Pessimists decried the introduction of the goods and service tax in India. Several businesses went into a tailspin and did not recover, adding fuel to the dark predictions. However, as with any landmark reforms, the GST India program involved changes and transitional pains and eventually, it has benefited the economy of India on the whole. Read more about the advantages of GST for the Indian economy.
Doing away with multiple taxation points
Prior to introduction of the goods and service tax there were multiple indirect taxes at the central and state level such as:
- Central excise, additional excise, service tax, additional customs duty, special additional customs duty and excise duty on medicinal and toilet preparations at the Central level, and,
- Sales tax/VAT, entertainment tax, Octroi & entry tax, purchase tax, luxury tax and taxes on lottery/gambling/betting.
It appears simple but for each of the above taxes businesses had to maintain records and file returns with various authorities. These taxes, specifically such as octroi and state sales tax entry check posts entailed untold delays in movement of goods. Transports had their fleets blocked for days at such points, adding to their losses. The logistics industry has also benefited and there is a cost reduction which also benefits the end customer. GST India did away with all these indirect taxes and simplified taxation resulting in direct benefit to the economy. Exports to receive a boost and such increase in exports will undoubtedly help the Indian economy and Indian exporters to grow.
Doing away with corruption
As can be seen there were many different tax points and at each point there were possibilities for corruption. These were exploited to the fullest by unscrupulous businesses as well as by officials in the tax department. GST India now permits online filing and does away with corruption, greatly benefiting the Indian economy.
Doing away with tax avoidance
The goods and service tax entails generation of invoices electronically and filing of invoices online if businesses wish to claim tax credits. Digitization means traders may buy goods but must pay taxes and if such traders wish to gain tax credit, they have to generate tax invoice as well. Even otherwise, digitization means they must account for inventory and will find it difficult to sell without invoices. Even small and large traders fall into the GST tax net in India and the incidence of tax avoidance or evasion is reduced which greatly benefits the economy.
Cost reduction for final customer
The prevailing previous system of indirect taxes meant that traders or manufacturers had to pay tax on purchases and then levy tax on products they sold. The chain of indirect taxes continued down the chain until the final customer who had to bear the entire burden of taxes. The advantages of GST are that such cascading taxation is done away with and the final amount the customer pays, though inclusive of tax, is much less and this gives a boost to the economy. People can purchase more and buy products with a tax invoice. Indirectly, since an invoice is to be issued, a guarantee also goes with products such as consumer products, and customers can claim benefits of the warranty. Manufacturers also have to improve their product quality since they cannot escape responsibility.
Boosting small businesses
Earlier the small service providers and businesses were unorganized and did not register for taxation but due to the inbuilt exemption limit of GST, such service providers and businesses register for GST without incurring tax liability up to a certain limit. Small businesses can grow since they are registered and can avail of loans and other schemes. Companies with a turnover of Rs 75 lakhs to Rs 1 crores can pay only 1% tax on turnover and benefit from the simplified taxation process under GST India.
Uniform taxation across the country, reduced taxes on certain products
Before GST India was implemented each State had the freedom to charge local taxes according to its rules. As such the price of one product could be less or more in different States, affecting sales and purchasing power of buyers. The GST India uniform taxation led to uniform pricing across the country and it also gave a boost to ecommerce operations. The results and advantages of GST are there for all to see. Anyone in India can buy products at a competitive price from online ecommerce marketplaces.
Government resources freed
Prior to introduction of GST governments had to maintain entire departments for taxes such as VAT, octroi and others and resources were consumed simply in managing the complex and archaic taxation system. The GST India regime, particularly its digitization, has led to reduced cost for the government and freed resources that it can divert to boosting the economy and for other public services.
As can be seen, despite what detractors say there are definite advantages of GST in India. The government is refining the goods and service tax and it will undoubtedly iron over the wrinkles that are pain points at this time. In future, with a refined system, GST will undoubtedly boost the economy even more. The GDP of India has already risen post pandemic and GST collections have shown a healthy growth.