Why GST Become Need of Indian Economy: Yesterday we have discussed the journey of GST in India and stages through which come in picture after passed in both the parliament houses. Today we are going to discuss, why GST become need of Indian economy.
Why GST Become Need of Our Country
The current indirect tax system is plagued with multiplicity of taxes – at different rates – at multiple points. Further, absence of any setting off mechanism results in cascading effect of these taxes. This is accentuated by a huge compliance cost that is incurred in respect of each of the taxes. Following are the major issues in current indirect tax system which emerge the need of new tax structure:
- Levy of multiple taxes by Central and State Governments on signal transaction:
Central Government: Excise Duty, Additional Duties of Excise, Excise Duty under Medicinal & Toiletries Preparation Act, Service Tax, Surcharges & Cesses etc.
State Government: State VAT, Central Sales Tax, Purchase Tax, Luxury Tax, Entertainment Tax, Entry Tax, Taxes on Lottery, Betting & Gambling, Surcharge & cesses etc.
- Classification Dispute: In number of cases it seen that a signal transaction is treated both goods and services which itself a major issue before trade and departmental authorities.
- Cascading Effect: The input tax credit system is not well structured so that a series of taxes are levied on a transaction which results into higher cost on consumers.
- Paper Work & Compliance: At the present a business man have to make compliance in each and every Tax which increase compliance cost to them.
GST is expected to be a critical reform in spurring growth in the economy. When introduced, GST will not only make the tax system simpler, but will also help in increased compliance, boost tax revenues, reduce the tax outflow in the hands of the consumers and make exports competitive. Following benefits are expected from GST:
- Simpler tax structure:As multiple taxes on a product or service are eliminated and a single tax comes into place, the tax structure is expected to be much simpler and easier to understand. Paperwork will become simpler and there will be a reduction in accounting complexities for businesses. A simple taxation regime can make the manufacturing sector more competitive and save both money and time. Experts opine that the implementation of GST would push up GDP by 1%-2%.
- Increased tax revenues:A simpler tax structure can bring about greater compliance, thus increasing the number of tax payers and in turn tax revenues for the Government. The current state of the Indian economy demands fiscal consolidation and reduction in fiscal deficit. As there is not much scope to reduce Government expenditure, increasing tax revenues is the best alternative to improve the fiscal health.
- Competitive pricing:GST will eliminate all other forms of indirect taxing. This will effectively mean that the tax paid by the final consumer will come down in most cases. Lower prices will help in boosting consumption, which is again beneficial to companies. The biggest positive of GST is that goods and services will be taxed on a common basis.
- Boost to exports:When the cost of production falls in the domestic market, Indian goods and services will be more price-competitive in foreign markets. This can bode well for exporters, who compete with manufacturers abroad facing a lower cost structure.
- Make in India Project: Make in India project that would enable India to become a manufacturing hub. The initiative is particularly important because of the sluggish domestic manufacturing sector and the need to attract foreign investment. If implemented well, it will create employment / job opportunities for the burgeoning jobless youth of the country. In order to make India a manufacturing hub, it is imperative that the foreign investors/companies find it conducive to do business here. One of the major impediments to a smooth business, especially in the manufacturing sector, is the uncertain and unpredictable indirect tax regime. The current indirect tax regime is clearly one of the biggest hindrances which have adversely impacted the domestic manufacturing sector as well as flow of foreign investment to the sector and introduction of GST is important to alleviate the situation. GST would reduce the cost of manufacturing both from a tax perspective as well as on compliance front.
Clearly, the implementation of GST would result in abolition of multiple taxes and would bring the much needed uniformity and certainty in tax rates. GST would also ensure that tax at each stage is creditable thereby avoiding double taxation. Also the manufacturers need to deal with only three laws that are Central law for CGST and IGST and State law for SGST.
It is expected that in the long run, the lower tax burden could translate into lower prices on goods for consumers. On the other hand the Suppliers, manufacturers, wholesalers and retailers are able to recover GST incurred on input costs as tax credits. This reduces the cost of doing business, thus enabling fairer prices for consumers.
This is all about that why GST urgently require in India. So let us know what is your view on Upcoming GST Law. Comment below and express your view………….
- Whether this law will overcome the difficulties of present indirect tax structure??
- Whether expectation of assessee and Government will fulfill.
- Whether still political interfere would cause in proper implementation of GST.
Comment below and express your view
[Disclaimer: The view expressed in above article are of Editorial Team of TaxIndiaUpdates and should not be treated as legal advice in any manner]