Value Added Tax,
Entry Tax, Luxury Tax, Entertainment Tax, Octroi, and Services Tax shall subsume
under GST. There shall remain only one tax called GST. It will bring transparency
and ease of doing business in India.

15
Dr. R. Vasanthagopal (2011), “GST in India: A Big Leap in the Indirect Taxation System”, International
Journal of Trade, Economics and Finance, Vol. 2, No. 2, pp 144-146

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 4. Increase in GDP: GST will certainly bring ease of doing business in India. It is
expected that the Ease of Doing Business Index of India which remains around 140
shall fall to double figures.16 It will certainly bring trust and faith in the taxation
regime, leading to huge capital in flow from Foreign Investors. There shall be boom
in the manufacturing as well as service sector leading to GDP Growth.
5. Efficient Administration by Government: GST is a fully automated tax regime.
From filing of returns to refunds to assessment proceedings everything shall be
online. There shall be least physical interaction between the taxpayer and the revenue
authorities. Online System is set to bring transparency, lower corruption and better
administration by the Government.

5. Challenges for GST and implementation

Wall Street firm Goldman Sachs, in a note “India: Q and A on GST- Growth Impact Could
Be Muted”, has put out estimates that show that the Modi government’s model for the
Goods and Services Tax(GST) will not raise growth, will push up consumer prices inflation
and may not result in increased tax revenue collections.17

There appears to be certain principle loopholes in the GST model imposed by the Union
government which may be ineffective in delivering the desired result.

1. The principle ideology behind implementation of GST-one country one tax is

not suitable for India. Previously there were 32 taxes which include service tax,
excise duty, sale tax and 29 state VAT taxes and after implementation of GST it
comes to 31 taxes which include IGST, CGST and 29 SGST which again bear
complicated tax structure in the country and rebuts the principle of one country one
tax.
2. Another principle ideology behind implementation of GST-one rate of tax is not
possible in India. According to the 101st amendment in the constitution, Article
246 A states that parliament and legislative assembly can impose taxes on goods
and services. Hence not only union government but also state government had power
to have own GST rate. Article 279 A of the constitution states that GST council has

16
Kumar, Nitin (2014), “Goods and Services Tax in India: A Way Forward”. Global Journal of Multidisciplinary
Studies, 3(6), pp 216- 225.
17
P Mehra(2015)„Modi govt‟.s model for GST may not result in significant growth push‟. The Hindu

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 only recommendatory powers, now it’s up to state government to levy its own
GST rate and distorts the entire GST uniformity rate system of the country.18
3. Government had incorporated goods and services tax network(GSTN), which is
responsible for developing GST portal to ensure services like GST registration, GST
return filling, IGST settlement, etc. which requires robust IT network. It is widely
known that India is in an embryonic stage as far as IT network connectivity is
concerned.
4. Trained and skilled manpower with updated GST subject knowledge are not easily
available, this had created an additional work load on professionals across industry.
5. The Indian insurance market is not so developed as less than 10% of the population
has insurance. This was the reason behind the government initiative “Pradhan Mantri
Jeevan Beema Yojna”. However with the implementation of GST insurance
premiums have become expensive by 300 basis points which will become difficult
for insurance companies to penetrate the market and would work as an unfavourable
factor against insurance awareness schemes. The government initiative “Pradhan
Mantri Jeevan Beema Yojna” initiated that every citizen of have a bank account will
face difficulties as the tax on financial services had raised by 3% in the new goods
and services tax regime.
6. The telecommunication sector assumes a serious problem as on the one hand the
government is initiating digital India and on the other hand telecom services is getting
costlier as telecom services will attract GST tax rate of 18% which is 3% higher than
the previous service tax rate, even when India’’ rural tele-density is not even 60%.
[8,9].19
7. The GST administration intends to keep petroleum products out of the ambit of GST,
being petroleum products have been a major contributor of inflation in India.
8. Small traders are confused with the GST tax rate application and increasing cost of
operations, as they are unable to afford the cost of computer and accounting staff for
maintenance of record and filling of returns under GST.20

