Goods and Service Tax (GST) is in its final stages and is set to be implemented from July 1, 2017. The historic legislation will hugely impact our economy and the lives of common man. Below, we are listing out certain pros and cons of the same;
Also Read : GST- 5 Basics That Everyone should Know
Pros of GST bill
A unified tax system subsuming a bundle of indirect taxes
GST will subsume service tax, excise duty, VAT/CST, local taxes such as octroi, luxury tax. Customs is outside the purview of GST, and hence basic customs duty would continue to be levied on imports. This, however, is not likely to impact the consumer directly. It is beneficial for the manufacturers, traders and service providers who will have to follow lesser tax compliances and will see a fall in corruption
GST will reduce tax evasion
Under GST regime, the goods and service provider can avail the credit of all the taxes paid at the previous stage but will need to produce bills for the same. Thus, he will insist on purchasing only against an invoice paying proper taxes.
No double taxation and Reduction in prices of goods
One biggest advantage of GST is removal of cascading effect of taxes. Cascading effect of taxes or double taxation implies paying a tax on tax. For instance, excise duty is levied on goods manufactured. These goods when sold are subject to VAT which is charged on the price of goods including excise duty. So, a consumer ends up paying a tax on tax. GST will replace both these taxes and hence remove such instances.
The lower tax burden on manufacturers and traders is likely to bring down the price of goods and services in the long run. However, the exact effect on the prices will be known once the GST council fixes the rates for various goods and services.
GST will ensure equal development for all states
Currently, there is a huge gap between tax collections of different states. Poor states are unable to provide for basic infrastructure facilities. GST is consumption based tax and will ensure tax collections accrue to the states where goods are consumed rather than where they are manufactured. This will promote development of facilities in other states and will help in development of poor states.
GST will remove location bias
GST will even out the tax structures throughout the nation. This will remove a location bias. Therefore, a factory could be set up in any state of the country, without any tax differences. This will further help in development of lesser developed locations. Traders will be able to procure and sell goods and services to any part of the nation without worrying about the taxation.
More Foreign Investments
GST will simplify the entire tax regime for the country, bringing in more transparency which is bound to attract more foreign investors.
Ease of doing business, lower business costs, decrease tax burden and reduction in prices will boost the production and supply, create more employment opportunities, increase FDI, promote exports, strengthen the overall economy and bolster growth. It is believed that GST will lead to 2 percentage increase to the GDP of the country and India will gain $15 billion a year.
Cons of GST bill
Services will become expensive
Currently, services are subject to a service tax of 15% which applies to almost all services leaving the essential ones such as ambulance services, cultural activities, certain pilgrimages and sports events. Under GST, services will be subject to 18% making them more expensive.
As per the HSBC Global Research report, tax rate will increase for the services while manufactured consumer goods may see a fall. Hence, the net impact on inflation based on the consumer price index will be limited.
Inflation and price hike during the transition period
Countries which have implemented GST in the past have faced inflation and price hike during the transition period due to certain goods and services being taxed at a higher rate. However, availability of input credit under the GST regime will lead to reduction of overall tax burden on the manufacturers and service providers. The anti-profiteering measures in GST make it compulsory to pass any reduction in tax rate or the benefit of input tax credit to the recipient through price reduction.
GST is a long term strategy and the positive impact shall be seen in the long run only. GST will bring a long term gain to the nation.
