Your guide to understanding GST in India

GST in India

History of GST:

The GST has been implemented in nearly 160 countries and France was the first country to introduce GST in the year 1954. As the tax ensures various benefits, its introduction has been on the agenda of the country of every ruling party.

TIMELINE OF GST IMPLEMENTATION

Goods and services tax (GST) – the largest tax reform of India was implemented at the midnight on 1st July 2017. It was the greatest moment in the history of the Indian economy. This aims at creating a single, unified Indian market throughout the nation. Its main objective is to consolidate multiple indirect tax levies into a single tax thus subsuming the number of tax levies, overcoming the limitations of previous indirect tax structure, and creating efficiencies in tax administration and converted the nation into one market.

WHAT IS GST?

In order to decide whether GST is a boon or bane to the society, first, let us understand the basic concept of GST:

GST is an Indirect tax. It is a destination-based tax on the consumption of goods and services. It is levied at all stages right from manufacture up to final consumption with credit of taxes paid at previous stages available as setoff. In a nutshell, only value addition will be taxed and the burden of tax is to be borne by the final consumer. The following are features of GST.

  • Value-added tax
  • Destination based tax
  • Consumption-based tax
  • Tax on both goods and services
  • Tax on supply
  • A comprehensive and continuous chain of Input Tax Credit
  • Final burden on ultimate Consumer

NEED FOR GST in India:

In the pre-GST regime chain of Input Tax Credit (ITC) was not seamless. That is from manufacturing to ultimate sale there were stages when the credit of earlier tax paid was not available and as a result, there were instances when tax being levied on taxes (known as cascading effect). So there was a need to carry out some reform in this area of ITC and this problem has paved the way to GST.

GST = A SOLUTION TO ALL THE DEFICIENCIES/SHORTCOMINGS PRESENT IN PREVIOUS TAX SYSTEM

BENEFITS OF GST in India:

  • A single tax and unique interpretation for any product and service across the nation have enabled many businesses to streamline their operations and reduce distribution costs by well over 3-4%. Companies have optimized and reduced spending on warehousing, logistics, and the last mile to the consumer. Distribution systems have become far more cost-efficient now than ever before. Across every element of the business— production, supply chain, and storage—systems have been streamlined with GST. A single tax has eliminated the pricing challenges faced by companies. It has helped corporates in saving on fuel and energy. Delays due to freight checkposts are a thing of the past. The savings have been considerable for corporates, and this has translated into higher profitability and valuation.
    For a comprehensive view on logistics, read: The GST impact on Logistics.
  • GST has conclusively set a path for the formalization of the Indian economy. It is one of the five key pillars of economy formalization alongside digital transaction, Jan Dhan, direct transfer of subsidy, and identification. Leakages in the system are being eliminated clinically and the tax base for direct and indirect taxpayers is expanding. Registrations of indirect taxpayers have almost doubled in a year from 6.2 million in the pre-GST days. The number of income taxpayers in the country has increased by 13 million in a year. These are positive signs for corporates. They will benefit from additional tax revenues to the government. Government investments in infrastructure and other economy building blocks have begun to go up. This improves the ease of doing business and investments for corporates.
  • The manufacturing sector has benefited from reduced logistics and distribution costs and simplified compliance procedures to a large extent. GST has allowed it to restructure its supply chain in a clean and uniformly interpretable manner. Previously, supply chains were designed to escape tax regimes. GST being a single-tax regime has forced businesses to re-deploy supply chain structures that increase business and service efficiency. Supply chains will now put customer service on top priority. GST has also enabled manufacturers to claim an input tax rebate on goods. This facilitates continuous cash flow that indirectly drives growth. There are concerns regarding stress on working capital but that will address itself when compliance and efficiency improvements to a higher level.
  • The arbitrage which was caused by states because of the difference in the tax treatment of a product is no longer there. This has meant that the entry barriers and octroi which prevented the free flow of goods across state boundaries or created an incentive to evade taxes is no longer there. For all this to have been achieved in a vibrant, robust federal country like ours, is an achievement that people tend to overlook.

Thus, GST in India proves to be the overall performer of the economy by giving various schemes for taxation under one roof, exhibiting free flow of the goods and currency in the economy, and also acts as a single-window clearance system for entrepreneurs and businessmen.

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