Goods and Services Tax (GST) is India’s biggest indirect tax reforms which started on July 1, 2017. It is founded on the notion of “One Nation, One Market, One Tax”, as we enter the third year of successful implementation of GST after braving some serious challenges.
A series of reforms undertaken by the government like the Make-in-India and Digital India to drive in inclusive growth, as has been the mandate of the BJP-led government, Goods and Service Tax (GST) has been another major strategic reform to streamline the much battered indirect taxes and create an ecosystem of change and transformation of economic activity across the length and breadth of the country.
The GST aims at free flow of goods and services and cut the complex multiple-taxes that has been in existence since India’s independence and this well fits in Narendra Modi government’s slogan: `Minimum government, maximum governance’.
GST has been conceptualized with an objective to have only one indirect tax and have only one taxation system in India and subsume all other prevailing indirect taxes in India like the Central Excise Tax, Value-Added Tax, and Service Tax amongst others.
Government’s big push to tax reforms has brought many non-tax payers into the ambit of taxation. Today, the number of registered taxpayers has increased by 80 per cent. The revenue collection from GST has also increased by 10 per cent during the FY19 financial year at INR 1.13 Trillion. This is the highest ever revenue collection since GST was implemented. Interestingly, unlike other nations where GST or VAT have been rolled-out in the first year and have reported significant increase in inflation, India has witnessed a positive impact post-GST.
Yet, there were some key issues faced by most businesses in terms of implementing GST-compliant software. This led to increased costs of purchasing the software and imparting training to the staff.
GST has been a great attempt by the government to formulate a robust taxation system to protect the rights of 1.35 billion Indians against the likely inflation due to the implementation of GST.
How GST Changed the Landscape of Indirect Taxation in India?
Ease of Doing Business – Large numbers of tax employees involved in the taxation process have reduced drastically. Pre-GST required multiple registrations and approvals. Post-GST requires single registration in each state. However, hiring GST consultants resulted in increased operational costs for companies initially.
Adoption of Technology – Earlier, books of accounts were maintained by many in manual ledgers but post-GST with the mandatory filing of online returns, the bookkeeping is computerized, eroding any possibility of data entry error or duplication of data. Aiming to ease the software related challenges; many GST service providers have started providing customized technology solutions.
Issue of Tax Invoice - Most of the organizations during pre-GST issued bills manually in the retail sector as the reporting was not at the transaction level. Now it is done using Point-of-Sale or through computerized billing. This helps organizations to maintain real-time data and take business decisions accordingly rather than depending on the traditional model where reports were not available online.
Increase in Purchasing Power - Due to availability of seamless input tax credit across the supply chain, the prices have come down. This now offers more bandwidth for spending, which means, increased purchasing power of the common man.
GST Has Eliminated the Descending Effect of Tax - The GST brings all indirect taxes to a single range as a comprehensive tax structure. This means the cascading effect of taxes, or the „tax on tax? effect, which was a huge weight and a pain to businesses in the pre-GST era, is no longer the case.
Benefits to Small Business - Under GST, smaller traders and service providers with a turnover of INR 20 Lakh to INR 75 lakh can benefit from the Composition Scheme, wherein taxpayers with lower liabilities can avoid complex processes and pay GST on a fixed revenue rate.
While GST promised to benefit smaller businesses, it also brought some challenges for them as they were unable to claim any input tax credit. It was tough for SMEs to make a selection between higher taxes on one hand and a composition scheme on the other that led to no input tax credit.
Ease in Online Procedure - The process of registering for GST to file income online makes it exceptionally simple and efficient. This is advantageous to SMEs and smaller start-ups, which no longer require spending a huge amount of time, money and attempt to acquire licenses or register for multiple taxes such as VAT or expunge duty. Additionally, the preceding indirect tax system had no provision for SMEs to avail credit on the value-added tax paid on capital goods, the cost of which was borne by the company. However, under the GST regime, SMEs, smaller NBFCs, and a variety of other entities dealing in goods and services can avail credit on input tax paid on the supply of goods as well as services. Introduction of transaction value has eased the complexities of valuation for computation of tax. Big taxpayers having PAN India presence are filing a unified return compared to state and regime based returns.
Standardisation of the item through in the introduction of HSN has eliminated the confusion and complexities of item across India and their treatment.
Cross-utilization of input tax credit between goods and services has resulted in the reduction of cost of goods and services.
To conclude, the landmark tax reform over the last two-years has considerably eased the double and multiple taxation regimes and has streamlined and helped the economy move favourably towards the structured sector. By reconciling a large number of Central and State taxes into a single tax, GST is expected to considerably ease double taxation and make taxation overall easy for the industries. For the end customer, the most advantageous will be as far as to a decrease in the general taxation rate on merchandise and enterprises.