Introducing GST and Its Impact on Indian Economy

The Goods and Services Tax has revolutionized the Indian taxation system. The GST Act was passed in the Lok Sabha on 29th March, 2017, and came into effect from 1st July, 2017.GST is a broad based, single, comprehensive tax levied on goods and services at each point of sale of goods or provision of service, in which, the seller or service provider may claim the input credit of tax which he has paid while purchasing the goods or availing the service; the final consumer will thus bear only the GST charged by the last dealer in the supply chain. With the introduction of GST at the State level, the additional burden of CENVAT and services tax would be comprehensively removed and major Central and State taxes will get subsumed into GST which will reduce the multiplicity of taxes. Thus it marks a major improvement over the previous system of VAT. Again, the transparent and complete chain of set-offs, GST will help-widening the coverage of tax base and improve tax compliance. This may lead to higher revenue which further results in lowering of tax burden. Although there are many hurdles to be crossed before the implementation of GST like consensus over rates, constitutional amendment, compensation mechanism for States losing out on revenue, varying models, dispute resolution etc. the Central government has reiterated its commitment towards the adoption of a ‗flawless‘ GST for the survival of the India‘s economy in the face of increasing international competition consequent to globalization and liberalization. Despite the various impediments to the proposed transition, until the time GST is implemented, it would be worthwhile to assess its positive impacts on the various development areas in India. This aspect is the subject matter of this paper.

Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-based taxthat will be levied on every value addition. In simple words, GST is an indirect tax levied on the supply of goods and services. GST Law has replaced many indirect tax laws that previously existed in India. So, before GST, the pattern of tax levy was as follows: through along its supply chain: from manufacture to final sale to consumer. Let us consider the following case: • Purchase of raw materials • Production or manufacture • Warehousing of finished goods • Sale of the product to the retailer • Sale to the end consumer Goods and Services Tax will be levied on each of these stages, which makes it a multi-stage tax. Value Addition The manufacturer who makes shirts buys yarn. The value of yarn gets increased when the yarn is woven into a shirt. The manufacturer then sells the shirt to the warehousing agent who attaches labels and tags to each shirt. That is another addition of value after which the warehouse sells it to the retailer. The retailer packages each shirt separately and invests in the marketing of the shirt thus increasing its value. GST will be levied on these value additions i.e. the monetary worth added at each stage to achieve the final sale to the end customer. Destination-Based Consider goods manufactured in Rajasthan and are sold to the final consumer in Karnataka. Since Goods & Service Tax (GST) is levied at the point of consumption, in this case Karnataka, the entire tax revenue will go to Karnataka.

What are the components of GST?

• SGST: Collected by the State Government on an intra-state sale (Eg: Within Karnataka) • IGST: Collected by the Central Government for inter-state sale (Eg: Karnataka to Tamil Nadu) Overview of GST Levy

1. To study the concept of Goods and Services Tax (GST) and its impact on Indian Economy. 2. To understand how GST will work in India. 3. To know the advantages and challenges of GST in Indian context. Research Methodology The study focuses on extensive study of Secondary data collected from various books, National & international Journals, government reports, publications from various websites which focused on various aspects of Goods and Service tax.

The study focuses on extensive study of Secondary data collected from various books, National & international Journals, government reports, publications from various websites which focused on various aspects of Goods and Service tax.

GST AND ITS IMPACT ON INDIAN ECONOMY

GST stands for Goods and services tax and it has done away with all the indirect taxed on commodities and services and replaced all of them with a single tax which is called GST. It has eliminated the indirect taxes of the central government and state government also. State government levies its own taxes and central government levis its own taxes on various items from manufacturer to the end user. GST and its impact on Indian economy.Now all these indirect taxes have been replaced by a single GST. India as acquired a double structure of GST where both center and state government will levy tax on a single commodity simultaneously and the tax will be divided in equal proportion. For example if a service tax is 18% then 9% of the GST will go to Central government while another 9% will go to the state government.

• 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

At present the GST rate which is in practice across the world is ranges between 5% to 40%, some of the European and Asian countries are charging minimum 102 Introducing GST and Its Impact on Indian Economy rate of 5%, where as some of the African countries are charging maximum rate of 38%- 40% on the goods and services. And most of the countries in GST will implement with 16% -22% as against the aggregate rate of around 24%- 36% which is presently collected on the goods which is consumed. At present the GST rate which is in practice across the world is ranges between 5% to 40%, some of the European and Asian countries are charging minimum

• Removing cascading tax effect. • Higher threshold for registration. • Composition scheme for small businesses. • Online simpler procedure under GST. • Lesser Compliances • Defined Treatment for e-commerce • Increased efficiency in logistics • Regulating the Unorganized sector.

Tax policies play an important role on the economy through their impact on both efficiency and equity. A good tax system should keep in view issues of income distribution and, at the same time, also endeavor to generate tax revenues to support government expenditure on public services and infrastructure development. The ongoing tax reforms on moving to a goods and services tax would impact the national economy, International trade, firms and the consumers There has been a good deal of criticism as well as appraisal of the proposed Goods and Services Tax regime. It is considered to be a major improvement over the pre-existing central excise duty at the national level and the sales tax system at the state level, the new tax will be a further significant breakthrough and the next logical step towards a comprehensive indirect tax reform in the country. GST is not simply VAT plus service tax, but a major improvement over the previous system of VAT and disjointed services tax – a justified step forward. A single rate would help maintain simplicity and transparency by treating all goods and services as equal without giving special treatment to some ‗special‘ goods and/or services. This will reduce litigation on classification issues. It is also expected that implementation of GST in the Indian framework will lead to commercial benefits which were untouched by the VAT system and would essentially lead to economic development. Hence GST may usher in the possibility of a collective gain for knock the doors of India. And when that happens, we as future torch bearers of the profession are required to be prepared and fully equipped with our knowledge regarding GST. Forewarned is forearmed. Thuswe must be ready to deal with GST and many other changes that are going to take place in India. Slowly, India shall move to join the world wide standards in taxation, corporate laws and managerial practices and be among the leaders in these fields.

G. Raghuram (2015). Goods and Service Tax: The Introduction Process. Mr. Pranab Mukherjee (2011). Finance Minister of India, Speech at the Union Budget 2010-11, available at http://www.thehindu.com/business/Economy/article113901.ece. Mukesh Kumar Kumawat, Dr. Vibhor Paliwal (2015). Emergence of Goods and Service (GST) Poddar, Satya and Amaresh Bagchi (2007). ―Revenue-neutral rate for GST‖, The Economic Poddar, Satya and Amaresh Bagchi (2007). Revenue-neutral rate for GST, The Economic Times, November 15 www.gstindia.com/basics-of-gst-implementation-in-india (Accessed on 08-01-2016:10:13) Srinivasan Pagalthivarthi (2015). Goods and Service Tax (GST): Analysis, Findings and Suggestions.

• http://www.indiataxes.com/Information/ VAT/Introduction.htm • http://articles.economictimes.indiatimes.com /2013-08-13/news/41374977_1_services-tax-stategst-goods-and-services/2 • http://www.taxmanagementindia.com/wnew /detail_rss_feed.asp?ID=1226 • The Empowered Committee Of State Finance Ministers (2009), First Discussion Paper On Goods and Services Tax In India, November 10 ,2009. • www.goodsandservicetax.comxguru.in/goods-andservice-tax/goods-service-tax-gst.2html