BASIC CONCEPTS OF GST (PART-3)

[Dr. Sanjiv Agarwal]

Benefits of GST

Benefits of GST shall accrue to all - trade & industry, Government and consumers. Trade and industry shall benefit in terms of easy compliance, removal of cascading effect of taxes and enhanced competitiveness. The Government shall have better control on leakages, higher revenue efficiency, consolidation of tax base and it may be easier to administer and monitor the law. Consumers will also benefit from likely reduced prices and single transparent tax structure.

• GST will end cascading effects: This will be the major contribution of GST for the business and commerce. At present, there are different state level and centre level indirect tax levies that are compulsory one after another on the supply chain till the time of its final consumption.
• Growth of Revenue in States and Union: It is expected that the introduction of GST will increase the tax base but lowers down the tax rates and also removes the multiple point taxation. This will lead to higher amount of revenue to both the states and the union.
• Reduces transaction costs and unnecessary wastages: If government works in an efficient mode, it may be also possible that a single registration and a single compliance will suffice for both SGST and CGST provided government produces effective IT infrastructure and integration of states level with the union.
• Eliminates the multiplicity of taxation: One of the great advantages that a taxpayer can expect from GST is elimination of multiplicity of taxation. The reduction in the number of taxation applicable in a chain of transaction will help to reduce the paper work and clean up the current mess that is brought by existing indirect taxation laws.
• One Point Single Tax: Another feature that GST will hold is it will be ‘one point single taxation’. This also gives a lot of comforts and confidence to business community that they would focus on business rather than worrying about their taxation that may crop at later stages. This will help the business community to decide their supply chain, pricing modalities and in the long run helps the consumers being goods competitive as price will no longer be the function of tax components but function of sheer business intelligence and innovation.
• Reduces average tax burdens: Under GST mechanism, the cost of tax that consumers have to bear will be certain and it is expected that GST would reduce the average tax burdens on the consumers.
• Reduces the corruption: It is one of the major problems that India is overwhelmed with. We cannot expect anything substantial unless there exists a political will to root it out. This will be a step towards corruption free Indian Revenue Services.
• Present CST will be removed and need not to be paid. At present there is no input tax credit available for CST.
• There are many indirect taxes in state and central level currently, which will be included by GST. i.e. you need to pay a single GST instead of all of them.
• Uniformity of tax rates across the states
• Ensure better compliance due to aggregate tax rate reduces.
• By reducing the tax burden the competitiveness of Indian products in international market is expected to increase and there by development of the nation.
• Prices of goods are expected to reduce in the long run as the benefits of less tax burden would be passed on to the consumer.

Advantages of Implication of GST in India

• GST is expected to drive consumption led growth with less tax burden on consumers.
• The overall tax burden on the supply of indigenous goods is presently 28-30 percent and with GST introduction, revenue neutral rate is likely to be lower around 16 percent which will facilitate consumption.
• Procurement costs would be lower on account of reduced non-cenvatable / non-creditable taxes
• Due to seamless tax credit, cascading effect will be eliminated or minimized
• Indian Industry shall more towards an efficient supply chain model from the present day model which suffers from tax considerations and operational hurdles.
• GST is expected to contribute to 'make in India' and 'ease of doing business in India' initiatives of the Government.
• GST addresses the issue of multiplicity of taxes.
• All the rates under to GST will be uniform for are and the place of supply rules will guide the GST India portal to apportion the tax.
• It will boost up economic unification of India; it will assist in better conformity and revenue resilience; it will evade the cascading effect in Indirect tax regime.
• In GST system, both Central and state taxes will be collected at the point of sale. Both components (the Central and state GST) will be charged on the manufacturing cost.
• It will reduce the tax burden for consumers;
• It will result in a simple, transparent and easy tax structure; merging all levies on goods and services into one GST.
• It will bring uniformity in tax rates with only one or two tax rates across the supply chain;
• It will result in a good administration of tax structure;
• It may broaden the tax base;
• It will increase tax collections due to wide coverage of goods and services.
• It will result in cost competitiveness of goods and services in Global market.
• It will reduce transaction costs for taxpayers through simplified tax compliance.
• It will result in increased tax collections due to wider tax base and better conformity.

In transportation and logistics sector, supply chain model will become more efficient. Presently, this sector suffers from complex subsidies, tariffs and cascading taxes resulting in distorted pricing and wasteful leakages. GST shall address such issues by consolidation of warehouses and facilitating free and seamless inter-state flow of goods. It also aims at dismantling various check-posts at inter-states borders in the country and thus reducing the logistics costs. However, GST should ensure simplification of compliance processes and fool proof place of supply rules.