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The Goods and Services Tax (GST), which went into effect on July 1, 2017, was a substantial overhaul to India’s tax system because it unified several indirect taxes into a single structure. Previously, businesses and consumers faced obstacles due to a variety of state levies, cumbersome procedures, and multiple taxation, all of which hampered commerce and economic productivity. The GST, based on the “One Nation, One Tax” philosophy, sought to simplify and harmonise taxation across the country.
While GST streamlined business processes, it also introduced new challenges such as compliance issues and shifting tax burdens. Consumers’ experiences varied, with some goods becoming cheaper and others becoming more expensive. This article will look into the real impact of GST on businesses and consumers.
GST (Goods and Services Tax) is an indirect tax that was imposed in India on July 1, 2017. This tax is founded on the principle of “One Nation, One Tax,” which has resulted in the implementation of a unified tax system throughout the country.
Previously, there were several types of indirect taxes, including VAT, service tax, excise duty, entry tax, and various state-level taxes. GST combined all of these taxes into a single system, simplifying the tax structure and reducing the cascading effect of taxes.
Central GST (CGST): A levy levied by the central government.
State GST (SGST): A tax levied by the state government.
Union territory GST (UGST): A tax imposed by the Union Territory Government on intra-UT supplies.
Integrated GST (IGST): A levy levied by the Central Government on interstate commerce.
Advancement in Businesses Due to GST
1.Unified Tax System :
Previously, several indirect taxes (such as VAT, Service Tax, Excise Duty, and so on) were levied, requiring firms to maintain multiple tax regimes. GST established a unified tax system, simplifying the procedure of tax payment and refunds.
2.Facility of Tax Credit :
GST includes the notion of Input Tax Credit (ITC), which allows businesses to obtain credit for the tax they pay. This helps to reduce the final cost of production.
3.Simplified Rules for E-Commerce and Startups :
Previously, e-commerce enterprises had to pay various taxes in each state. The implementation of uniform rules across India has opened up opportunities for new businesses.
4.Improvement in the Tax Compliance Process :
Previously, firms had to pay multiple sorts of taxes and submit various returns. With the advent of GST, an online tax payment system was built, increasing transparency in the process.
GST-Related Challenges for Businesses
1.Tax Burden for Micro, Small and Medium Enterprises (MSMEs) :
Previously, some small businesses had to pay lesser taxes or qualified for specific exemptions. However, under GST, all firms must pay the same type of tax, which has put a financial pressure on some small businesses.
2.Tax Return Process and Digital Challenges :
GST returns must be submitted online. This approach can be difficult for firms in rural locations or those with limited technical infrastructure.
3.Frequently Changing Rates :
The government periodically revises GST rates, so firms must constantly change their pricing and tax structures. This impacts managerial costs.
4.The Impact on Cash Flow :
After paying GST, the refund may take some time, which might cause capital challenges for enterprises. This is a serious worry, particularly among exporters and small firms.
The Positive Effects of GST for Consumers
1.Price transparency for goods and services :
In the previous tax system, numerous levels of taxes were levied on goods and services, making it impossible for consumers to grasp the total cost. The adoption of a unified tax system under GST has resulted in increased pricing transparency.
2.Reduction in the Cascading Effect of Taxes :
Previously, several taxes were levied at different levels on the same product, resulting in price inflation. Production expenses can be decreased by using the Input Tax Credit (ITC) available under GST.
3.Ease of E-Commerce and Online Shopping:
Following GST, the e-commerce sector now operates under uniform rules, making online shopping easier and reducing confusion about state-level taxes.
The Negative Effects of GST on Consumers
1.Increased Tax on Certain Services :
Previously, the service tax was 15%; now, under GST, some services are charged at 18% or 28%. As a result, the cost of services such as hotels, insurance, banking, travel, and telephone has increased.
2.Temporary Impact on Inflation :
Many sectors raised product prices in the first few months after GST was implemented to accommodate for the new tax. Consumers endured inflation as a result of this.
3.The Impact on Small Industries and Consumers :
For some small businesses, complying with GST became challenging. Due to the higher tax burden, some businesses boosted their product costs, which had a direct impact on customers.
GST has streamlined India’s tax structure, increasing transparency and providing businesses with a common framework. However, small businesses continue to face complicated compliance requirements and delayed returns, stifling growth and efficiency.
As mentioned by Adv. Abdul Mulla, creator of www.asmlegalservices and www.lifeandlaw.in, consumers have witnessed mixed results, with some goods being cheaper but frequent tax rate adjustments leading to inflation. A more stable and streamlined policy approach is required to maximise GST’s benefits for all stakeholders.
Adv. Abdul Mulla (Mob. No. 937 007 2022) is a seasoned legal professional with over 18 years of experience in advocacy, specializing in diverse areas of law, including Real Estate and Property Law, Matrimonial and Divorce Matters, Litigation and Dispute Resolution, and Will and Succession Planning. read more….
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