18
Kunal Sharma (2017) „Challenges and shortcoming of GST in India‟. https://blog.ipleaders.in/gst-one-
nation-one-tax-negative-aspects-of-gst
19
Manu Kaushik (2017) „GST rate on telecom fixed at 18%: How will it impact the industry. Business Today
20
Shefali Dani (2016) “A research paper on an impact of goods and service tax (GST) on Indian economy”
Business and economics Journal, vol-7 issue 4

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 9. There are still a few states in India which lack IT Infrastructure. Ongoing live with the
said compliance framework via GSTN, companies faced substantive challenges in the
initial months in uploading invoice wise details on account of technical glitches / IT
network issues, lack of practical knowledge on the requirements thereof / awareness
on the uploading process. While larger companies could navigate this challenge with
the help of their tax consultants, smaller companies struggled to meet this statutory
requirement. Considering these pain points of the industry, the Government has kept
the online reconciliation and matching exercise on hold and is also working on a more
simplified model for return filing.
10. In the absence of guidelines from the Government, there is an ambiguity in the FMCG
sector on the mechanism to be followed for determining the quantum of tax benefits
to be passed on and the methodology thereof.
11. The fast moving consumer goods FMCG industry is also faced with certain
contentious issues in terms of the tax position to be taken under the GST law. There
are transactions relevant to the FMCG on which clarity is still awaited, such as
whether input tax credit required to be reversed in cases such as goods given free
under schemes such as ‘buy 1 get 1 free’, free samples and gifts given to distributors,
promotional materials such as banners, posters, etc.
Before the implementation of GST, consumers paid more for goods and services, however,
everyday consumables saw no major change in rates. The main drawback is on the small and
medium enterprises, who will incur costs in trying to become GST compliant, which may
result in higher prices of goods. Moreover, the GST has amplified sector-specific
complexities. Frequent changes in the GST legislation and clarifications issued by the
government have unsettled the tax positions and made the compliances complicated. The
delay in export refunds, inverted duty structure, lack of specific incentives to electric vehicle
manufacturers, adverse impact on account of state incentives and area-based budgetary
support are some of the burning issues where the industry needs further clarity.

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 6. Impact of GST on Indian Economy
GST is a game-changing reform for the Indian Economy, as it brought the net appropriate
price of the goods and services. The various factors that have impacted Indian economy are:

6.1 Increases competitiveness

The retail price of the manufactured goods and services in India reveals that the total tax
component is around 25-30% of the cost of the product. After implementation of GST, the
prices have gone down, as the burden of paying taxes has been reduced to the final consumer
of such goods and services. There is a scope to increase production, hence, competition
increases.

6.2 Simple Tax Structure

Calculation of taxes under GST is simpler. Instead of multiple taxation under different stages
of supply chain, GST is a one single tax. This saves money and time.

6.3 Economic Union of India

There is freedom of transportation of goods and services from one state to another after GST.
Goods can be easily transported all over the country, which is a benefit to all businesses. This
encourages increase in production and for businesses to focus on PAN-India operations.

6.4 Uniform Tax Regime

GST being a single tax, it has made it easier for the taxpayer to pay taxes uniformly.
Previously, there used to be multiple taxes at every stage of supply chain, where the taxpayer
would get confused, which a disadvantage.

6.5 Greater Tax Revenues

A simpler tax structure can bring about greater compliance, this increases the number of tax
payers and in turn the tax revenues collected for the government. By simplifying structures,
GST has encouraged compliance, which is also expected to widen the tax base.

6.6 Increase in Exports

There has been a fall in the cost of production in the domestic market after the introduction of
GST, which is a positive influence to increase the competitiveness towards the international
market.

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 7. Impact of GST on Different Sectors

7.1 Consumer Goods & Services

Fast moving consumer goods (FMCG) is the fourth largest sector in the Indian economy.
There are three main segments in the sector – food and beverages which accounts for 19 per
cent of the sector, healthcare which accounts for 31 per cent and household and personal care
which accounts for the remaining 50 per cent.

The FMCG sector has grown from $ 31.6 billion in 2011 to $ 49 billion in 2016. The sector is
further expected to grow at a CAGR of 20.6 per cent to reach US$ 103.7 billion by 2020.
FMCG revenue grew 14.8 per cent during October-December 2017. FMCG sector is
expected to register net revenue growth of 11.8 per cent in Q4 March 2018.

