THE IMPACT OF GST ON THE INDIAN ECONOMY

Transcription

1 THE IMPACT OF GST ON THE INDIAN ECONOMY Keshav Mehra 1 Mihir Kothari 2 1 (Student - BBA Honours, Christ University, School of Business Studies, mehrakeshav10@gmail.com) 2 (Student - BBA, Christ University, Department of Management Studies, mihirk221@gmail.com) Abstract The purpose of this paper is to identify and explore the extent and the gravity of the impact of the Goods and Service tax on the Indian Economy. This paper surveys and attempts to study the comprehensive data before drawing any conclusions. As a result of all the careful yet smart performance and data collection standards we found plenty of trends. These findings are truly valid and can be of immense use. Goods and Services Tax (GST) is expected to provide the much needed stimulant for economic growth in India by transforming the existing basis of indirect taxation towards free flow of goods and services within the economy and also eliminating the cascading effect of tax on tax. In view of the important role that India is expected to play in the world economy in the years to come, the expectation of GST being introduced is high not only within the country, but also in neighbouring countries and in developed economies of the world. The implementation of GST has helped in simplifying the indirect tax levied on the commodities and services. The researchers surveyed the pre and post-performance of 10 leading industries in India. KeyWords Tax Reforms; Impact on Industries; Implementation of GST 1. INTRODUCTION GST is one indirect tax for the whole nation, which will make India one unified common market. GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages. Goods and Services Tax (GST) is an indirect tax throughout India to replace taxes levied by the central and state governments. It was introduced as The Constitution (One Hundred and Twenty Second Amendment) Act 2017, following the passage of Constitution 122nd Amendment Bill. The GST is governed by GST Council and its Chairman is Union Finance Minister of India -Arun Jaitley. GST is expected to be applicable from 1 July Goods and services tax (GST) will subsume various indirect taxes including central excise duty, services tax, additional customs duty, surcharges, state-level value added tax and Octroi. Other levies which are currently applicable on inter-state transportation of goods are also likely to be done away with in GST regime. The following taxes will be bound together by the GST: Entertainment Tax Entry Tax Advertisement taxes Taxes applicable on lotteries GST is levied on all transactions such as sale, transfer, purchase, barter, lease, or import of goods and/or services. India will adopt a dual GST model, meaning that taxation is administered by both the Union and State Governments. Transactions made within a single state will be levied with Central GST (CGST) by the Central Government and State GST (SGST) by the government of that state. For inter-state transactions and imported goods or services, an Integrated GST (IGST) is levied by the Central Government. GST is a consumption based tax, therefore, taxes are paid to the state which the goods or services are consumed not the state in which they were produced. IGST complicates tax collection for State Governments by disabling them to collect the tax owed to them directly from the Central Government. Under the previous system, a state would have to only deal with a single government in order to collect tax revenue. 2. BENEFITS OF GST The benefits of GST can be summarized as under: For business and industry Easy compliance: A robust and comprehensive IT system would be the foundation of the GST regime in India. Therefore, all tax payer services such as registrations, returns, payments, etc. would be available to the taxpayers online, which would make compliance easy and transparent. IJMH - International Journal of Management and Humanities Volume: 04 Issue:

2 Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are common across the country, thereby increasing certainty and ease of doing business. In other words, GST would make doing business in the country tax neutral, irrespective of the choice of place of doing business. Removal of cascading: A system of seamless tax-credits throughout the value-chain, and across boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden costs of doing business. Improved competitiveness: Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for the trade and industry. Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost. For Central and State Governments Simple and easy to administer: Multiple indirect taxes at the Central and State levels are being replaced by GST. Backed with a robust end-to-end IT system, GST would be simpler and easier to administer than all other indirect taxes of the Centre and State levied so far. Better controls on leakage: GST will result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of GST that would incentivize tax compliance by traders. Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of the Government, and will therefore, lead to higher revenue efficiency. For the consumer Single and transparent tax proportionate to the value of goods and services: Due to multiple indirect taxes being levied by the Centre and State, with incomplete or no input tax credits available at progressive stages of value addition, the cost of most goods and services in the country today are laden with many hidden taxes. Under GST, there would be only one tax from the manufacturer to the consumer, leading 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 will come down, which will benefit consumers. The indirect taxes being clubbed into the GST under Centre and State governments respectively are as follows: At the Central level, the following taxes are being subsumed: Central Excise Duty, Additional Excise Duty, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, and Special Additional Duty of Customs. At the State level, the following taxes are being subsumed: Subsuming of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, and Taxes on lottery, betting and gambling. The major features of the proposed registration procedures under GST are as follows: Existing dealers: Existing VAT/Central excise/service Tax payers will not have to apply afresh for registration under GST. New dealers: Single application to be filed online for registration under GST. The registration number will be PAN based and will serve the purpose for Centre and State. Unified application to both tax authorities. Each dealer to be given unique ID GSTIN. Deemed approval within three days. Post registration verification in risk based cases only. The major features of the proposed returns filing procedures under GST are as follows: Common return would serve the purpose of both Centre and State Government. There are eight forms provided for in the GST business processes for filing for returns. Most of the average tax payers would be using only four forms for filing their returns. These are return for supplies, return for purchases, monthly returns and annual return. Volume: 04 Issue: Researchscript.com 30

3 Small taxpayers: Small taxpayers who have opted composition scheme shall have to file return on quarterly basis. Filing of returns shall be completely online. All taxes can also be paid online. 3. LITERATURE REVIEW Raju Choudhary (2017) in his article Impact of GST on Indian Economy, GST Impact in India 2017 Full Analysis provides an insight of how introduction of Goods and Service Tax will be a noteworthy step in the indirect tax structure of India. Amalgamation of Centre and State Tax into one tax will mitigate double taxation and pave way for common national market. He pointed out a few points which will take effect post implementation of GST which are as follows: Increased FDI, Growth in overall revenue, increase in exports and employment and various other positive impacts. CA Pulkit Jain (2017), Impact of GST on Indian Economy. GST may disrupt the Indian economy for a short period as the Indian market will face tremendous change in the taxation post implementation. The impact is going to be very significant, as it will boost the Indian GDP by 1-2%. Dilution of tax barriers will foster growth and promote optimum production by manufacturers. A single tax will lower selling prices for consumers and surge revenues of the government by widening the tax base. Further it will remove custom duties on exports leading to higher competitiveness in the foreign market as the exports will rise. GST s transparent nature will ease administration and will hold great promise in sustaining growth of the Indian Economy. Asit Ranjan Mishra (2017), World Bank says India will grow 7.2% in FY18, GST will deliver substantial gains. Demonetization affected poor and vulnerable households, in all likelihood having an impact on construction and informal retail, where many poor and vulnerable individuals work. While limited data is available, there has been an increase in demand for guaranteed employment, and indicators of rural consumption contracted sharply in November, before recovering, the multilateral lending agency said in its India Development Update. The Informal Sector in India accounts for almost 40% of the GDP and employs up to 90% of India s workers, the demonetisation may have the worst impact on these workers, but if government take necessary measures this will in turn complement formalisation of the economy, increase tax collection and allow digitalisation of financial transactions. The world bank has predicted a growth of 7.7% by 2020 due to the path Indian reforms have taken, also suggested that the multi-tier GST will lead to substantial economic gains. The impact of GST will be positive on equity and poverty along with other aspects of the Indian economy. Sanket Dhanorkar (2017), How GST impacts FMCG firms. The Goods and Service Tax will bring in several benefits but would also effect few FMCG companies as the tax rate slabs have been increased for various products. Items of mass consumption have been placed under lower tax slab as it current is, but products like Detergents, Sanitary Napkins Baby Foods, Shampoo, etc. The FMCG companies under lower tax slabs will pass on benefits to the consumers as quoted by Sanjay Manyal, Analyst, and ICICI Securities, With the anti- profiteering clause in place, companies would be required to pass on the benefit of tax rates to the consumer in the form of lower prices. Companies with diverse portfolio would have to draw out strategies to generate profits as the tax slab will be varied as per the products they deal in. The broad picture of GST on FMCG companies will be either neutral or profitable. Raj Kumar Ray(2017): GST impact on economy: Five things to watch out for. While the lower Goods and Services Tax (GST) rates may lead to a decline in inflation, economic growth may not improve significantly in the short term even though it will benefit both India Inc. and the government in the medium term, experts say. Most economists forecast inflation to come down as GST rates for most goods have been fixed at a lower rate. India Inc. will have to reorganise their businesses as the country switches to the GST regime, which will bring in more