Goods and Services Tax (GST)

Goods and Services Tax

The GST is one of the biggest tax reform proposal in India. GST is a comprehensive tax levied on manufacture, sale and consumption of goods and services at the national level. The demand for GST has been growing since years.

The tax system in India is a very complex system with lots of loopholes and procedures. There were a lot of different taxes imposed both at State and National level like excise duty, service tax, sales tax, octroi. Therefore, the GST is aimed at bringing together most of the indirect taxes under a single mechanism. The proposal for a unified tax system has been going on since decades. Even though everyone acknowledged the need for GST, there were no steps taken at the political level to implement it. Since India follows a federal structure, the GST can only be implemented in India by amending the Constitution and hence The 122^nd Constitution Amendment Bill was introduced in the Parliament.

One of the major aims of the GST is to reduce the double taxation over goods and services. It will reduce the number of times a tax is imposed on the goods and therefore there will be less possibility of manipulation. Other major uses of having a single GST is that it will improve transparency and simplify the process. There will be many direct and indirect impacts of GST on our country. First of all it will greatly help the business. The business would have clarity over the uniform rate of taxation and it will help in improving business environment. Secondly, inter-state trade will be increased and made simpler.

In the longer run, the GST will ensure that there is better tax collection, lesser chances of tax evasion and that there is a boost in the collection of revenue. GST has been implemented in a lot of countries and it has been successful in boosting the economy of such countries. It is estimated that GST will add 0.5% to the GDP of India. Also, the major benefit is that since the multiple taxes would come down, it will ensure lower tax rates for the people.

However, there are a number of possible problems as well. Under the Constitution of India, both the States and Center are empowered to impose taxes. Therefore, the GST proposed is of a dual nature where there will be a Central GST as well as a State GST. This means that again there would be more than one tax and it will be difficult to manage the collections, distribution of such taxes. Other than that, the States would loose power to amend the tax rate, exempt certain items from taxation. Therefore, if the State was able to exempt certain item from tax to promote a product, it would not be able to do that after GST is implemented. The autonomy of the States would be lost.

The biggest problem is deciding on the rate of taxation. There are suggestions of the tax rate between 12-26 per cent. Since the interest of both the Center and the States is involved, it is difficult to agree on one rate of tax. Apart from that, the GST even if implemented would not address the major tax problems on India. It is an indirect form of tax. In India, the major tax collection is from indirect taxes, which is totally opposite the other developed countries where the majority of tax collection is from direct taxes like income tax. Hence, the Government has to find ways to ensure that direct tax base is widened.

In the end, it can be safely said that the GST is a good step towards ensuring economic growth in India. There will be certain problems in the implementation of the GST and then in the short run but it is a good step in the reform of taxation of our country and it will benefit India in the long run.

- Dev Chaudhary