Going by the above statistics, it would be only fair to infer that the sector has done well in
the GST regime and has been able to transition without any major hiccups.

7.1.1 The GST journey this far

In order to control inflation and to ensure that GST does not have negative impact for the
consumer, the Government tried to align GST rates with the indirect tax effective rates
(excise plus VAT / sales tax and other taxes such as octroi duty, entry tax). GST rate for
products of mass consumption such as aata, edible oils, cereals, milk, etc was pegged at 5%.

For products such as medicines, fruit juices, pencils ball point pens, GST rate was pegged at
12%. Products such as hair oils, soaps, tooth pastes, kajal sticks, were classified in the 18%
bracket. Many items of daily consumption such as shampoos, deodorants, detergents,
cosmetic products, chocolates were placed in the 28% bracket.

The Government’s rationale for 28% rate was to match the tax rate with the pre-GST rates of
12.5% central excise duty and 12% -15% of VAT. However, a high percentage of consumer
goods are manufactured in Excise free zones in Himachal Pradesh, Uttarakhand, the North
East states and enjoyed central excise duty exemption or duty refund, thereby making the pre
GST effective indirect tax rate in the range of 21%-23%. The Government addressed the said
concern by reducing the GST rates for 175 plus products from 28% to 18% with effect from
November 15, 2017.

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7.2 E-Commerce
The e-commerce sector in India has been growing by leaps and bounds. In many ways, GST
will help the e-com sector’s continued growth but the long-term effects will be particularly
interesting because the GST law specifically proposes a Tax Collection at Source
(TCS) mechanism, which e-com companies are not too happy with. The current rate of TCS
is at 1%. Post GST, e-commerce operators collect 1% of the net value of the taxable supplies,
which is called Tax Collected at Source (TCS).

7.3 Businesses and their working capital

According to the new system, there are four tax slabs – 5%, 12%, 18% and 28%. GST has a
direct link with your working capital, and can impact your businesses’ available liquidity.
Also known as working capital, this is commonly referred to as the ‘oxygen of a business’.

7.3.1 Inventory Management

GST has brought about a big change in inventory management. Earlier, companies needed to
maintain many warehouses in different states to avoid cross border taxation costs. It was a
cumbersome and expensive for businesses to manage so many warehouses, while
simultaneously complying with the respective tax laws in the state. Furthermore, if these
goods had to move to another state, the company would again have to pay CST, Octroi and
entry taxes specific to that state.

The upkeep of so many warehouses and compliance with different tax structures put an
enormous load on the in-hand working capital of the business. Now, with the introduction
of GST, the company only has to strategically maintain 4-5 warehouses to fulfil demand in all
the states. And, when the goods are moved, they do not have to pay taxes every time they
cross the border.

This leads to potentially huge savings on the working capital, as businesses need to maintain
reduced number of warehouses. This lessens strain on the working capital and also allows for
free movement of goods across border. Another benefit is that transit times are also reduced,
owing to removal of tax collection on borders.

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 7.3.2 Procurement of Raw Materials

It was widely believed before the implementation of GST that its introduction would lead to
saving of tax money in all cases. Unfortunately, that hasn’t been the case. The business
expense is different from industry to industry.

For example, a manufacturer who imports raw materials from other countries, will now be
levied GST of 18%. Under the old slab, only an import duty of 14% would be charged to
him. Post GST, this increase in tax also results in an increase in the businesses’ working
capital. This is also the case for the service industry, which will be taxed at 18% from the
earlier 15%.

Due to this change, businesses need to allocate more working capital as well as set prices
taking these factors into account. They also need to find out avenues of business finance that
will compensate for the enhanced taxation.

7.3.3 Tax Payment Timeline

This feature of GST has the biggest effect on the company’s working capital, according to
experts, GST is levied on the goods at the time of transfer. But, the businesses are allowed to
claim tax credit only at the time of sale. The time between transfer of goods and their sale can
take considerable amount of time. Businesses have to wait for the input tax credit when the
sale happens. This has an adverse impact on their working capital, which sees a sharp drop
during this wait period, and requires them to take a working capital loan.

