The Goods and Services Tax (GST) is imposed on the supply of products and/or services within the country. It subsumes multiple indirect taxes that are imposed by the State Governments or the Central Government, such as Service Tax, Purchase Tax, Central Excise Duty, Value Added Tax, Entry Tax, Luxury Tax, Local Body Taxes, etc.
GST offers benefits to the government, the industry, as well as the citizens of India. The price of goods and services is expected to reduce under the new reform, while the economy will receive a healthy boost. It is also expected to make Indian products and services internationally competitive.
Uniformity in Taxation
The objective of GST is to drive India towards becoming an integrated economy by charging uniform tax rates and eliminating economic barriers, thereby making the country a common national market. The subsuming of the aforementioned State and Central indirect taxes into just one tax will also provide a major lift to the Government’s ‘Make in India’ campaign, as goods that are produced or supplied in the country will be competitive not only in national markets, but in the international ones as well. Moreover, IGST (Integrated Goods and Services Tax) will be levied on all imported goods. IGST will be equal to State GST + Central GST, more or less, thus bringing uniformity in taxation on both local as well as imported goods.
Helping Government Revenue Find Buoyancy
GST is forecast to help the Government Revenue find buoyancy by expanding the tax base whilst enhancing the taxpayer compliance. The reform is also expected to improve the country’s ranking so far as the ‘Ease of Doing Business Index’ is concerned. To add to it, it is also estimated to enhance the GDP by 1.5% - 2%.
Cascading of Taxes
The cascading of taxes will be prevented by GST as the whole supply chain will get an all-inclusive input tax credit mechanism. Business operations can be streamlined at each stage of supply thanks to the seamless accessibility to input tax credit across products or services.
Simpler and Lesser Number of Compliances
Compliance will be simpler through the harmonisation of tax rates, procedures, and laws. Synergies and efficiencies are expected across the board thanks to common formats/forms, common definitions, and common interface via the GST portal. Inter-state disputes such as those on e-commerce taxation and entry tax that currently prevail will no longer cause concerns, while multiple taxation on the same transactions will also be removed. Compliance costs will also reduce as a result.
The previous tax regime had service tax and VAT, and they both had their own compliances and returns. GST will merge them and lower the number of returns as well as the time spent on tax compliances. GST has around 11 returns under it. Four of them are basic returns that are applicable to all taxable entities under GST. Although the number of returns could increase, the main GSTR-1 shall be manually populated, while GSTR-2, GSTR-3, AND GSTR-4 shall be auto-populated.
The procedures for refund of taxes and registration of taxpayers will be common, while the formats of tax return will be uniform. The tax base will also be common, as will the system of assortment of products or services in addition to the timelines for each activity, thereby ensuring that taxation systems have greater certainty.
Since technology will be used heavily to drive GST, taxpayers will have a common portal (GSTN). The procedures for different processes like registration, tax payments, refunds, returns, etc., will be automated and simplified. Whether it is the filing of returns, filing of refund claims, payment of taxes, or even registration, all processes will be done online via GSTN. The verification of input tax credit will be done online too, and input tax credit across the country will be matched electronically, thereby turning the process into an accountable and transparent one. As a result, the process will also be much quicker since the taxpayer will not have to interact with the tax administration.
Lowered Tax Burden on Industry and Trade
The average tax burden on industry and trade is expected to lower because of GST, resulting in a reduction of prices and increased consumption, which will eventually increase production and ultimately enhance the development of various industries. Domestic demand is set to increase and local businesses will have greater opportunities, thus generating more jobs within the country.
Regulation of Unorganised Industries
Certain sectors in the country, such as textile and construction, are highly unorganised and unregulated. GST aims to ensure that payments and compliances are done online, and input credit can only be availed when the supplier accepts the amount, thus ensuring that these industries have regulation and accountability.
Small businesses can find respite from tax burdens through the composition scheme. Small businesses that earn turnovers ranging from Rs.20 lakh to Rs.50 lakh will be subject to lower taxes.
These are some of the main benefits offered by GST. In the following sections we shall take a brief look at the advantages of the regime to the common man, the economy, and industry and trade.
Benefits to the Common Man
- A good number of products and/or services are either exempt from tax or charged at 5% or less.
- The poor will receive their due.
- Small traders will find themselves on a level playing field.
- Simplified tax structure with fewer exemptions.
- Products and services will be allowed to move freely across the country.
- Increased competition between manufacturers and businesses will benefit consumers.
- Items such as movie-ticket prices, two-wheelers, televisions, stoves, washing machines, SUVs and luxury cars, two-wheelers, etc. will be cheaper.
Benefits to the Economy
- Creation of a unified common market.
- Increase in manufacturing processes.
- Enhancement of exports and investments.
- Generation of more jobs through enhanced economic activity.
Benefits to Industry and Trade
- Uniform procedures for registration, filing of returns, payment of taxes, and tax refunds.
- Elimination of cascading of taxes thanks to the seamless flow of tax credit from the supplier or manufacturer to the retailer or user.
- Small scale suppliers can make the most of the composition scheme to make their goods less expensive.
- Higher efficiency with regards to the neutralisation of taxes so that exports are globally competitive.
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