June , 2019
Goods & Services Tax (GST) – Impact analysis and road ahead
15:11 pm

Kuntala Sarkar Vivek Gupta

Goods & Services Tax (GST), founded on the notion of ‘one nation, one market, one tax’, is one of the most important tax reforms in the history of India. Until June 30, 2017, Indians were perpetually surrounded by a gamut of indirect taxes. Through a significant initiative taken by the Indian government - GST - a common indirect tax has been implemented across India with effect from July 1, 2017. Its objective is to bring about uniformity in taxation by merging all indirect taxes, which will assist in reducing the hassles of compliances and help in improving tax governance in India. Under the GST regime, the tax is levied at every point of sale. In the case of intra-state sales, Central GST (CGST) and State GST (SGST) are charged. Inter-state sales are chargeable under Integrated GST (IGST).BackgroundThe main reason behind GST implementation was the cascading structure of the Indian tax system. Rakesh Raj Singh, Manager, GST Operations and Head, Communications, Samadhan Consultancy Services, informed BE, “The old tax system was very complex and was unable to prevent the cascading effect of tax (tax-on-tax). The old system had many loopholes, so those liable to pay tax could not be brought under the tax net which also led to evasion. Tax revenue of the government was another important reason behind GST implementation.”How has GST impacted the Indian economy?GST has converted India into a unified market and helped the economy to regain momentum and widen its size. It has deeply impacted different sectors of the Indian economy by changing the structure of the old tax system and making it simpler. The single tax system has boosted competitiveness in the manufacturing sector and decreased administrative costs, which have resulted in increased exports. GST has also reduced the tax burden of the sectors such as telecommunications, banking financial services and insurance (BFSI), information technology (IT) etc. As a result, the telecommunications prices have come down. Singh added, “GST’s major impact was on the logistics industry. It has drastically reduced the time and cost involved in the transportation of goods from one state to another by reducing the compliance scrutiny at the check points of interstate borders.”The real estate sector also saw substantial benefits from GST implementation as it witnessed a significant price drop following the new taxation roll out. But there is another view. Arun Chitnis, Head, Media Relations, Anarock Property Consultants Pvt. Ltd., informed, “Housing sales rose by 58% in Q1 of FY 2019-20, ensuring renewed interest in affordable housing. The sector’s demand for rationalisation of GST rates of cement, which is currently taxed the highest at 28%, could finally see a green signal.” Input tax of the real estate market is high, which the market players are not being able to get back until and unless the offerings are sold. It can work out well only if the rate of sales increases.Under the old tax system, several taxes were levied on the automobile sector like excise, VAT, sales tax, road tax, motor vehicle tax, registration duty etc. which got subsumed by a single GST. GST also had positive impact on macroeconomic indicators and helped to control inflation. Despite some criticism after the GST roll-out, the economy seems to be picking up and hopefully, the benefits of GST will be more prominent in coming days. While India’s GDP slipped to 6.1% in the first quarter of 2017, it has now bounced back to 6.3%.Asim Dasgupta, former Minister for Finance and Excise, West Bengal, who was also the Chairman of the Empowered Committee of State Finance Ministers and masterminded the tax reform in India, spoke to BE regarding the impact of the GST. He said, “Reformation of taxation has helped the Indian economy to grow at a higher pace and it has pushed India towards a corruption free transparent economy. Now it’s very tough for traders to avoid fines if they have not paid taxes properly.”Timir Baran Chatterjee, Chairman, GST Committee, Bengal Chamber of Commerce, told BE, “Problems concerning tax-refund filling have been the major issue for the traders regarding GST. In some fields, the rates of GST are also very high like in the cement industry. It has also hurt the real estate industry.” He added, “The government has already simplified the GST in many areas. But any liberalisation process has to be continuous. I think in a year or so, trades will get more or less accustomed with the new tax procedures.”According to a survey, GST implementation has increased the indirect taxpayer base by more than 50% with 34 lakh businesses coming into the tax net. The total tax collection under GST has also increased. The total GST collection for the 2018-2019 fiscal stood at Rs. 11,77,369 crore which was Rs. 7,41,000 crore during the previous fiscal.What does the future look like?A single taxation system would encourage new businesses and entrepreneurs to engage in service and manufacturing sectors. Singh explained, “GST will eliminate economic distortions in taxation among the states. It will also be beneficial to consumers as the prices will go down. As a result, the consumption will increase which in turn will increase the production and the Gross Domestic Product (GDP). GST will further increase the Foreign Direct Investment (FDI) which will create new employment opportunities in the country. GST will also promote new start-ups.”Sectors like textile, media, pharmaceutical items, dairy products, IT, and gems and jewellery are still bearing the burden of higher GST rates. The government needs to make necessary modifications to the tax structure. 

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