GD Topic : Should Indian Government Implement GST (Goods & Services Tax) ?

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Updated: 3rd July 2017
Background of GST (Goods and Services Tax)

GST was proposed in the Indian Parliament 17 years ago and has finally been implemented nationally. However economists are still deep diving to study its implications and questioning the feasibility of implementation throughout the country. Implementation of GST has been passed by both the houses and now stands as the biggest tax reform post independence. The Idea of GST was introduced 17 years ago back by Congress but due to lot of issues in implementation, especially consensus from states, the previous government was not able to roll it out.

1st July 2017 onwards, GST has been rolled out in India with mixed reactions from traders and corporates.

Read More on Drawbacks of GST Implementation in IndiaClick Here

What is GST?

GST stands for Good and Services tax. At present, India has two broad categories of taxes:-

  1. Direct Taxes (eg. Income tax, Wealth tax) – The liability of these taxes cannot be shifted. These taxes are levied in proportion to income of the individuals/institutions and is borne directly.
  2. Indirect Taxes – Any indirect tax is borne by all consumers irrespective of their income level. The laibility of this tax can be shifted as below:
    • Central VAT
    • State VAT
    • Service Tax

GST in India has 4 slabs to make sure that even the indiect tax hit people of different incomes differently. Therefore, we have higher tax on premium/luxury products and lower on products of mass consumption. The bottom line of GST is to curb the payment of ‘tax on tax’ i.e. double taxation. in the GST regime, consumers shall pay taxes only on the ‘new’ value added just like the VAT.

Read More on Drawbacks of GST Implementation in IndiaClick Here

Under the current tax structure, state government only levy taxes on goods while central government levies taxes on both goods and services. In new emerging industries, such as ecommerce, it is difficult to distinguish between products and services. Thereby, GST will help unifying taxation throughout the country.

Indian GST will have following distribution:

  1. Central GST
  2. State GST
  3. Integrated GST (This is a special tax that one has to pay for interstate transaction which is 1% which is to be decided by GST council after 5 years if they wish to continue or abandon it)

Why should government implement GST – Benefits of GST

  1. GST will bring tax consistency throughout the country.
  2. It will allow free movement of goods from one state to another.
  3. The cost of product from across states will almost be the same thereby providing equal opportunities of business owners in all states.
  4. The cost of the product for the manufacturers will come down as double taxation will be minimised.
  5. A reduction in these cascading taxes increases the incentive for more consumption, leading to higher revenues which compensate for the reduction in tax rates.
  6. With consumers having more money in their pockets, the GDP is set to increase.

Why should government NOT implement GST – Disadvantages of GST

  1. From a consumer standpoint, there is no worthy disadvantage of implementing GST. However, few businesses may suffer.
  2. Businesses where cost advantages lies within states will suffer and lose their core competency. e.g. VAT in Bangalore, Chennai and Hyderabad are lowest at 5% and it helps firms to provide products all across India at price which other states cannot meet due to higher VAT rates in other states. This is the reason why all eCommerce firms have their biggest fulfillment centers in these three cities.
    States can witness loss in revenue with implementation of GST as they will lose price advantage for common commodities available nationwide. Government has reached to conclusion they would still be paying any revenue loss hereafter to each state for a period of 5 years from the date of implementation of GST.
  3. The biggest contradiction comes with the fact that, on one hand, the government is pushing Digital India movement and boosting eCommerce, whereas on the other hand with GST its making tough for businesses to operate at a nationwide scale.
    Recently eCommerce companies have requested government to keep aggregators out of GST.

 

Read More on Drawbacks of GST Implementation in India – Click Here

9 COMMENTS

  1. Thank you for a good insight on GST. Indian government should roll this out to benefit consumers as it will open up leveled competition among states.

  2. No one looses in the GST battle. But its unlikely that the government will be able to pass this in this winter session of Indian parliament. Long live the Goods and Service Tax.

    • hi. to all .. in my view .it will gives relaxation to all business proprietors and it will give golden opportunity to freshers who starting level in business world….

  3. With GST finally into effect, we hope that the Indian Economy witnesses growth and thereby prosperity for the citizens.

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