Goods and Service Tax Implementation in Kerala An Impact Analysis

Transcription

1 Volume 119 No , ISSN: (on-line version) url: ijpam.eu Goods and Service Tax Implementation in Kerala An Impact Analysis 1 Anagha Sanil, 2 S. Sruthy, 3 S. Sreelekshmi and 4 T.G. Manoharan 1 Department of Commerce & Management, Amrita School of Arts & Sciences, Amrita Vishwa Vidyapeetham, Amritapuri, India. anaghasanil @gmail.com 2 Department of Commerce & Management, Amrita School of Arts & Sciences, Amrita Vishwa Vidyapeetham, Amritapuri, India. 3 Department of Commerce & Management, Amrita School of Arts & Sciences, Amrita Vishwa Vidyapeetham, Amritapuri, India. 4 Department of Commerce & Management, Amrita School of Arts & Sciences, Amrita Vishwa Vidyapeetham, Amritapuri, India. Abstract Our society has different opinions, reactions as well as different arguments on the Central Government s decision on implementing Goods and Service Tax (here after it is GST) in India. People have positive as well as negative feedbacks on this revolutionary change in the Indian Indirect Tax structure. Therefore, this study was carried out in order to identify the impact of GST in Middle class society of Kerala. The major objectives behind conducting this study was to identify the level of knowledge among the public about the new Tax regime of our country, to study the Acceptance of GST among the Middle Class Society of Kerala and to 2545

2 measure the Impact of GST on the Middle Class Society of Kerala. This study also aimed at finding out the effectiveness of the legal and regulatory framework in controlling the over profit making traders and to find out how much common man friendly our new Tax regime is. The sample comprised of 100 middle class families distributed in different parts of Kollam district (Kerala). The selection of the sample was made randomly. The method adopted in this study was quantitative using questionnaires as the main instrument. Key Words: Public Economics, Public Finance, Taxation, Goods and Service Tax of India and Middle class society of Kerala. JEL Classification: H25, H

3 1. Introduction Compulsory payments by citizens to the governments are termed as Tax. Tax collection is important because it serves as the main source of revenue to the government. Development activities can be undertaken only with the fund that is obtained from tax. The taxes can be collected directly or indirectly. In India after 1 st July 2017 different classes of indirect taxes were merged and bought GST. It was regarded to be a revolutionary move done to the Indian economy. Thus, we are conducting this study to measure the impact of GST in the middle class families of Kerala. 2. Literature Review The new tax regime is imposed to the cost of certain goods and services. GST is collected by the business by including the rate of tax with the price of the product. That portion of the rate of GST collected is send to the government. Thus the main aim of GST is to reduce the tax burden from the shoulders of individuals or common people and to give maximum benefits to them. Some of the objectives are One country - one tax Reduce corruption and tax evasion Reduce the cascading effect of indirect taxes Increase productivity Improving competitiveness of goods thereby increasing GDP. Simplify the taxation process GST registration, payment and input tax credit is similar in nature. 2.1 GST in India India initiated its indirect tax system in 1986 by V. P. Singh who was the then Finance Minister in Rajiv Gandhi s Congress Alliance Ministry. As a result of the initiative, Manmohan Singh started discussions on value added tax at the state level in which PV Narasimha Rao was the Finance Minister. Subsequently, GST was proposed during a meeting between the Prime Minister Atal Bihari Vajpayee and his economic advisory panel. A committee was formulated by him headed by the finance minister of West Bengal, Asim Dasgupta. In 2002, a task force was formed to carry out tax reforms under the control of Vijay Kelkar. As the NDA government loss power, the UPA government came into power in which P Chidambaram was the new finance minister and they moved ahead with the same. Later NDA government came into existence in 2014 under the leadership of Narendra Modi. As a result, the GST bill was introduced by finance minister Arun Jaitely and the deadline was fixed on 1 st April. 2547

