The year 2017 was like an epic makeover for India's economy, and the star of the show was
none other than the Goods and Services Tax (GST). The introduction of this tax reform was
aimed at making the taxation of goods and services a breeze, boosting the government's
revenue, and turning our economic transparency up a notch. Fast forward to 2023, it has
significantly streamlined business operations in India, cementing its status as one of the most notable economic reforms so far.
So, what's the deal with GST, you ask? Well, GST, which stands for Goods and Services Tax, is basically the saviour of tax reforms in India. It swooped in to simplify and unify the nation's
taxation process, making it crystal clear and straightforward. It was the answer to all those
confusing tax jargon, and it came with one primary goal – to make business operations in India a walk in the park. So, let's dive deep into the world of GST and find out why it became the economic sensation we all know.
The pre-GST era: The state of the Indian economy
Before GST, India was a tax tangle. States had their own rules, creating chaos for businesses.
Compliance meant drowning in paperwork and dealing with countless tax authorities. This
inefficiency hindered growth, making business a Herculean task. The pre-GST era was marked by frustration and complexity, longing for a simpler tax system.
Before GST:
● Multiple indirect taxes were imposed by both the central and state governments, leading
to a convoluted tax structure.
● Taxes were levied at different stages of the supply chain, resulting in cascading taxes
and higher prices for consumers.
● The system was susceptible to corruption and tax evasion, contributing to a significant
presence of black money in the economy.
● It acted as a substantial barrier to trade and commerce, leading to elevated transaction
costs and reduced economic growth.
The implementation of GST: Chaos or Order?
The journey of implementing GST in India was far from easy. It was a massive effort that
demanded cooperation from a wide range of stakeholders. Along the way, there were moments of uncertainty and bewilderment as both businesses and individuals adapted to this new tax system. Nevertheless, as time went on, a sense of order emerged, and the advantages of GST started becoming evident. The initial challenges and confusion were essential stepping stones toward crafting a taxation system that's more efficient and transparent.
Now, let's take a comprehensive look at the significant impact GST has had on the Indian
economy since its inception in 2017.
Impact of GST on the Indian economy:
● GST expanded the tax base and boosted government revenue collection.
● India's GDP growth, as reported by the Ministry of Statistics and Programme
Implementation, surged to 7.7% in 2017-18 compared to 7.1% in 2016-17.
● It improved the ease of doing business, resulting in reduced transaction costs and higher
economic growth.
● GST significantly curbed corruption and tax evasion, leading to a decrease in black
money in the economy.
● The tax structure was simplified, reducing compliance costs for businesses.
Positives and negatives of GST
On the positive side, GST has simplified and unified the tax system in India, making it easier for
businesses to comply with tax regulations. A few major positive impacts it made are -
● Streamlined Taxation System: GST unifies tax rates nationwide, replacing diverse
Central and State-level taxes, and ensuring price consistency.
● Tailored Taxation: GST employs tiered tax slabs, with varying rates for essentials,
luxury, and sin goods, including a compensation cess.
● Collaborative Governance: The GST Council, representing the Centre and States,
makes key tax decisions through consensus or voting.
● FDI Magnet: GST creates a single market, attracting foreign investment, and elevating
India to a top spot in FDI for new/greenfield projects in 2022.
● Tackling Tax Evasion: GST requires e-Way bills and B2B e-invoices since August 1,
2023, boosting transparency and curbing false Input Tax Credit claims.
However, there are also some negatives to consider.
● Costs of Adopting Advanced Systems: Adoption of advanced solutions like ERP or
GST-specific software, along with associated purchasing, installation, and training costs.
● GST Exclusions and Price Impact: Exclusion of alcohol, petroleum, and natural gas
from GST results in unclaimed Input Tax Credits (ITCs) and higher prices.
● Tax Rate Ambiguity: Lack of clarity on applicable tax rates for various products,
resulting in inconsistencies in tax slabs and treatment variations for similar products.
GST, ever since its inception, has made a significant impact on India's economic landscape.
It streamlined the tax system, removing complex levies and making business operations simpler.
But, it wasn't a smooth ride; and still face challenges like delayed refunds, high taxes on certain items, and small businesses struggling with compliance. At the same time, GST earned its stripes globally, garnering applause from 150 countries. This reform is all about transparency, making tax evasion more difficult while safeguarding the privacy of citizens. In essence, GST is the driving force reshaping India's economy, and the future looks promising.