There are plenty of questions roaming around the mind of people with regards to introduction of Goods and Services Tax or GST, such as why is the government implementing a tax reform which will ultimately result in a reduction of its revenue? or Why is there need felt for introducing GST when we already had equally efficient VAT?
GST, the biggest reform in India’s indirect tax structure since 1991, will facilitate the foreign direct investment (FDI) in India, making it an attractive place for foreign investors. It will become the principal instrument for curtailing black money in India. The Indian taxation system was often termed as cascading and tedious which hampered the economic growth. But with the introduction of the new tax regime, GST will mitigate the cascading effect of taxation.
The introduction of GST will lead to a uniform tax structure and weed out the multifarious indirect taxes like octroi, excise, entertainment tax, and VAT, etc. It is applicable to all goods and services, but tobacco and alcohol for human consumption has been excluded under the Act. Petroleum Products like naphtha, kerosene and LPG will be under the ambit of GST. However, other five items, viz. diesel, natural gas, crude oil, petrol and aviation fuel have been excluded during the initial years. Not only will introduction of GST pave the way for a uniform indirect tax regime, but it will also augment the direct tax collection and would result in widening of the tax base which in turn will boost the economy. Moreover, the Act brings the whole indirect taxation scenario under one umbrella with Centre and State sharing the revenue together.
The GST regime will leave paper trails behind, and usage of PAN and AADHAR card will make it easier for the authorities like Income Tax Department to trace the defaulters, and in turn would result in the elimination of the generation of black money. For example, the supplier of goods, because of the paper trail left by the GST, knows that his evasion will be more likely to be detected once his client is audited. The GDP is also bound to increase because of the GST. Stipulations are being made that there would be an increase of about 1 to 1.5% annually in our GDP.
GST directly targets sectors like real estate, precious metals sector such as gold (often known as the safe house for the illicit money). GST would further aid proper implementation of the new Real Estate Act. Real estate sector soaks up as well as generates a gigantic amount of black money. The Revenue Department has taken due notice of it. Besides, Central Board for Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC) have already started sharing the information with each other for keeping an eye on the flow of illicit money. It will further decrease the tax incidence or tax burden and reduce corruption by eliminating the tedious paperwork. The dual monitoring structure linking the Centre and the State will also rein in income tax evasions, and would ensure that even if one authority fails to take the notice of tax evasion, then the other authority would definitely able to track the evasion.
The businessman can no longer hide their transactions because of the paper trail as GST mandates the maintaining of books of sales for which proper bills need to be generated. This would result in no sale of goods and services without the generation of bills.
Although there will be the problem of hike in inflation rates in areas like gadgets markets, services such as restaurants etc., the administration costs will also be hiked, but it’s all for greater good of the nation.
Even though GST was proposed 15 years back and only now it has seen the daylights but it’s still a long journey ahead. The Centre and the States are ready to implement it by the end of April 2017 though at first, it looks tricky but it’s not unfeasible. The government has taken a landmark step towards countries economic growth by finally bringing in the GST Act in India.