7.4 Entertainment & Hospitality Sector

This sector was affected as this sector falls in the 28% category. Movie tickets, hotel rates
have become costlier.

7.4.1 Items falling under 18% tax rate

• TV and DTH services, circus, theatre, and Indian classical dance (including folk
dance and drama)
• Services by way of admission to entertainment events or cinematography films in
cinema theatres. These include movie tickets, movie festivals, casinos, racing, and any
sports events (like IPL), etc. with ticket prices below 100 rupees

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7.4.2 Items falling under 28% tax rate

• Services by way of admission to entertainment events or cinematography films in

cinema theatres. These include movie tickets, movie festivals, casinos, racing, any
sports events (like IPL), etc. with ticket prices above 100 rupees.

7.4.3 Additional tax by municipalities/dual taxation under GST

While the entertainment industry feels that these rates are very high, it is even more
concerned that the GST Council will allow individual states to levy an additional local body
tax (LBT). This would make movies the only products and services with dual taxation.
Levying an LBT would be at the discretion of individual states, and LBT tax rates could vary
across the country.
The Multiplex association emphasized that with the possible addition of a 10-25% local body
entertainment tax, cinemas could end up paying more than the 28% GST.
This dual taxation at prohibitive rates would not only lead to substantial increase in ticket
prices for cinema goers but may well sound the death knell for the film industry

7.5 Export of Goods & Services

At all stages of the supply chain there is no tax, post GST. Moreover, the availability of input
credits is welcomed. In the pre-GST tax system, import of the goods carried several import
duties, however, after GST, IGST has replaced the indirect taxes that was earlier imposed on
import of goods and services.

7.6 Affordable Housing

Purchase of houses is non-taxable, however under construction house will carry a GST tax
rate. The GST rates for homes purchased under CLSS, EWS, LIG, MIG1/11 will be 8%, after
deducting cost of land. However, those doesn’t qualify CLSS, etc, will have to pay 12% GST
on constructed houses.

7.7 Automobile Industry

GST absorbed indirect tax regime, which attracted several duties and taxes on the sale of
vehicles and spares and accessories.

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7.8 Stainless Steel Industry
GST had made a very good impact on steel industry. After issuing new tax rates, it has
become more favourable to steel industry. The GST rate for primary steel industries is
imposed at 18%, which is helpful for them to grow.

7.9 Alcohol Industry

There is no GST on alcohol, instead there is an increase in the price of alcohol. Price of a
beer is going to raise by 15% and wine and other hard drinks will be increasing by 4%.

8. Positive Impact of GST on GDP of the country

Now, there is only one tax rate for all which will create a unified market in terms of tax
implementation and the transaction of goods and services will be seamless across the states.
The same will reduce the cost of the transaction. In a survey, it was found that 10-11 types of
taxes levied on the road transport businesses. So the GST will be helpful to reduce
transportation cost by eliminating other taxes.
After GST implementation the export of goods and services will become competitive because
of nill effect of cascading effect of taxes on goods and products. In a research done by
NCAER, it was suggested that GST would be the key revolution in Indian Economy and it
could increase the GDP by 1.0 to 3.0 percent.
GST is more transparent in comparison to the previous law provision so it will generate more
revenue to the Government and will be more effective in reducing corruption at the same
time. Overall GST will improve the tax Compliances.
In a report issued by the Finance Ministry, it was mentioned that Make In India programme
will be more benefited by the GST structure due to the availability of input tax credit on
capital goods.
As the GST will subsume all other taxes, the exemption available for manufacturers in
regards of excise duty will be taken off which will be an addition to Government revenue and
it could result in an increase in GDP.
The GST regime has although a very powerful impact on many things including the GDP
also. The Gross Domestic Product has the tendency to loom on the shoulders of revenue
generated by the economy in a year. Still, a worthwhile point includes that the GST has the
capability to extend the GDP by a total of 2 percent in order to complete the ultimate goal of

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increasing the per-capita income of every individual. Also, the GST scheme will certainly
improve the indirect revenues to the government as the tax compliance will be further
enhanced and rigid, extending the tax paying base which will add to the revenue. The
increased income of the government will redirect towards the developmental projects and
urban financing creating an overall implied scenario.

