GST- Its long term impact on the Indian
Economy
Finally after a lot of discussions and struggles, a single
tax named GST has been implemented in India from 1st July 2017. To
state in simple terms: In GST module, same tax will be imposed on a particular
product all over the country, irrespective of the state in which it is
manufactured. Till now, there have been seventeen different types of taxes
which prevailed in India which included VAT, excise duty, service tax, etc. But
now with the advent of GST, people will get rid of these individual taxes and a
single fixed tax will be imposed, which has been predefined by the Government.
The GST model is divided into four categories-
5% GST, 12% GST, 18% GST & 28% GST
For e.g., cosmetics are included in 28% GST category which
implies that 28% tax will be imposed on cosmetic items.
Whenever a new policy is introduced, we get a mixed reaction
from the society. There is a hope as well as suspicion regarding how it will
affect our day-to-day lives. There has been a mixed reaction in case of
demonetisation. People faced problems but there was a hope that it will bring
back the black money that has been accumulated in different forms, over years.
The real impact is a different story altogether. The analogy is made because
the same story is repeated here again when GST is going to be implemented.
There has been suspicion among the people, especially traders and merchants regarding
the effect of GST.
Clearly there will be a mixed effect of GST on our daily life
and it is difficult to predict at this stage whether it will be useful to the
economy or not. But some of the possible advantages & disadvantages can be
listed here.
Advantages-
Talking about the advantages, first of all, we are getting
rid of different taxes which imposed a burden on our wallets, as well as
economy. In the present scenario, one tax is imposed on the other. Say for
example, the manufacturing cost of an item is Rs.100. In the next stage, an
excise duty of 12.5% is imposed. So the manufacturing cost becomes Rs.112.50.
Next when VAT of 14.5% is imposed, it is calculated on Rs.112.50, and not on
the original price, which increases the manufacturing cost. But now in GST
model, tax will be imposed on the original manufacturing cost at each stage.
It is to be noted here that the basic amenities like most of
the food items, health and education services have been kept free from the
scope of GST. This is a big relief for the poor section of the society as well
as middle class.
In the present scenario, if an item is manufactured in one
state and sold in a different state, there are two levels of taxes that have to
be paid by the company or firm manufacturing the product. For e.g., if an item
is manufactured in Maharashtra, the Maharashtra government will claim a tax on
the manufacturing of this item. The same item when transported to another state
(say Gujarat), the Gujarat government will again raise tax on the
transportation of this item. The advent of GST will solve all these problems as
the company will have to pay a single tax.
According to a report of “National Council of Applied
Economic Research (NCAER)”, there will be an estimated rise of 0.9%- 1.7% in
the GDP of the India with the implementation of GST.
Disadvantages-
In spite of various advantages that GST has to offer, it is
not as sweet as it is proposed by the Government. In the agricultural sector
although there is no GST on basic agricultural products such as grains, fruits
and vegetables but the cost of agricultural machines will rise due to high tax
imposed. Similarly, the price of seeds, fertilisers and pesticides will go up
which will somehow affect the farmers, directly or indirectly.
Another main problem is that petroleum products are kept out
of scope of GST. It means the State government can raise tax on petrol and
diesel according to their wish. This will affect the export of products on a
global level. Due to high taxes imposed on any product coming out of a factory,
the manufacturing cost increases significantly. The traders can’t sell these
products in the global market at a lower price and this has a disastrous impact
on the economy of the country.
The service tax has been increased to 18% which was
previously 15%. Service tax is the tax that is raised on various services like
telecom, insurance, hotel services etc. Now this service tax falls in the
category of 18% (in the form of GST). These services include two-third of our
economy. It means the tax on two-third sector of our economy has been increased
from 15% to 18%.
Conclusion-
With GST already in use, it is the responsibility of each one
of us to ensure that it is properly implemented. The tax-payers should honestly
fill the details of tax paid, online; so that transparency is maintained. The
government must issue guidelines in this regard so that there is no confusion
among the people. Transparency is the key without which any reform would not be
successful in the long run and so is the case with GST.
