July 1, 2017, was quite the turning point in the tapestry of the Indian economy and finance. That was the day when the Goods and Services Tax (GST) was implemented by Prime Minister Narendra Modi. The aim was simple: simplify the fragmented indirect tax system that had burdened businesses and consumers. In the pre-GST era, India’s tax regime was akin to navigating a complex maze of indirect taxes. Excise duty, Value Added Tax (VAT), Service Tax, and Central Sales Tax (CST) all had their own set of rules and regulations. Instead of making tax revenue collection a more cohesive process, this fractured system was too complex for everyone to comprehend. Businesses faced the ridiculous task of complying with multiple taxes at different levels of government, leading to increased administrative burdens. What further problem was the fact that many taxes cascaded on one another which resulted in higher prices for the Indian consumer.
Interstate trade also suffered in this fragmented tax regime. Business owners had to do the mental gymnastics of complying with different tax rules and regulations in each state. And not to mention the calculation of tax liabilities. There were widespread errors and disputes due to the difficulties in calculation for the businesses. But as we stand today, all these problems seem an eternity ago, as the GST has simplified the Indian economy in multiple ways. Read on to find out how the GST saved the day and transformed our economy and finances.
GST: A Step Towards Efficiency
GST was a tax reform that consolidated a multitude of indirect taxes into a single, unified system. Let us understand how this revolutionized the way businesses operate and consumers transact.
Simplification of tax procedures:
GST replaced a multitude of taxes with a single, comprehensive levy. Consequently, this reduced the compliance burden on all businesses. Let’s not fail to mention the introduction of input tax credit (ITC). The ITC further streamlined the tax system, allowing businesses to claim credit for taxes paid on inputs. Mountains of paperwork, errors in compliance, and time and resource wastage are all relics of the past with the introduction of GST.
Boosting Trade:
GST did away with the differing interstate barriers and created a unified market. This made the movement of goods and services a more seamless experience for businesses. Not to mention the reduced logistics costs, increase in efficiency, and expansion of opportunities have made the road to success smooth sailing for businesses. Lastly, GST has made Indian exports more competitive in the global market by reducing the overall tax burden on exports.
Impact on revenue collection:
After the introduction of GST, we saw a spike in government revenue due to the broadening tax base and the reduction of tax evasion. The government and consumers alike are now better off as there is an increase in transparency and accountability. A major factor for this is the introduction of e-invoicing and the GST Network (GSTN). The added revenue is then funneled into welfare programs and investment in public infrastructures.
Consumer benefits:
Our major focus has been on the benefits to the businesses so far, but let us talk about how GST has improved the lives of consumers. Do you remember in exams where we had interconnected questions, where the subsequent questions built upon the answers to previous ones? Well, that’s how the cascading effect of taxes worked, as multiple taxes piled on one another. GST did away with these and lowered the prices for many goods and services. Needless to say, this increased the purchasing power of consumers. Moreover, with the added revenue due, businesses have been able to invest in R&D and deliver improved products to consumers.
Ease in doing business:
More streamlined tax procedures meant it became easier for businesses to start and operate. This was quite a morale boost for Indian entrepreneurs and innovators.
Increased investment:
A unified tax system and the reduction in compliance costs have made the Indian market a pie that everyone now wants a piece of. Foreign and domestic investors saw India as a great destination for investment which resulted in more economic growth and job creation.
Enhanced transparency and accountability:
Malpractices like tax evasion have been falling because of GST. Businesses are forced to be more transparent about their earnings because of e-invoicing and the GSTN (Goods and Services Tax Network). These new mechanisms make it easier for the government to track tax payments.
Increased the formalization of the economy: The spike in the number of businesses into the tax net has been hugely beneficial for the economy. Due to the increase in the number of tax-paying businesses, there is a reduction in the informal sector. As a consequence, we now have a more organized and efficient Indian economy.
Bright days lie ahead…
India’s economy went through a paradigm shift with the introduction of GST. But it is fair to say that there is always room for improvement. The onus is on the government to continue to enhance GST administration by simplifying procedures, reducing compliance burdens, and improving taxpayer services.
Investment in technology to make the GST processes more streamlined wouldn't go amiss. This may involve investing in advanced analytics tools, data sharing, and AI and machine learning for tax compliance and enforcement.
The prolonged success of GST would only be possible with strong stakeholder collaboration. Consulting with businesses and tax experts can help identify areas for improvement and ensure that the GST system remains effective.
Final Thoughts
The Goods and Services Tax (GST) has laid a foundation for a more efficient economy by making tax procedures easier to work with. While there is still room for improvement, the positive impact of GST is undeniable.
As our country continues to develop, we should aim to build upon the successes of GST and curtail any hurdles that may arise. But the necessary effort is collective and we would do well to keep ourselves informed about our tax system. And we are here to help. The JJ Tax App is the go-to portal for anything and everything related to taxation, legal compliance, and startup formation. Our experts are here to guide entrepreneurs and consumers through the intricacies of GST and how we can ensure our compliance with it. Download Now!
