Blog Details

Author - Associate Aliza Abdin

What is GST?

GST, short for the Goods and Services Tax, is a recently launch value-added tax passed by the government of India on 29th March 2017. It came into effect on 1st July 2017, and since then it has replaced all indirect smaller taxes in the country. It applies to goods and services used domestically. GST is paid by the consumers indirectly to the government (through the respective businesses).

GST serves as revenue for the government and has eliminated most state taxes. It is regarded as a "comprehensive, destination-based, multi-staged tax" since its imposed at various stages of production, though it is refunded to all but the final customer who buys it.

Like all taxes, GST too is governed by specific rules and regulations which are controlled by the GST Council (GSTC). GSTC was started by the Good and Services Act, which consists of Union Finance Ministers and Finance Ministers of all the states. GST has received a ton of criticism since it's implementation, and debates are still on about its pros and cons. Its main motive was to replace various indirect taxes and redesign the nation's economy in a more planned manner.

What Effect Did GST have on the market?

There have been numerous speculation on what impact GST had on the economy and market of the country. Here's a list of what changes GST brought with it, based on facts:

1. GST has reduced tax burden from the producers and thus encourages more and cheaper production. The previous taxation structure controlled by an infinite number of clauses prohibited the producers from producing goods to their peak capacity and hence hindered growth. GST has solved this problem effectively.
2. GST has successfully eliminated various tax barricades (mostly check-posts and toll-plazas) at different levels. It led to the lesser cost of transport and reduced the wastage of perishable items and goods meant for transportation.
3. It has increased transparency in the taxation system as the consumers paying GST are aware of how much and why they are paying. It wasn't a fact in the previous taxation system.
4. GST has increased revenues to the government since it has increased the tax base.
5. GST intends to expand the market and encourage more sellers and suppliers to enter into the system. It provides credit for the taxes paid by the manufacturers in the goods or services chain so that they buy materials from different dealers.
6. GST has removed all custom duties on exports, and therefore, it has made international transactions more straightforward and cheaper for Indian sellers. It results in increasing the nation's affordability in the foreign market. 

Major Components of GST

There are three taxes prevalent under the GST system. Mainly: CGST, SGST and IGST. A brief description of these are:

1. CGST: It is the tax collected by the Central Government on an intra-state sale or transaction. For example, a sale and purchase taking place within the same state.
2. SGST: It is the tax collected by the State Government, where the transaction is taking place, on an intra-state sale and purchase. For example, for a sale and purchase taking place within Rajasthan, the Rajasthan government will take the tax.
3. IGST: It is the tax collected by the Central Government on an inter-state sale or transaction. For example, a sale and purchase between Rajasthan and Madhya Pradesh.

Advantages of GST

1. GST has made compliances easy as it provides all taxpayer services at one place that too online. One can avail services like registration, returns, payment etc. through Information Technology.
2. GST has eliminated all state taxes, and hence the same taxation structure is followed across the nation.
3. It has removed the cascading effect by a continuous flow of credit to all manufacturers' taxpayers.
4. It has increased transparency in the taxation system and hence, has encouraged more business and competition in the market.
5. It has increased efficiency in logistics and as a result, has led to more control over tax evaders that helps in improved administration.
6. The government benefited from an increase in revenue-collection and decrease in collection-cost because the GST mechanism leverages Information Technology.
7. It has also regulated the unorganized sector and provides a composition scheme for small firms and businesses.

Disadvantages of GST

1. It has led to an increase in costs of filing taxes because of software purchase.
2. It has also increased the operational costs
3. It greatly affected the economy of the country during the year (2017) it came into effect because of its mid- financial year timing.
4. It is an online taxation system and therefore increases the scope of cybercrime and frauds.
5. SMEs have a higher tax burden as compared to the previous taxation scheme.