4 A committee of 22-members were formed for the purpose. GST was passed in all state and union territories except Jammu and Kashmir. On 1 July 2017 GST was launched by the President of India, Pranab Mukherjee, and Prime Minister of India, Narendra Modi. This function was boycotted by the opposition parties by saying that it is just an imitation of the previous Indirect Tax regime. Other major argument from the opposition side was that, it would increase the rates of daily goods while reducing the tax of luxury items. This may directly bring its effect on many Indians, especially the middle class. 2.2 Three Prime Model Mechanism of GST in India: Central level or Union level GST - Levied by the Central Government. State level GST- Levied by the State Government. Union and State level GST- Levied by the Central and State Government. 2.3 Why India Applying GST GST aims at reducing tax burden which was in the indirect tax form. Its key objectives is to bring single tax for entire nation. A step to reduce corruption. Aims at simplifying tax process and reduces cascading effect. Thereby ensuring higher productivity and uniform input tax credit. 2.4 Legal Framework of GST CGST Act 2017 is present for collecting central GST. UTGST Act is present for monitoring Union Territories including Andaman and Nicobar Island, Lakshadweep, Daman and Diu etc. The states have their own GST legislature for collecting the SGST. Even if there are more than one GST legislature, the assesse, classification, procedure of collection, valuation etc. remain uniform. Also, GST council was constituted on 12 th September 2016 for governing the GST tax structure. 2.5 Regulatory Framework of GST GST Council was set up to monitor its affairs. The Council includes: As chairman -The Union Finance Minister, The Minister of State in charge of monitoring, Revenue or Finance, and The Minister in charge of Finance or Taxation or any other Minister, nominated by each state government. 2548

5 All decisions shall be finalised by GST Council by three fourth majority of votes cast; the centre shall have one-third and states collectively would have two- third. 2.6 GST Rates The 14th GST Council meeting was held on 19 th May 2017 at Srinagar, Jammu & Kashmir where the rates of services were finalised and fixed. The Council has approved the GST rates for goods and services at Nil, 5%, 12%, 18% and 28%. The decisions of the GST Council are being communicated for general information and will be given effect to through gazette notifications which shall have force of law. 3. Research Objectives To study on the knowledge among public about the new tax regime To study the Acceptance of GST among the Middle Class Society of Kerala. To measure the Impact GST on the Middle Class Society of Kerala 4. Research Methodology 4.1 Research Design Research design used in this topic is Descriptive method as it helps in accurate description of certain terminologies as well as situations. Descriptive analysis helps to understand the opinion of certain predetermined data related to research topic. 4.2 Research Instrument The main instrument used for this research study was a mail questionnaire. Questionnaire included open ended as well as closed ended questions. 5. Limitations of the Study Literature review was very difficult due to following reasons: It was a newly implemented tax regime. Time for conducting the study was limited. Level of awareness among the public was low. Sample size was 100 due to lack of time. Disparities about the perception of GST made the survey hard. Survey was hard because of the level of knowledge of the respondents were less. The survey was conducted before November 10th2017 i.e. before the 23rd GST council meeting thus there are chances for a slight difference in the responses. 2549

6 6. Research Findings The study was conducted at Kollam District of Kerala, involving 100 Middle Class Families. Middle Class refers to the large set of people who fall in the category between the working class and upper class. Here we consider the families with an annual income of Knowledge of the Middle class society about the new tax regime. Primary objective of our study was to identify the awareness of the middle class society on the implementation of GST. As Table 1 shows 89% of the respondents were aware of the implementation of GST July last year. However, only 10% of the respondents were not aware of this revolutionary change. This shows that the respondents did have their concerns of government s plan to implement GST. A majority of the public are aware because of good awareness activities undertaken by the State as well as the Central Government. Thus, the rating given by the respondents on the awareness activities is also positive as shown on Table 2, 3% rated it as Excellent, 14% as Very Good, 28% as Good, 26% as Average and only 29% found it poor. Table 1- Showing awareness of respondents on the new Tax Regime 6.1a Chi-Square Test with Hypothesis H 0 - Awareness on GST is not related to the age of respondents. H a - Awareness on GST is related to the age of respondents. 2550

7 As shown in 6.1a. There is no significant relationship between age of respondents and their awareness on GST(Chi-Square with 7 degree of freedom p=3.010).which acceptsh 0 and rejects H a Acceptance of GST among the Middle Class Society of Kerala. Our next objective was to check the acceptance of GST among the Middle class society. Table 3 shows that 36% of the respondents believe it to be beneficial that the former tax structure, 64% believe that it will not be beneficial. A majority of the respondents believed that GST would not bring them benefit. Even though GST was introduced to avoid the cascading effect of previous tax regime (VAT) and to bring maximum benefit to the Middle Class by reducing the price of products, the public believe that ultimately this goal was not achieved or the benefits are not reaching till them. While considering this reasons majority of respondents believe it will not be beneficial. 2551

