India

GST Anniversary: What Are The Key Takeaways

-->

It’s been a year since the Modi Government passed the historic Goods and Services Act (GST) at the stroke of midnight. One of the greatest tax reforms of the country, the Bill was locked in the Parliamentary debates for about 17, before being passed on the 1st of July. Brought under the slogan of “One tax, one nation”, this ambitious project sought to bring all the states of India under one system of Taxation.

After its roll-out, it suffered from a few teething problems which were expected of a reform of such a degree. But the effects described by both the critics and the supporters were only speculative. However, after a year now, we can truly begin to grasp the bigger picture of its effect. This article explores the impact on the Indian economy under one year of GST regulations through its own rendering of the Good, the Bad, and the Ugly who wrote it.

The Good – Rise in the Tax compliance

In this period of GST, there has been an increase of about 50% of indirect taxpayers. This is because the majority of the goods and services were included in the GST. Because of this, even though a person who doesn’t pay their direct taxes, would still be a part of it through any purchases made by them.

This increase in tax compliance makes the Government generate more money by the taxes paid. And when the Government generates more money, it can utilise the same for social development schemes like infrastructure, health, and education.

The Bad – Stress on the SMEs

Although the GST was aimed at reducing the tax burden on the small traders and enterprises by about 60%, it has still caused a lot of pain to them. This is due to the tax’s complex slab nature, as well as the new methods to pay it. A lot of small traders do not have the money to buy the infrastructure required, nor hire someone who can use them. Initially, the SMEs had to pay for the cost of registration under the GST to the tax practitioners. Later, they had to pay a professional to help them with the payment of taxes, and frequently at that. Since there earlier they needed to upload the filings only 4 times per year, but after the GST it was about 37 times.

All this complexity also has increased the time they actually give to their business, due to the lack of sturdy infrastructure on both the ends of the SMEs and the Government. This was because the SME of India mostly consists of traditional family business like the ration-seller or a barber-shop etc.

The Good – Increased purchasing power of the common man

The GST was supposed to lower the rates of the goods and services, which suffered from the cascading effect of the indirect taxes. However, now after the implementation after the GST, the daily needs now cost less and the price is uniform across the country due to the universality of the GST. This, in turn, has increased the purchasing power of the common man, which in turn helps the economy since the same purchasing power is used to buy more goods than earlier. Buying more goods rejuvenates the economy due to the influx of cash and the cycle continues. Only the luxury goods became costlier under the GST which were still relatively bought less frequently and by only the ones with financial privileges.

The Bad – Informal to formal not achieved

GST was initially introduced to convert the informal economy of India, into a formal, taxpaying economy. While the tax compliance might be increased, the conversion pace hasn’t picked up yet, a survey by Qrius showed just 15-20% of the industry made a significant shift. The rest of the informal sector trudged through by dealing in cash.

However, a year might be too less of time to just this impact since significant reforms like GST take at least three years for any actual effect to realise. The goal of the GST was to encourage people to come under the GST circuit, by offering the benefits of returns. And for such a sector to change it would take more than taxation reforms to change their way of business.

The Good – Encouragement for the new businesses

GST emphasised the start-ups by offering more incentives to the new businesses. In the earlier taxation system, it took more than a few processes to start a new business like applying for VAT which would be different in different states and hence cumbersome.

Plus, earlier the business needed to pay some registration fee. However, that fee under GST is exempted, and the slab is kept at 60 lakhs. This offers the new start-ups some free space to breathe.

GST Anniversary: What Are The Key Takeaways was last modified: by
Comments
To Top