Finally!!! Welcoming a new chapter in Indian Economics, “the GST”

  • The Wednesday of 3rd Aug 2016, a day when Rajya Sabha finally took the big step in, by passing the GST bill in India, after a period long wait and arrays of debates and discussions over it. GST is the biggest transformation in tax reforms India has seen in years and has left everyone, from a common consumer to business entrepreneurs, curious over what changes it may bring upon.
  • So let us dig in further, beginning with how GST is different from VAT

GST and VAT:

  • VAT, abbreviated for Value Added Tax, is a tax that the State government levies upon the local sales, with the percent tax differing form state to state. Though VAT has been designed with a concern to minimalize the cascading effect, the business entrepreneurs still have piles of additional taxes and tax on taxes such as Central Sales tax, Excise, Octroi, etc.
  • Quick Points:

    • Vat is eligible for the sales within the state
    • Every state has its own compliances
    • It is applicable for goods only.
Now with GST in action, the very first change it brings upon is the shift of base from state to central government, which means central government would be managing and collecting tax revenue henceforth. this not only centralizes taxation reforms but also provides a national market for business entrepreneurs to grow.
  • Quick Points:

    • GST is a hassle-free replacement for VAT, CST, Service tax etc.
    • Better control over inflation
    • Reduction in consumer pricing
    • Reduction in state government revenue
    • Uniformity in national tax reforms
Thus, GST can probably show few good signs for consumers and a great time for SMBs to hit the national market. Having said that, let us have a look how GST can effect business in India

Benefits of GST in India:

  • Hassle free tax and compliances management
  • Better SCM and Distribution in absence of any additional taxes like Octroi
  • Reduced manufacturing production, better profit margin
  • Availability of national market, with one single tax.
To conclude with, the effect of GST bill can only be seen in the years to come, depending upon co-operation from states, adaptability of businesses and skills of the working staff. Until then, it is just the best foot forwards, to provide the nation a leading leap in economic development.

How GST can make a difference

  • The Modi government has taken up different initiatives such as Make in India, Digital India, Smart Cities and Startup India. Such initiatives could possibly boost business growth in India. The proposed Goods and Services Tax (GST) is currently held up in the Parliament. Once the GST bill is passed in the parliament, it is expected to eliminate the cascading tax effect and free flow of goods within the country.
  • Here’s how GST can make a difference to the economy:
    • Global market:India plays an important role in the global market. The proposed indirect tax reform could possibly stimulate the economic growth. The introduction of GST is highly expected not only in India, but also in developed economies. This may enable a better application of ambitious strategies for business and trade.
    • Central Value Added Tax:Finance Minister Arun Jaitley’s announcement with respect to indirect taxes in the upcoming budget will indicate various measures to bridge the gap between the current indirect tax system and the GST. The government also needs to trim down the Central Value Added Tax and reintroduce a system to avoid the load of tax generally burdened by businesses at the time of final consumption.
    • Central Sales Tax (CST):The Central Sales Tax is generally levied on sales or purchase of goods and services in the course of inter-state trade. According to the department of revenue, ministry of finance, Government of India, reduction of CST rate first from 4% to 3% and then from 3% to 2% has been done as a precursor to the introduction of the goods and services tax, as CST would be inconsistent with the concept and design of GST.
    • Service Tax and Central Excise:The government needs to put in place a system that can align service tax and central excise in order to meet the anticipated threshold of central indirect taxes. It is also expected to reduce central excise. This move may further simplify the nation’s tax structure.
    • India’s GDP:The implementation of GST has the potential to raise the country’s GDP. In the recent past, Arun Jaitley estimated that GST may likely increase India’s GDP by 2%.

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