8 Similarly Table 4 shows, 3% of the respondents Strongly Agree, 12% Agree, 36% have a Neutral opinion, 35% Disagree and 14% Strongly Disagree on the statement GST a Common man friendly tax system. While comparing the GST rates of our country with other emerging markets the highest rate that we charge is 28% but in other countries it is 17% in China, 10% in Brazil. France, Germany, and United States have GST rates set between 19% and 20%. The Government should take necessary steps in reducing the tax rates for essential items also should consider on bringing down the tax slab to 4%,16% & 24%. Thus when we consider all these factors, it is clear that why the respondents rate mostly between the scales disagree and strongly disagree. This gives us a clear picture on the degree of acceptance of GST among the Middle class society of Kerala. 6.2a Result of Pearson s Bivariate Correlation H 0 - Respondent s awareness has no significant relation with benefits of GST. H a - Respondent s awareness has significant relation with benefits of GST. Pearson s Correlation value = Thus there is no significant relationship between awareness of respondents with regard to benefits of GST. Which rejects H a and accepts H

9 6.3 Impact of GST on the Middle Class Society of Kerala Another major objective of our study was to find out the impact of Goods and Service Tax on the middle class society of Kerala. As Table 5 shows, 66% of respondents believe that GST is exploiting them, whereas 34% believe that it is not exploiting them. Most of them think they are being exploited after implementing GST by charging high rates. Just consider an example that before 1 st July 2017, the coconut oil which is an important part of Keralite food, was charged with VAT rate 4%, but after implementation of GST it was charged at a rate of 12% and thus made an increase in spending for it. A sudden increase of 8% on this single item shows why most of the respondents had rated it that they are being exploited (these rates were rechecked after 2017 November 10 th by the GST Council). Also, a thing to be noted is that the highest rate of VAT charged was 20% and that was only on liquor, cigarettes etc. But now the highest rate of GST that is being charged is 28%. 6.3a Chi-Square Test with Hypothesis H 0 - After GST implementation respondents are not exploited. H a - After GST implementation respondents are exploited. As shown in 6.3a There is significant relationship between GST and exploitation of respondents with regard to expenses after GST(Chi-Square with 2 degree of freedom p value =10.125).Which rejects H 0 and accepts H a. Also 74% of the respondents believe that it has brought an impact on their monthly budget whereas 26% believe it has not brought any impact (as shown in Table 6). Because, during its early time of implementation there were also 2553

10 cases reporting that, GST was charged on the price in which VAT has already being charged. Thus the proposed benefit of reducing the price was not achieved and also lead to increase in the price of goods. Also now considerably a high rate of GST is charged on essential goods or daily use items as well as for services. The rate of GST for hotel food was high i.e. 18% was charged, which was rechecked in the last GST council held on 10-November-2017, and reduced the rate of GST for the hotel food to 5% (bills below Rs.7500 & the restaurants are within the hotel). Also to avoid the negative impact on the family budget of the middle class the rates of other items like Desiccated coconut oil, coir products, shampoo etc. were brought down i.e. from 12% to 5%. The result of these decisions are still to be reached among the middle class. 6.3b Result of Chi-Square Test H 0 - Expenses after GST has no impact on family budget. H a - Expenses after GST has no impact on family budget. As shown in 6.3b There is significant relationship between Expenses after GST and impact on family budget (Chi-Square with 2 degree of freedom p value =7.124).Which rejects H 0 and accepts H a. 2554

11 Thus when we summarise, the findings are: Consumers of the Middle Class Society are aware of the new tax system. Age and awareness of the respondents are not related to each other. Even if the respondents are aware of new tax regime, they are not able to tackle the benefits out of it. There were initiatives from the part of government with regard to awareness programmes to the Middle Class Society of Kerala. The well formulated GST system has been manipulated by traders which makes it difficult for the consumers to get a clear idea of GST. In most of the trading unit s pre GST rates have been combined with new GST rates which increases the tax burden of the consumers. When compared to VAT it increased day to day expenses of common people because the goods as well as the services are charged at a higher rate and the rate of essentials are also considerably high, thus most of the common men believe it will not be beneficial and it is not a common man friendly tax system and this is proved by Pearson s Chi-Square Test. GST was proposed to increase the consumption as well as demand. But ultimately it was not achieved due to these high rates, also it is exploiting the common people of Kerala and has brought an impact on their family budget. 7. Suggestions Government should monitor on the overall performance of the new tax system and make sure that its benefit reaches the ultimate consumers and traders. The Government should make a check on trading and similar profit making industries with regard to GST and over profit made by them by means the ultimate benefit will reach the Middle Class Society of Kerala. A proper awareness programme should be conducted by government, because it may become a reason for failing of this system. Changes need to be made in preparation as well as supporting Technology processes. Rates are static in nature which confuses the consumers. Therefore, a proper rate should be affixed for each item, by considering the factors like it is not increasing the day to day expenses of common people, it is not exploiting the common people etc. Rate Finder application has been introduced by the Government. Public should be made awareness of such initiatives. The common people have a feeling that they are being exploited after implementation of GST and also GST bought a negative impact on their family budget, thus rates of essential products should be reduced. 2555