small companies into the tax net. It will help in economic growth, passing on the benefits to the lower tax. The new tax regime will force many companies to restructure their operations. Companies will now insist vendors and suppliers to furnish invoices as GST will make it impossible for firms to evade taxes. Big companies stand to benefit as they have a supply chain in order and can offset taxes paid on inputs. Smaller firms may end up spending more as compliance cost will rise. Deskera(2017): GST benefits and its impact on Indian Economy. Amidst economic crisis across the globe, India has posed a beacon of hope with ambitious growth targets, supported by a bunch of strategic undertakings such as the Make in India and Digital India campaigns. The Goods and Services Tax (GST) is another such undertaking that is expected to provide the much needed stimulant for economic growth in India by transforming the existing base of indirect taxation towards the free flow of goods and services. GST is also expected to eliminate the cascading effect of taxes. India is projected to play an important role in the world economy in the years to come. The expectation of GST being introduced is high not only within the country, but also within neighbouring countries and developed economies of the world. He also says that the introduction of the Goods and Services Tax will be a very noteworthy step in the field of indirect tax reforms in India. By merging a large number of Central and State taxes into a single tax, GST is expected to significantly ease double taxation and make taxation overall easy for the industries. For the end customer, the most beneficial will be in terms of reduction in the overall tax burden on goods and services. Introduction of GST will also make Indian products Volume: 04 Issue: Researchscript.com 31

4 competitive in the domestic and international markets. Last but not least, the GST, because of its transparent character, will be easier to administer. Once implemented, the proposed taxation system holds great promise in terms of sustaining growth for the Indian economy. Kamlesh Rao(2017): GST tax structure ready; how will it impact economy and various sectors. The need for GST has been felt because under the current indirect tax structure 1) tax barriers have fragmented the Indian market, 2) cascading effects of taxes on cost have made indigenous manufacture less attractive, 3) complex multiple taxes have raised cost of compliance. In his analysis he speaks that the GST Council has finalised a four-tier GST tax structure of 5 per cent, 12 per cent, 18 per cent and 28 per cent, with lower rates for essential items and the highest for luxury and de-merits goods, including luxury cars, SUVs and tobacco products, that would also attract an additional cess. Moreover, with a view to keeping inflation under check, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate. The cess is expected to provide additional resources to the central government to compensate states for losses incurred. This will be based on the compensation formula. Awadesh Singh(2017): How is the GST going to impact the Indian economy and consumer experience?. In his study he makes a point that it is important to understand that GST is not a tax concession scheme where the government has reduced the tax rates and hence all the goods and services would become cheaper once GST is implemented. Government was attempting to fix a single Revenue Neutral Rate (RNR) on the goods and services so that the total tax revenue of the State and the Central Government remain the same. However, due to practical considerations and keeping in view the social conditions of India, four GST slabs have been set at 5%, 12%, 18% and 28% for different items or services. There is also a special rate for precious metals. The rate of 18% would however be applicable for most goods and services. Government is trying to see that the new GST rates remain more or less similar to the effective tax rates of excise, service tax and VAT in the present time. Hence, the prices of most commodities would remain the same. However, the immediate impact of GST would be as following. All the services would become more expensive immediately since the present Service Tax rate is only 15% which is now raised to 18% in GST. Some goods would become cheaper due to lower rates levied on such items, most goods would become more expensive since the GST rate of 18% or 24% is much more than the present VAT rates which is around %. The dealers and retailers are not likely to pass on this extra rate immediately to the consumer and they would profit from the increase Input Credit Tax (ICT). However, soon the consumer would reap the benefit and the prices would come down. Anita Rastogi(2017), India s GST: a mere drift in consumers mind or impact on pockets?. The consumer s position in the tax structure is at the end of the value chain and therefore they are the ones who handle the ultimate economic burden passed on as taxes. Under GST, the prior cascading effect of numerous indirect taxes will be removed, only value addition taxes will be passed on to the consumers. This will impact the consumers in the following ways: 1. Reduction in prices of goods and services by removal of cascading effect and there will be tax applied only on value addition. 2. Uniform prices across the country & better accessibility State specific VAT will be removed resulting in uniform taxes across all states. This will in turn provide higher accessibility as consumers will not have to travel to further states in order to purchase goods and avail services. 