The Indian Ministry of Finance has finally got Rajya Sabha to pass the Goods and Service Tax (GST) last year, and is going to be (hopefully) applicable from 1st of July this year. GST implementation in India is touted to be the biggest reform in the country's indirect taxation since the beginning of economic liberalisation in India more than 25 years ago.
GST aims to fix some of the ridiculous parts of current taxation system that were long overdue.
1. Around 17 state and central taxes
Yes, you've read it right. GST largely simplifies the taxation by reducing the number of taxes during multiple levels of manufacture, sale and consumption. GST will subsume around 17 taxes like excise duty, service tax, central sales tax, and value added tax (VAT) for the better. GST implementation in India allows businesses to see a boost in revenues since the number of tax laws like Central Excise Act, 1944, respective State VAT laws, and others are largely simplified. Minister of Finance Arun Jaitley asserts that the de-clutter of the taxes will eventually lead to the financial integration of the country.
2. State-wise fragmented taxes
It is said that the costs of goods and services is pushed up to 20% to 30%with the current taxation for transactions across the states. Not only GST allows free movement of goods across the state borders, but also to see more efficient costing, and transportation — since a lot of paperwork is reduced. Logistics and inventory costs are also largely reduced. A sale within the state will have a state GST and central GST, and a sale outside the state shall have a integrated GST. Again, the three types of GSTs replace the number of above-stated taxes.
3. Tax-evasion
If tax-evasion is not ridiculous, then what is? Tax-evasion hinders India's progress, and GST aims to fix that. If a seller hides a sale, it is difficult to hide the purchase in the first place. Since GST involves monitoring of bills and paper trail during every stage, it's an efficient way to curb domestic black money. Real estate sector that enmasses maximum black will be the first to be curbed out, followed by jewellery market, banking, and investment sector.
4. Difficult MNC operations
Once the GST is in place, it'll be easier for MNCs to make business in India. Global companies find the easier taxation an additional advantage to have a foothold in the country. Since GST will turn India into one common market, a unified indirect taxation is seen as a positive change by the MNCs. Reduced cost of production and free-flow of supplies could improve manufacturing, thereby accounting for the country's GDP.
5. Unnecessary inflation
Lowering the costs of goods and services is one of the most important outcomes of GST. While following the zero taxation for food items like in the current taxation, GST is a clear winner in seeing the price reduction of other items. Reduced litigation and mitigation of cascading taxation paves the way to keep the inflation in check. Due to this, sellers do not have to include taxes in the pricing. It is estimated that goods will cost 20% to 25% lesser.
