Starting July 1st, 2017, India has moved on from the indirect tax regime into a fresh tax regime popularly known as GST or Goods and Services Tax. GST has eliminated numerous types of central and state taxes. The biggest benefit of GST on the common consumer has been in terms of the reduced overall tax burden on goods. From a business's perspective, it has brought about a reduction in a multitude of taxes, bringing a simpler taxation system with lesser tax rates.
Ever since its roll, GST has been changing the pace of the Indian economy for the better as well as easing the ways of business operations. GST has brought about a gigantic positive impact with more clarity which in turn will benefit businesses to a large extent. The taxation rate under GST, depending on the nature of goods and services are categorized under 5%, 12%, 18% and 28%.
10 Things to be Aware of the GST Law
- GST has relieved the tax on the tax system and the compounding impact of the old taxation system. This has helped in decreasing the overall cost of goods. GST has acted in shifting the tax influence closer to the consumer which will benefit the industry due to a better cash flow as well as better working capital management.
- The nature of Input Tax Credit under GST is considered as one of the prominent facilitators in GST. Input Tax Credit allows manufacturers and service providers the ability to reduce their tax liability by the amount they have already paid on inputs while paying for tax on output. For example, a manufacturer is liable to pay output tax of Rs. 25,000 and he/she has already paid Rs. 15,000 against the tax on input. With Input Tax Credit, the manufacturer will be required to pay just Rs. 10,000 for the total output tax instead of Rs. 25,000. This considerably reduces the manufacturer’s tax liability to a reliving extend.
- The manufacturer who is the recipient can avail input tax credit only if the details provided in the returns by the supplier matches the details given by the recipient. This practice enhances transparent compliance on the supply of goods and services which help in keeping a check on tax evasions.
- The tax rate in the previous taxation regime varied from one state to another which is why companies had to compromise on the location of their warehouses to avoid multiple taxations from different states. The GST law, however, has introduced one nation, one tax reform, allowing companies to set-up their warehouses anywhere in the country, which will in-turn optimize the cost of production.
- Due to a decrease in border checks which resulted in long and endless queues during border checks, the transport cost for goods or services will decrease considerably. There will be less cost incurred in operation, benefiting the goods and service companies in a big way. Logistic cost is a big part of the costing process but when it is pulled out of the picture then there will be an advantageous reduction in the final cost of the product.
- As anticipated, GST has brought about a significantly stable tax structure which will be monitored under the authority of the central and state government of India.
- There will be a boost in exports since GST will make domestic goods very competitive in the global markets. There will be zero tax rate on the export of supplies which means domestic exporters will not be levied any taxes under GST and they can also claim input tax credit.
- GST will ease the business transactions for manufacturers and service providers. As a simpler tax regime with tons of benefits such as; fewer exemptions, no multiple taxes, reduction in compliance costs, the simplified and automated procedure for registration, claiming refunds or returns, payment of tax etc. GST is a breath of fresh air. Every interaction can be followed-up via the common GSTN portal which will result in less interaction between the administration and the taxpayer.
- The initial days will be challenging for businesses just like the challenges that come with any new changes. Once businesses transitions to the new tax regime, work will smoothen and create many benefits as well as transparency.
- The Goods and Services Tax will uplift the country’s Gross Domestic Product rate by 1.5-2% in the long term. With its improved taxation system that provides ease and efficiency of supply, GST will deliver immense benefits to the citizens of India.
The Impact of GST on the Indian Economy
Following are the ways in which GST will help improve the economy of India:
- Reducing in tax burden for producers which will encourage quality and more productivity. The earlier structure of taxation was ill-structured with a magnitude of tax clauses which prevented the manufacturers from providing optimum production, hindering growth, however, now, GST will relieve manufacturers from those problems by issuing a tax credit to manufacturers.
- All the various tax hurdles that prevailed such as; long queues at check posts and toll plazas, resulted in wastage of products which were being transported and those which were unpreserved. A single GST taxation system will eliminate all these barricades and prevent unnecessary wastage which caused huge losses in costs for supplies.
- The common consumer will know exactly how much taxes they are being charged and on what grounds, which will pave way for a fair and transparent tax system.
- The extension in the tax base under GST will be compounded to the revenue of the government.
- Upon the taxes paid by producers for the supply of goods or services, GST will provide a tax credit. This GST feature will encourage producers in purchasing the raw materials from any of the registered dealers which will eventually bring all the vendors and suppliers under the GST roof.
- Customs duties which were applicable on export of goods will be removed and it will increase the competitive spirits of the exporters to be at par with foreign markets.
Structuring the Economy of India for a Brighter Future
The launch of GST is a historic milestone in India as it has eliminated many of the fields of indirect tax reforms. Merging of a numerous Central and State taxes into a common tax structure will significantly bring an ease to the double taxation which was happening earlier, making industries flourish in growth. The tax burden which was passed on to the end consumer in the previous tax regime for the purchase of goods and services will also subdue. Because of the transparency in its character, GST will be a lot easier to administer.