GST, known as Goods and Services Tax, is an indirect tax which has subsumed many indirect taxes in India such as the excise duty, VAT, services tax, etc. Goods and Service Tax Act was passed in the Parliament on 29th March 2017 and came into effect on 1st July 2017.
Introduction of GST (Goods and Services Tax) has changed the face of Indian tax system by bringing in uniformity and transparency. It is one of the most significant tax reforms introduced to eliminate the cascading effect of the earlier tax system. This game-changer tax reform has helped enterprises in various ways to boost their business and the economy as a whole. Small and medium enterprises can benefit from the more competitive space due to the introduction of the Goods and Services Tax.
Not only has it strengthened coordination within the federal state, it has also “improved tax buoyancy, curbed evasion of indirect taxes and drawn more and more smaller taxpayers into the formal system,”
The country's tax structure has been streamlined due to GST. Since GST is a single tax with only 4 tax slab (i.e. 5%, 12%, 18% and 28%), calculating taxes at various supply chain points has become more straightforward. Therefore, GST impact on India can be considered positive. Customers and manufacturers can both see how much tax they'll be charged and how it'll be calculated. It is also possible to avoid the difficulties of dealing with tax officers and authorities.
Small and medium-sized businesses can now register under the GST Composition Scheme. They pay tax at the fixed rate that might vary from 1% to 6% based on their annual turnover as per rules and conditions specified under GST laws. As a result, they have to face less complications and compliance procedure in their day to day business working.
As, state and central government taxes have been combined under GST. This has eliminated the tax cascade effect, lowering the burden on both the buyer and the seller. So, even though it appears like you are paying a large amount of tax, but you are eliminating multiple hidden taxes that were not known earlier and as a result it reduces the overall taxable amount. This allows business to re-invest their money to enhance their output and focused more on their business goal.
Tax barriers such as toll plazas and checkpoints can now be avoided. Previously, this caused issues, such as harm to unpreserved items during transportation. As a result, producers had to maintain buffer stock on hand to compensate for the losses. Their profit was affected by the overhead expenditures of storage and warehousing. These issues have been mitigated by a unified taxing system catering to the positive impact of GST. They may now readily move their wares throughout India. As a result, their operation moves smoothly across India.
Customs charges on products exported has been reduced and uniform taxation and cost efficiencies owing to reduced time and costs in transportation, One obvious effect is that ‘Made in India’ products have now being more cost competitive in the global markets. All of these reasons have boosted the country's export rate. Tax refund process under exports has also being smoothed as there is single window for these purposes reducing multiple compliances that has to be fulfilled before under different laws. When it comes to developing their companies worldwide, firms have grown more competitive.
After introduction of GST, growth of Indian economy has raised its bar and that can be evidently seen in GST collection records.
For last six months in a row now, the monthly GST revenues have been more than the ₹ 1.4 lakh crore mark ($ 17.54 billion). The growth in GST revenue from April 2022 till August 2022 over the same period last year is 33%, continuing to display very high buoyancy. This is a clear impact of various measures taken by the Council in the past to ensure better compliance. Better reporting coupled with economic recovery has been having positive impact on the GST revenues on a consistent basis. During the month of July 2022, 76 million e-way bills were generated, which was marginally higher than 74 million in June 2022 and 19% higher than 64 million in June 2021. The revenues for the month of August 2022 are 28% higher than the GST revenues in the same month last year of ₹ 1,12,020 crore ($ 14.03 billion).
The chart below shows trends in monthly gross GST revenues during the current year compare with last year’s same month data.
From above chart we can say that there is a visible increase in GST collection ultimately reflects increase in economic growth. Economic growth has been witnessed during a time where many countries are facing high inflationary environment and recession concerns. This has been a time where the Indian economy has shown resilience to bounce back from Covid-19 induced slowdown.
For a developing economy like India it is required to become more competitive and resourceful in its resource usage and GST helped in achieving the same. Before GST rollout, it was expected to ease India’s cumbersome tax system, help goods move seamlessly across state borders, curb tax evasion, improve compliance, increase revenues, boost exports, and attract investments by improving ease of doing business in India and looking at economy after 5 years of GST we can say that GST has shown its boosting impact on economic growth.
There has been also an increase in ease of doing business that can be attributed to the new GST regime. This has increase foreign investment in India as more and more overseas entities are setting up Business Units in India.
Lastly it can be said, because of its transparent and self-policing character, it would be easier to administer and this would encourage a shift from informal to formal economy.