12 8. Conclusion & Recommendations This research study helps us to understand the new tax system of India and the level of knowledge of respondents of Middle Class Society of Kerala with regard to GST. As per our findings, it is clear that 89% of Kerala s population is aware of the system and the rest are not. There is proper flow of information between Government and the general public which makes them aware about GST. From this study it is clear that GST had brought an Impact on the Middle Class Society of Kerala. For the time being, it is surely a negative impact with regard to day to day expenses and the monthly family budget of common people. Thus most of the people believe it is not a common man friendly tax system and it is exploiting them. But hopefully the decisions made in the 23 rd GST council gives good hope to the public because it has rechecked the rates of some essential commodities and it is expected to bring down the expenses of the public. And to achieve the ultimate objective of benefiting consumers, Government should take necessary initiatives to control over-profit making traders by means of Section 171 of CGST Act, an Anti-profiteering authority is constituted for this purpose. This study shows some drawbacks with regard to GST and its implementation which could be corrected and made clear by the respective authorities. In such a way that the true face of GST would be a customer friendly tax system. GST is a new ideology, if properly implemented could give a huge benefit to consumers, traders and people who are associated with it. Therefore, consumers should be made aware of the actual GST rates so as to avoid double taxation, i.e. the pre-gst rate plus the GST rate which are being charged on consumers. In order to avoid this, similar applications should be made familiar to the public. Even though hasty implementation of GST adversely affected India s Economic Growth (5.7% GDP growth), if the problems with the wrong implementation are cleared, it would surely a fantastic tax structure that would become a revolutionary step to increase the tax revenue of the country and ultimately would lead to the growth of Economy in the long run. References [1] Nurulhasni Shaaria, Alizah Alib, and Noraini Ismailc.(2015). Student s Awareness and Knowledge on the Implementation of Goods and Services Tax (GST) in Malaysia. International Accounting and Business Conference 2015, Iabc [2] The empowered committee of state finance ministers. (2009). First discussion on GST in India. CBES. [3] Mukul.G. Asher.GST (Goods and Service Tax) in India PART-2. Research Gate. 2556

13 [4] Raj Kumar.Comparison between GST and the current tax system in India. International journal on allied practice. [5] Jaideep Mishra.(2017).Why Government should reduce GST tax slabs to 4%, 16% & 24%.Economic Times Blog. [6] Sumathi.N, Kavi Kerusiha.v, Manne Gnanadeep Venkata Sai Phanendra, Raji Sivani.M, ShyamKasyap.S, Swathi.V. (2017). Coffee Shop Management. International Journal of Latest Technology in Engineering, Mangement and applied Science. [7] Shyam Nath. Incidence of Indirect Taxation in Rajasthan. (1980).Journal of Applied Economic Research. [8] Matejun, M. (2011). Impact of Goods and Services Tax on Development of Small and - Medium Sized Enterprises. In Influence of SocioEconomic Environment on the Development of Small and MediumSized Enterprises. [9] Nurulhasni Shaaria, Alizah Alib, and Noraini Ismailc. (2015). Student s Awareness and Knowledge on the Implementation of Goods and Services Tax (GST) in Malaysia. International Accounting and Business Conference 2015, Iabc [10] Hamed Taherdoosta, Shamsul Sahibuddinb, Neda Jalaliyoonc. (2013). Features Evaluation of Goods, Services and E-Services; Electronic Service Characteristics Exploration. The 7th International Conference Interdisciplinarity in Engineering (INTER-ENG 2013). [11] Shefali Dani. (2016). A Research paper on an Impact of Goods and Service Tax on Indian Economy. Business and Economic Journal. [12] Monika Sehrawat. Upasana Dhanda. (2015). GST in India: A key Tax Reform. International Journal of Research Granthaalayah. 2557

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