Income Tax


Tuesday 19 December 2017

Dynamic Impact of GST on Indian Economics

GST is an indirect tax which was introduced in India on 1st July 2017 and was applicable throughout India. GST is not going to be an additional new tax but will replace other indirect taxes. As the GST was introduced by replacing the old indirect tax structure it will defiantly affect the Indian Economy. Now we can take look on them. 

From the viewpoint of the consumer, customers would now have paid more tax for most of the goods and services they consume. The GST implementation has a cost of compliance attached to it. As per the RBI’s latest monetary policy statement the implementation of the GST is not expected to have a material impact on overall inflation rate. GST removes the cascading effects of taxes, this will lowering the burden on the common man.

In case of hospitality sector the net tax rate under old tax regime was around 20 to 27 % with the scope of claiming the input tax credit against the indirect tax Liabilities.Under the new tax structure, the hospitality industry benefits with a consistence taxation system. GST Council decide to fixed tax rate @ 5% without giving the facility of input tax credit. Cancellation of ITC facility may affect the stakeholder’s ITC benefit & at the same time reduction in the tax rate may give consumers free from heavy tax burden.

Traders below 20 lakh annual turnover are exempt under GST as compared to the old tax structure of Rs 10 lakh in indirect taxes. Those between the threshold and composition turnovers will have the option to pay a turnover based tax or opt to join the GST regime. Those above limit will need to be within framework of GST. Now government can stop the reverse charge mechanism system for some period, this will benefit to unregister dealer for that period only. In a simple language non-register dealer was ultimately ignore by other register dealer for smooth administration of GST.

Despite of the economic slowdown, India's Fast Moving Consumer Goods i.e. FMCG products has grown consistently during the past three – four years reaching to $25 billion at retail sales in 2008. Implementation of proposed GST is expected to fuel the growth and raise industry's size to $95 Billion by 2018.

Implementation of GST could help government raise tax revenues and reduce fiscal deficit, which has been around 4.5 per cent in the last three years. By removing cascading effect, layers of taxes and simplifying structures, the GST would encourage compliance, which is also expected to widen the tax base. GST was introduced to replace all indirect taxes so the cost of maintenance of each department was ultimately reduced due to the effect of One Nation One Tax.

It is mandatory for all e-commerce operators to collect tax at the rate of two percent as TCS on the net value of sales made by suppliers through e-commerce operators. Such TCS has to be deducted in each state and deposited accordingly. The ecommerce operator has to report the product or service code individually with the applicable tax rate. This requires them to map every sale done by the dealer and ensure TCS is deducted at the right value. Additionally, the e-commerce operators will have to register in each state and file the reports separately on a monthly basis
In the conclusion part we can conclude that each and every transaction must be disclosed to government under the GST compliances. GST is definitely a good move to reform indirect taxation in India and has positive effects on GDP growth, Tax revenue, exports, and so many. But even after a decade Government have failed to implement it, due to variety of reasons like, compensation mechanism for the states, GST rates, and issues relating to food products, petroleum, and tobacco.

- Tushar Gopal Agrawal
 - CA Student