GST has arrived! What is the impact of the new tax policy on our economy and businesses?
GST, India’s greatest tax reform, is based on the concept of “one nation, one market, one tax.” The Indian government has been waiting for this moment for almost a decade. The world’s largest indirect tax regime has gone into effect, removing all trade obstacles between countries. With a single stroke, the GST has transformed India into a unified market of 1.3 billion people.
Fundamentally, the $2.4 trillion economy is aiming to restructure itself by removing internal tariff barriers and combining all federal, state, and municipal taxes under a single GST. The launch has rekindled confidence that India’s fiscal reform agenda could gain traction and broaden the economy.
On the other hand, there are concerns about disruption, which are rooted in what is seen as a hasty transition that may not be in the country’s best interests. How our government works to make GST a “good and simple tax” will determine whether hopes triumph over uncertainty.
GST is being implemented across the country in 29 states and seven union territories to create a win-win situation for everybody.
Fewer tax filings, straightforward regulations, and simple bookkeeping would help manufacturers and merchants; consumers would pay less for products and services, and the government would earn more revenue by plugging revenue leaks. As we all know, ground realities differ. So, how has the GST affected India? Let’s take a closer look.
GST’s Immediate Effects:
Consumers would now have to pay a higher tax on the majority of the goods and services they purchase. The bulk of common commodities are now taxed at the same rate or slightly higher. Furthermore, there is a cost of compliance associated with the GST adoption. This cost of compliance appears to be exorbitant and expensive for small-scale producers and traders, who have also expressed their opposition. They could end up having to charge more for their goods.
What Does the Future Hold?
When it comes to the long-term advantages, it is predicted that GST would not only result in reduced tax rates but also lower tax slabs. Countries where the Goods and Service Tax has aided in economic transformation use only two or three rates: a mean rate, a lower rate for basic items, and a higher tax rate for luxury goods.
We now have five slabs in India, each having three rates — an integrated rate, a central rate, and a state rate. Cess is also charged in addition to these.
The government has refrained from experimenting with fewer or lower charges for fear of losing income. This is unlikely to change very soon; however, the government has said that if the RNR (revenue-neutral rate) is reached, charges may be reviewed. In the medium run, the impact of GST on macroeconomic indices is anticipated to be highly beneficial. Because the cascading (tax on tax) impact of taxes would be removed, inflation would be decreased.
The government’s tax collection is highly likely to rise as the tax net is expanded, and the budget deficit is projected to remain under control. Furthermore, exports would expand, as would FDI (Foreign Direct Investment). With the adoption of the most significant tax reform in the country’s history, industry leaders think the country will climb several ladders in terms of ease of doing business.
Exports have increased:
The customs charge on products exported has been decreased thanks to the GST. Due to GST, the cost of production in local markets has also been reduced. All of these reasons have boosted the country’s export rate. When it comes to developing their companies worldwide, firms have grown more competitive.
The introduction of GST has aided in the consolidation of state and federal taxes. The cascading effect of numerous taxes has been reduced as a result of this.
As a result, the tax burden on businesses and consumers has decreased. Not only that, but the number of taxpayers has grown, resulting in a considerable increase in tax income. The whole tax system is now simpler to administer.
It is the government’s responsibility to address capacity building among the less well-off players, such as small-scale producers and dealers, as a top priority. There must be ways to reduce the total cost of compliance, and appropriate adjustments may need to be made for the greater good. Only until the entire country works together to make GST a success will it become nice and easy.