GST- Its long term impact on the Indian Economy

      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 1^st 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.