GST, also known as the Goods and Services Tax is defined as the giant indirect tax structure designed to support and enhances the economic growth of a country. More than 150 countries have implemented GST so far. However, the idea of GST in India was mooted by Vajpayee government in 2000 and the constitutional amendment for the same was passed by the Lok sabha on 6th May 2015 but was yet to be ratified by the Rajya sabha. It would be interesting to understand why this proposed GST regime may hamper the growth and development of the country.
The Goods and Services Tax (GST) is a vast concept that simplifies the giant tax structure by supporting and enhancing the economic growth of a country. GST is a comprehensive tax levy on manufacturing, sale and consumption of goods and services at a national level. The Goods and Services Tax Bill or GST Bill, also referred to as The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014, initiates a Value added Tax to be implemented on a national level in India. GST will be an indirect tax at all the stages of production to bring about uniformity in the system.
In present scenario, Country is struggling due to Covid-19. Economy went down, factories are temporary shutdown, some businesses have been closed and unemployment is increasing day by day. This has caused due to lower collection of GST. GST collection is the good source of Government revenue but if there is no consumption then there is no GST collection and it shows excess of expenditure over income from the point of view of Government. Again, Economy will suffer.
Apart from current situation i.e., impact of covid-19, tax regime has become convenient reducing duplication and multiplicity of tax filings creating ease of doing business. The Ministry of Statistics and Programmed Implementation has declared India’s GDP growth to be 7.7% in 2017-18 compared to 7.1% in 2016-17. After the initial phase of GST implementation, marginal improvement was expected given the scale of changes in business and tax administration that it got along.
The Indian Taxation System – Scenario before GST
Tax policies play a vital role in any country’s progress and have a direct impact on any Country’s economy in terms of efficiency and equity. A good taxation policy is that which takes care of the entire income distribution and also generates tax revenues in such a manner for central and State governments, which can lead to overall benefit in the nation infrastructure, defense, public amenities, people security, and a country exports. The entire framework to impose indirect taxes comes under constitutional provisions of India. Article 246, seventh schedule gives the right to central and state governments to levy taxes and collect indirect taxes on the basis of goods and services transactions. The taxation system varies from manufacturer to manufacturer on point of sale or level of imports or exports. Indirect taxation based collection systems are based on origin, and are designed to impose tax and collect the same at the event of happening of any taxable activity.
GST Rates in India
There are four slabs categorized based on goods and services, as proposed by the government:
- 5%: Under this slab, household items are included like sweets, sugar, spices, tea, coffee, coal, edible oil, etc.
- 12%: Under this slab, computers and processed foods are included like cheese, ghee, ayurvedic medicines, cell phones, and fertilizers, etc. Services like work contracts, business-class air tickets, and non-ac hotels are also included.
- 18%: This slab qualifies for toothpaste, soaps, hair oil, etc. as well as capital goods and industrial intermediaries.
- 28%: This slab involves luxurious items such as premium cars, consumer durables – AC, Refrigerators, etc.
Benefits of GST & its impact on economy
- Simplified tax system
- Reduction prices of goods in and services due to elimination of cascading
- Transparency in taxation system
- Increase in employment opportunities
- It would subsume all indirect taxes at the center and the state level.
- It would bring down the prices of goods and services and thus by, increase consumption.
Impacts of GST so far seem good opportunities for the development of the economy. Some facts and forecast regarding GST:
- Impacts of GST reforms are very positive for growth, capital formation, investment, consumption and employment in the Indian economy.
- Impact on employment is positive but GST reforms raises employment only up to 1 percent above the benchmark. This is partly due to substitution of labor by capital. Creating more employment requires expansion of labor intensive service sectors along with investment in human capital.
- The distribution of income also becomes more equal after the GST reforms. The economic well being of households and their consumption increases up to by 8 percent above the benchmark. They also increase labor supply to take up jobs created additionally.
- In general, by liberalizing the economy, the GST reforms make a very positive atmosphere for investment and capital accumulation. Capital stock expands up to 60 percent above the benchmark economy because of expansion in investment and more efficiency in the use of capital that reduces the cost of capital.
- Economy creates more employment in the service sectors including the transport and storage, hotel and restaurant, food and beverages and textiles, health and education and community services sectors after the GST reform.