The Goods and Services Tax (GST) regime aims to re-shape India’s economic landscape benefiting various stakeholders, while also making it an easier place to do business. Comment

Approach:

  • Introduce with transformational aims of GST
  • Discuss how various stakeholders benefit from the GST regime and the impact on doing business
  • Mention some challenges with GST
  • Conclude appropriately

Answer:

The Goods & Services Tax (GST) is aimed at a simplified, assesse-friendly tax administration system in the country with a paradigm shift towards ‘One Nation, One Tax, One Market’. By doing away with the cascading of myriad indirect taxes across the country, it is expected to make India an easier place to do business by easing tax compliance and reducing corruption as well as costs.

 

Benefits of GST:

  • Trade:
    • It will benefit because of uniform single indirect tax throughout the country, removal of tax-related barriers at inter-state borders, reduced logistics costs, and minimal interface with tax authorities.
    • Exports will become more competitive and Make in India programme will get a major fillip due to increased ease of doing business.
  • Manufacturing:
    • As India will become one big common market, manufacturers will be able to make rational decisions with regard to sourcing of raw materials, the location of manufacturing and warehousing facilities.
  • To consumers:
    • Removal of cascading in taxes and efficiency gains will bring down the overall price paid by the consumers.

How GST leads to ease of doing business:

  • Simpler tax regime with fewer exemptions
  • Reduction in compliance costs – no multiple record keeping for a variety of taxes so lesser manpower needed
  • Simplified and automated procedures for various processes such as registration, returns, refunds etc.
  • All interaction to be through the common GSTN portal – minimal public interface between the taxpayers and administration
  • Harmonization of laws, procedures and rates of taxes

 

The Central and State Governments will also benefit from the widened tax base and a significant reduction in the tax collection costs. However, there are few challenges which need to be addressed in order to achieve the intended goals of GST.

The challenges include:

  • The multiplicity of tax rates, cesses, exemption of certain goods from GST which are against the basic principle of the single tax regime.
  • High tax rates on many goods and services (they are being reduced now).
  • Businesses (and professionals) having to wait for refunds.
  • Potential short-term adverse impact on the informal sector and the SME sector.

Conclusion:

The launch of GST is a transformative reform and will change the way businesses are done in India. A radical change of this magnitude is bound to bring about some pain but the gains of little pain are going to be many and long lasting for the Indian economy.

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