9. Negative Impact of GST on GDP of the country

In a report, DBS bank noted that initially, GST will lead to the rise in inflation rate which will
remain for a year but after that GST will affect positively on the economy.
As we know Real Estate also plays an important role in Indian economy but some expert
thinks that GST will impact the Real Estate business negatively as it will add up the
additional 8 to 10 percent to the cost and reduce the demand about 12 percent.
GST is applied in the form of IGST, CGST AND SGST on the Center and State Government,
but some economists say that there is nothing new in the form of GST although these are the
new names of Central Excise, VAT, CST and Service Tax etc.
As every coin has two faces in the same way we tried here to familiarize the things related
to GST with both perspective i.e. positively and negatively in this article. Despite having
some factor which is being expected to affect the Economy adversely there are so many other
things which are expected with a positive impact on GDP.

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 10. Conclusion
The Goods and Services Tax (GST) dominion is an unconcerned attempt by the government
to justify the indirect tax structure of the country. The government should study in depth the
GST mechanism set up by different countries around the globe and also their fallouts before
implementation. No doubt GST had simplified the existing indirect tax system and helps to
overcome the cascading effect of tax. The bill was introduced to implement one country one
tax but resulted into a pitfall as the price of basic goods and services had gone upward, in
spite of government demand for a positive change in the economy with a GDP growth rate of
6.3% in Q2 of 2017-18 as against 7.5% in the second quarter of last year. In the month of
august 2019; the Central Statics Office (CSO) revealed that the real GDP growth in Q1 of the
current fiscal declined to a six-year low of 5%.
It is clear that the economy is slowing down due to unplanned implementation of GST thus
the disruptions may have accelerated the decline. The only possible remedy for this
disruption is to make the transition to GST simpler.
Seeing the haphazard manner in which GST was introduced and the chaos it brought forth to
the tax paying community without any centralized structure and solution lacking approach
still the economy is faring well. The Indirect-tax collection of Indian Govt. is showing an
increase suggesting it would have fared much better if implemented on a proper framework
and machinery assistance. A Positive relationship was established between associated
variables namely GST indirect tax collections, number of taxpayers added and actual return
filed by the taxpayers. Taking into consideration the requisite and timely amendments bring
forth by respective stake-holders GST is moving away from taxation conundrum to a
commendable reform.
GST is a relatively new reform that has been introduced. As with all new reforms, this new
tax regime will also take time getting used to. GST has been envisioned by experts and with
the fair intention of development of the nation. This is a trying time for businesses, and for
them to remain competitive, a proper business plan for utilisation of working capital needs to
be put in place.

10.1 Recommendations:-
1. Big ticket reforms like GST are capable of transforming the economy of India but
much focus should be placed on reforms preparation, development and timely
deployment.

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 2. Proper reform machinery and channels of communication between the target
community and implementing body must be properly established with timely
feedback mechanism.
3. Involvement in policy making and participative role of concerned community in
reform agendas can make the transformation easygoing and praiseworthy.
4. The impact assessment must be given utmost emphasis with in-depth study of
variables under consideration which will help in minimizing the frequent policy
changes and rate shifts as in the case of GST.

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 11.Bibliography

Research papers
8 Dahal, R., Constitutional Framework for Goods and Service Tax (GST) in India, (2010),
SSRN, 32-41.
9 Gupta Nishita, Goods and Service Tax: Its Impact on Indian Economy, (2014) CASIRJ
Volume 5 Issue 3 ISSN 23199202
10 Grag, G., Basic Concepts and Features of Good and Service Tax In India, (2014),
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11 Gupta, S., Goods and Services Tax (GST): A Comprehensive and Uniform Indirect Tax
Reform in India, (2017), Journal Of Indian Taxation, 31-53.
12 Jain, T., Harmonized Goods & Service Tax In India: A Backgrounder, (2012). SSRN
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17 Raghuram, G., & Deepa, K. S., Goods and Services Tax: The Introduction Process,
(2015), IIMA, 1-43.
18 Rana, R., Impact of GST on India, (2018),. International Journal of Advance Research
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20 Sharma, S., & Yadav, D. R., GST “one nation one tax” in India, (2017), International
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