In India, there are various types of indirect taxes applicable, those taxes not only creates unnecessary complications in doing business but also expose tax architecture to various tax evasions.
To eradicate all such non-required tax structures and bring uniformity in taxation, Indian Govt has decided to implement GST (Goods and Service Tax), a comprehensive indirect tax on manufacturing, sales and consumption of goods or services in India.
GST will replace all indirect taxes levied on goods and services by central and state governments of India.
This tax is considered as a biggest tax reform and will be a game changer for doing business in India but at the same time it has some demerits.Merits of GST:
1. Biggest benefit is erosion of 17 multiple taxes such as VAT/service tax/sales tax/octroi etc. which were hideous tasks independently for Indian businesses.
2. Revenues are set to grow as input credit system would encourage traders to register for GST which would result in higher number of suppliers to come under tax regime resulting in swelling of tax kitty.
3. Many items to become economical due to uniform tax regime which would result in higher consumption benefiting industries and suppliers.
4. Compliance costs are going to come down as previous split tax structure, which was divided in different taxes for good & services, will vanish and uniformity will bring everything under one roof.
5. No more interstate tax burdens. With single tax, goods movement between states will no longer pinch common man as in previous structure crossing multiple states used to come with cost addition in terms of octroy, temporary permits etc.
6. GST will bring corruption down mainly due to single tax window and higher level of transparency.
7. GST will support for "Make in India" as single tax system to erode interstate costs, logistics costs and local taxes. This would boost manufacturer's morale and support production environment.
8. GST will support GDP and give boost to small states as central tax would expose smaller states to national tax regime and multiple suppliers to get interested in selling to small states.
9. E-commerce business to get a big support from GST as it would bring in erosion of multi state taxes making it easier to sell on national platform.
Demerits of GST:
1. Higher tax burden on small businesses
2. Some believe that SGST (State GST) & CGST (Centre GST) are nothing but new names for excise and VAT
3. Many product segments which were under 4% tax regime to come under 12%-28% tax structure and become dearer for consumers
4. Travel industry to get jerk as GST would push prices higher from current 6%-9% tax structure to almost double tax regime
5. National suppliers to have a new challenge of GST registration in every state and have additional compliance burden
6. Like any new tax structure, GST adoption will come with its own teething issues and businesses getting affected for some duration
Therefore to conclude, GST is a turnaround story for India but like any other new structure, adoption of GST is a big challenge for India where SMEs/Small traders are not used to tax regimes.
But once GST is successfully implemented, India will become a single large market where products can move freely without state's imposition of various tax burdens which would generate interest of many organisations to look forward to make India a manufacturing hub in comparison to China or any other SEA country.
Supriti Mishra, assistant professor,
Department of Economics,
Shyam Lal College,
University of Delhi