Goods and Service Tax (GST) –Path-breaking initiative towards Development of Formal Economy

Introduction of Goods and Service Tax (GST) is another revolutionary step introduced by Union Government w.e.f. 01^st July 2017. With its passage, all earlier central and state laws for the collection of indirect taxes such as Value Added Tax, Service Tax, Purchase Tax, Luxury Tax, Local Body Tax has become a history. Therefore, it is an act which seeks to not only consolidate all other indirect tax law (except a few) but also bring a harmonized tax structure and uniform compliance practices both by Regulators and Businesses.

The Goods and Service Tax brings within its kitty the host of direct and indirect benefits under its fold. The Proposed Legislation, if implemented in its true sense is capable in itself to help a sustainable economic development with the improved socio-economic distribution of wealth.

In terms of benefits of GST, we have divided its benefit into two parts viz Direct and Indirect benefits which are detailed as under.

Direct Benefits

The direct benefits brought in by the new legislation on the economy are as under. We have termed the following as the direct benefits as the benefits of GST may be felt sooner in the following parameters :

• Inflation control through promoting competition and efficiencies gain
• The implementation of Goods and Service Tax will help to bring down the inflation quite substantially as it seeks to address the following
  • Discontinuation of existing cascading taxation effect on the price of commodities (Multiple Taxation) with single point taxation will help to reduce the overall taxation and thus overall cost.
  • Wider Tax base to help in promoting competition between supply-side entities. This will also prompt the entities to gain further efficiencies in their operations
  • The gradual shift from informal economy to a formal economy to ensure a better time-balance between Demand and Supply-side factors restricting sudden spurt in prices due to limited supply.
    
• Uniform Tax Structure in the country to provide a level playing field to all businesses operating in the country

The biggest objective of GST is to provide a standardized & uniform tax structure in the country. This will provide a level playing field to the various business entity including existing and new undertakings in a common way. This argues well in the way of promoting new entrepreneurship in a bigger way.

• Increasing Tax Net (Tax Collection) through more effective monitoring of Trade Data of Manufacturer and Supplier data furnished on GST Portal.
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  The existing tax evasion measures by various business entities to go down substantially as the trade data by both the manufacturer and the supplier is uploaded periodically to a common portal which is cross verified. It will definitely aid to curb the tax evasion in a bigger way.

   

• Promoting new investment in the trade and industry due to removal of implicit trade barriers imposed by informal economy
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  The Informal economy in the country brings many explicit & implicit entry barriers in various trade and industry. GST seeks to bring down the share of the informal economy in the trade practices. Therefore, the doing a business becomes much easier.

   

• Promoting Employment through promotion of trade and industry
• The new investment in trade and industry will help promote employability in the country.

Indirect Benefits

The Indirect benefits offered by GST are numerous and are no way lesser than the direct benefits. Although the indirect benefits of GST implementation will be realizing gradually however their impact on the economy and our lives will be much more and sustainable in the long run. The indirect benefits offered by GST implementation are expecting to be as under:-

• Uniform geographical and socio-economic development through uniform tax structure

The Uniform Tax structure in the country and rising competition in supply side will help the new investment flow in Semi-Urban and Rural areas. This will benefit both the upcoming trade and industry and as well as local population in these areas. For manufacturers, the cost will come down on account of the cheap land and labor prices. On the other hand, the employment in these areas will help to improve the socio-economic development of these areas in a bigger manner.

• Lessening of Corruption through self-assessment procedures under GST

We all now that corruption is the biggest evil in the way of sustainable economic development. As the role of inspector regime under erstwhile Excise and VAT will get substantially minimized and self-assessment procedures under GST will help to bring down the corruption in various indirect tax collection departments. This will further push the cause of sustainable economic development in the country.

• Up-scaling of small and medium enterprise businesses more effective channelizing of money flow to them

Due to wide presence of informal trades in SME, these trades do not get reflecting in their finance and accounts and therefore these entities face a lot of challenges in accessing the money from banks and investors. With the thrust on building a strong formal economy, these trades are going to find a place in their financials and thereby increasing their appeal to attract better money flow in their business from banks and investors.

• Government Developmental Policy actions with regard to fiscal target, capital expenditure, investment, inflation to work more effectively.

The Parallel economy (informal economy) poses a great threat to development policies of the Government. The money flow in a parallel economy does not pass through the legal tax structure and banking channels. The Government faces a lot of challenge in making new development policies and achieve their fiscal and revenue targets. This not only worsens the macroeconomic fundamentals of our economy but also affecting the lives of poor. Middleman adversely as the little benefit of developmental policies passes to them. GST’s initiation will help to bring down the share of the parallel economy and thus addressing the above issues.

• Improved country’s branding which helps to push social and economic development through wider participation of private investment

GST will help to improve the overall branding of India Inc. to the world community.  The Economic Parameters like the ease of doing business in India. Credit rating, corruption, tax laws etc. will witness an up-scaling. This will help in promoting social and economic development in the country. This will also bring more investment in infrastructure which requires huge Capex investment. The infrastructure growth will help to improve the living standards of Indian Population. Even in remote areas through better connectivity and increasing their participation in the Indian economy.