The Goods and Services Tax (GST) was launched on July 1st, 2017. It was implemented to cut down on the various other indirect taxes that were in place. All goods and services require a certain amount of tax to be levied on the consumer but the amount to be paid varies for different products and services. The GST scheme implements one standard tax rate in place of the various indirect taxes. The slogan for GST is, ‘One Nation, One Tax.’
The idea behind GST was to unite the entire nation’s merchants, service providers and customers under one blanket tax. GST is a comprehensive national tax that has multiple stages of implementation. The impact of GST on the Indian economy has been largely significant to our economic structure.
What are the Different Components of GST?
The impact of GST on the Indian economy is divided into 3 main categories which are listed below.
Central Goods and Services Tax (CGST)
The Central Goods and Services Tax is determined by intrastate sales. This refers to every transaction that happens within the boundaries of a state. For example, all transactions that occur within the limits of Kerala will determine the rate of CGST within the state of Kerala.
State Goods and Services Tax (SGST)
The State Goods and Services Tax is collected by the State government. It is determined by the intrastate trade and collections are made at the State Government level.
Integrated Goods and Service Tax (IGST)
Integrated Goods and Service Tax is for interstate sales that occur between two states, the IGST is collected by the Central government.
How has GST Impacted the Indian Economy?
Removal of Bundled Indirect Taxes
Before GST came into effect, multiple indirect taxes needed to be paid such as Value Added Tax (VAT), service taxes, excise taxes, etc. These taxes were more of a burden to the general public and reduced the overall demand and consumption of certain goods. With the advent of GST, citizens were encouraged to consume more goods because the taxation is considerably less and simplified. This in turn, boosted the market sales and had a significant impact of GST on the Indian economy.
Removal of Cascading Effect on Taxes
Before the implementation of GST, Indian citizens were subject to multiple taxes. These taxes had a cascading effect on the economy. This was mainly due to goods and services being taxed at every stage of its production, increasing the total taxation amount. GST reduced this burden by a large margin.
Changes in the Threshold for Registration
Under the pre-existing VAT structure, businesses with a turnover of more than Rs. 5 lakh were liable to pay the Value Added Tax, although it differed from state to state. Under the GST structure, the upper limit is four times higher. This new threshold is set at Rs. 20 lakh and is beneficial for small traders and service providers who are exempted under this new GST regime.
The Online Procedure for filing Returns
The process of registering and filing returns have all been digitized. Taxpayers can now conduct their entire payment of GST online which has made life much easier for many citizens, especially for those who own new start-ups. Instead of visiting the various tax filing offices, they can easily download and submit their GST payments online from the comfort of their place of business.
Every step of the process for making GST payments online has been explained in detail on the website in easily comprehensible terms. The provisions for online compliances and the possibility of availing Input Tax Credit (ITC) only after the supplier has accepted the amount, have increased the number of business owners to file their tax returns.
Lesser Number of Compliances
Before the implementation of GST, the VAT structure included individual returns and compliances for VAT and Service tax. Now, there is one unified tax that needs to be paid by taxpayers. This is a much more simplified tax structure that is easily understood and greatly appreciated by the Indian citizens.
Benefits on E-Commerce Operators
The supply and taxation of goods through online stores were not clearly defined in the previous tax structure which resulted in undefined and exploitable VAT laws. Some states such as Uttar Pradesh required online traders from Amazon and Flipkart to file VAT declarations mentioning the licence plate number of their delivery vehicles. The tax authorities often seized the goods being brought into Uttar Pradesh if the delivery executives were unable to produce all the necessary documents.
Many other states such as Kerala or West Bengal were more lenient in their interpretations of the VAT structure. They did not mandate registrations for e-commerce brands and categorized them as facilitators of trade instead of primary traders.
One of the main impacts of GST on the Indian economy is its clear and precise definition of provisions for e-commerce traders. There are no differential treatments for such vendors anymore and the movement of goods between states is now a hassle-free process.
Regulation of the Unorganized Sector
A large part of the Indian economy comes under the unorganized sector. These include countless traders who are unregulated. With the advent of GST, many industries such as construction, horticulture and textile are now being accounted for.
Due to the possibility of completing GST payments online, many traders and small business owners from the unorganized sector have begun conforming to the larger taxation structure under the GST regime.
The impact of GST on the Indian economy has been nothing short of revolutionary. Not only has it brought the simplicity of regulation in the process of taxation but the digitalization of GST payments has also made it more accessible for people across the country.