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Economic reforms are vital for the development any country. These economic reforms often take the form of policy reforms in areas of finance, taxation, and industry. India is a developing country and faces new challenges. In recent years, India has experienced many significant economic reforms. In July 2017, India replaced multiple taxes with a single tax called the ‘Goods and Services Tax’. After almost three years of its implementation, its various implications are becoming evident.

The GST is a destination-based tax where tax accrues at the place of consumption rather than the place of manufacturing.           

Taxes are crucial for teconomic growth and development. The Gross Domestic Product (GDP), an important indicator of economic growth, is greatly influenced by taxes. GST has contributed to the growth of the economy. This is because there is a significant correlation between GST collection and the economic growth rate. This new taxation system has eliminated state barriers facilitating smooth flow of goods and services between the states. This is beneficial because many firms have experienced reduction in their logistics cost compared to the earlier tax system. GST has also increased transparency in the tax system as now each consumer knows the exact amount of indirect taxes paid by them. Industries like logistics, e-commerce, pharmacy, textile and telecommunications are seemingly enjoying the benefits of GST.

However, no tax reform occurs without drawbacks. GST has some negative implications as well. Many research studies prove that consumer spending ability is most affected by GST. Prices of fast moving consumer goods (FMCG) products has considerably increased after GST implementation. Cost of financial services has also experienced a hike. Though GST is seemingly the major contributor in terms of revenue to the government, it is also a reason for the economic slowdown faced by the country. This is due to large revisions made by categorisation of goods and services under different rates. Researchers, economists and other stakeholders of the economy have to wait to assess its long-term implications.

The author is a research scholar associated with the Department of Commerce, Faculty of Science and Humanities, SRM Institute of Science and Technology Chennai. The above article is his personal opinion and does not reflect the opinion of any part of the institution the author is affiliated with.