Effect of GST on the Indian Economy
- GST, INFORMATIVE, WEALTH
GST, the biggest tax reform in India based on the “one country, one market, one
tax” concept, has finally arrived. The moment the Indian government has been
waiting for for a decade has finally arrived. The largest indirect tax regime goes
into effect, removing all barriers to interstate commerce. The implementation of
GST, in one failed attempt, turned India into a single market of 1.3 billion
Essentially, the $2.4 trillion economies is trying to transform itself by removing
internal tariff barriers and merging central, state, and local taxes into a single
GST. The rollout has revived hopes that India’s tax reform program will regain
momentum and expand the economy. Again, there are concerns about a
breakdown, rooted in what is seen as a hasty transition that may not serve the
country’s interests. Does hope triumph over uncertainty? It will depend on how
our government works to make GST a “good and simple tax”.
From the consumer’s point of view, he should now pay more tax on most of the
goods and services he consumes. Most daily consumables now have the same or
slightly higher rates. In addition, implementing GST has an associated
compliance cost. It seems likely that this compliance cost will be very high and
high for small manufacturers and merchants, who have also objected to the
same. They can price their products at a higher price.
Speaking of long-term benefits, GST is expected to not only mean lower tax
rates but also a minimal tax bracket. Countries, where the Goods and Services
Tax has helped to reform the economy, have only 2 or 3 tax rates – one average,
one lower for essentials, and one. higher for luxury products.
Currently, in India, we have 5 bands, with up to 3 rates – one built-in rate, one
central rate, and one state rate. In addition to these, a tax is also levied. Fear of
losing revenue has prevented the government from betting on lower or lower
rates. It is highly unlikely that any changes will happen anytime soon; although
the government has said that the rate can be revisited once the RNR (income
neutral rate) is reached. The impact of GST on macroeconomic indicators will
be very positive in the medium term. Inflation will decrease because the
stratification (tax levied) effect of taxes will be eliminated.
Government tax revenue is likely to increase with the tax net expanding, and
the budget deficit needs to be brought under control. Moreover, exports will
increase, while FDI (foreign direct investment) will also increase. Industry
leaders believe the country will climb an easy business ladder with the
implementation of the most significant tax reform in the country’s history.