3. Transparency in the tax structure Removal of MRP based taxation will result in higher transparency, it will make consumers aware of the taxes add at each value addition stage. Harsha Jethmalani, The flip side of GST: its impact on the informal economy. The impact of GST will be inverse on Unorganised / Informal sector as most industries in India have small and medium size industries present which are not part of the Organised / Formal sector. As for the formal sector, it will be easier to comply with the new tax structure and gather benefits from it. Informal sector accounts for 50 % of the Indian GDP and 80% of the total job creation. They run by avoiding taxes, generating higher profits leading to lower prices for their goods and services but under GST they will be faced with taxes, lower margins and higher cost of compliance, which would hit this industry the most. This would bring down employment and cause disruption. 4. SCOPE OF STUDY The overall aim of this paper is to gather the information and the relevant data and apply the knowledge acquired to impart a good comprehensive analysis on the subject at hand. 5. OBJECTIVES To evaluate the scale of impact of GST in India. To study the influence of the new tax policy in the Indian economy. To analyse the impact on various industries across all sectors To find out the results of the implementation of GST Volume: 04 Issue: Researchscript.com 32

5 6. IMPACT OF GST ON INDIA Increased FDI: The flow of Foreign Direct Investments may increase once GST is implemented as the present complicated/ multiple tax laws are one of the reasons foreign Companies are wary of coming to India in addition to widespread corruption. Growth in overall revenue: It is estimated that India could get revenue of $15 billion per annum by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth. Over a period, the dilution of the principles may see that only part of this is accruing. Single point taxation: Uniformity in tax laws will lead to single point taxation for supply of goods or services all over India. This increases the tax compliance and more assesses will come into tax net. Simplified tax laws: This reduces litigation and waste of time of the judiciary and the assesse due to frivolous proceedings at various levels of adjudication and appellate authorities. Present law appears to be much worse and an amalgam of the bad parts of VAT/ ST/ CE. Increase in exports and employment: GST could also result in increased employment, promotion of exports and consequently a significant boost to overall economic growth and factors of production - land labour and capital. 7. IMPACT OF GST ON INDIAN ECONOMY Reduce tax burden on producers and foster growth through more production. This double taxation prevents manufacturers from producing to their optimum capacity and retards growth. GST would take care of this problem by providing tax credit to the manufacturer. Various tax barriers such as check posts and toll plazas lead to a lot of wastage for perishable items being transported, a loss that translated into major costs through higher need of buffer stocks and warehousing costs as well. A single taxation system could eliminate this roadblock for them. A single taxation on producers would also translate into a lower final selling price for the consumer. Also, there will be more transparency in the system as the customers would know exactly how much taxes they are being charged and on what base. GST would add to government revenues by widening the tax base. GST provides credits for the taxes paid by producers earlier in the goods/services chain. This would encourage these producers to buy raw material from different registered dealers and would bring in more and more vendors and suppliers under the purview of taxation. GST also removes the custom duties applicable on exports. Our competitiveness in foreign markets would increase on account of lower cost of transaction. The proposed GST regime, which will subsume most central and state-level taxes, is expected to have a single unified list of concessions/exemptions as against the current mammoth exemptions and concessions available across goods and services. 8. LIMITATIONS 1. There wasn t enough time to review the impact of GST and its long term effects. 2. Most of the sectors weren t sure about the GST percentage which would be implemented for their industry. 3. The timing of implementation of GST is not feasible, due to demonetization in the country; it is still facing a cash flow crisis. 4. Not implemented during the beginning of the new financial year but rather in the course of it after the first three months, hence the businesses will face more confusion and compliance issues associated along with it. 9. CONCLUSION We can conclude that there is a significant impact of GST in the Indian Economy as the introduction of this new tax structure would be a very noteworthy step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax, it would alleviate cascading or double taxation in a major way and pave the way for a common national market. From the consumer point of view, the biggest advantage would be in terms of reduction in the overall tax burden on goods and services. The introduction of GST would also make Indian products competitive in the domestic and international markets. Last but not the least, this tax, because of its transparent character, would be easier to administer. However, once implemented, the system holds great promise in terms of sustaining growth for the Indian economy. REFERENCES [1] World-Bank.html [2] firms/articleshow/ cms [3] [4] [5] [6] vliqcqypx8vzlizvsjg55m.html [7] Volume: 04 Issue: Researchscript.com 33