What Difference Will GST Make in Your Life?
On August 3, 2016, Rajya Sabha passed the Constitutional Amendment. This bill lays the foundation for introducing GST in India. GST is biggest ever Tax Reform in the history of Independent India. After lots of speeches by various members of Upper House, pointing out the politics behind GST and the fallacies in the proposed GST bill. However, when it finally came down to voting, the entire house unanimously voted in the favour of the amendment. After struggling for around 11 years, surviving amongst the political agendas of both current and former Governments and the Opposition parties, GST will now soon be a reality. As a common man, all we can do is forget the past, wish “Happy Birthday” to GST and celebrate this day.”
Why Should We Celebrate GST’s Advent?
Oh, you might be wondering why you should be celebrating GST’s birthday? Well, GST is like Prince Parikshit in Mahabharat; Parikshit was the grandson of Arjuna, whose birth after the end of Mahabharat war, was regarded as the advent of a new fair world. GST will play the same role in Indian Taxation system. It will change the way indirect taxes are collected in India and aims to build a system which is transparent and fair to everyone.
Why do We Need GST?
A product does not directly reach us. It starts it journey from Manufacturers, then reaches the Wholesalers, More Middlemen, then the Retailers and finally it reaches us. By the time a product reaches us, it is taxed multiple times. The sellers do not bear these taxes but simply add it to the product price. So a product which was manufactured at the cost of 100 rupees when it reaches us, its cost is around 300 rupees, which apart from middle person’s commission and transportation expenses, majority includes taxes. This is called the cascading effect of taxes, where taxes get accumulated.
Earlier Value Added Tax (VAT) system of taxation was introduced in Sales Tax, to do away with the cascading effect of taxes on Goods. It was quite successful. However, now with the growth of our economy, the services have also increased. These services are levied with Service Tax and not Sales Tax; thus, VAT removed the cascading effect of Sales Tax but failed to remove the cascading effect of Service Tax. Hence, amongst the other reasons, the need for a common tax for both Goods and Services was felt to do away with the cascading effect.
GST is a common tax for both Goods and Services. So whether you are a service provider or a Manufacturer or a Trader, you will pay the same Tax i.e. Goods & Service Tax (GST).
How Will GST Change Our Lives?
1. Reduce the Prices in Long Term
As explained above, the cascading effect is aimed to be eliminated. This will reduce the prices of various products. However, prices will not change in a day. Prices may increase initially on the introduction of GST due to its higher rate of tax. However, in the long term, the prices will reflect a fall. Of course, this fall will not be a life changing one but a marginal one where 10–15% change can be expected in the case of certain products.
2. Make Tax Evasion No More Worthy
Currently, many sellers avoid issuing invoices to save taxes. However, under GST not issuing invoices would result in lower profit margin. Besides, the various other measures under the GST law ensure that there is no tax evasion. The entire tax system of Indirect Taxes will be integrated and therefore, it leaves a very low scope for tax evasion, as we can imagine today.
3. Promote the Development of Under-Developed States
By allowing a tax credit of all duties, GST becomes a consumption based tax. Under GST, taxes are ultimately collected in the state in which the goods have been consumed. So if Government takes concurrent development measures along with GST, more and more goods & services will be consumed in Underdeveloped states to develop resources for the public. Hence, more taxes shall be collected in these states. These taxes will allow the State Government to reinvest the funds to create more resources for their state and thus, the taxes collected will stay within the state.
4. Allow Businesses to Trade Freely Across the Country
Currently, there isn’t a single rate of tax across all the states. Hence, businesses prefer to be in certain states instead of other states merely because of the tax system and tax rates. With GST, all states will be guided by the same law and same tax rates. Thus, the preference of doing business in a particular state would be eliminated.
5. Introduce Hassle-Free Tax Compliance
The government has assured that it has built a better mechanism to handle the Tax compliance and related issues. Besides, many taxes will be subsumed into one single tax and one single authority. This already reduces the tax compliance, since all tax payments, returns and litigations in relation to indirect taxes will have to be dealt with one authority only.
6. End the Good Days of Taxwale Babus
Having multiple taxes means handling multiple taxwale babus who demand a bribe for various types of compliances. If these taxes are subsumed into a single tax, it means we have to deal with a lower number of taxwale babus. The government aims to build a completely electronic mechanism for GST, so it will also keep the interaction with these babus to a minimum. Overall, we will have to meet these babus for lesser times once GST arrives.
It’s a Big Promise to be Fulfilled
GST is a big promise that Government has made and needs to be fulfilled in the manner people expect. GST is a good step towards more transparent tax system. However, it all depends on how it is implemented at the grass root level; and for that, we will have to wait and watch.