There is much hype about the GST (Goods and Services Tax). The governments have struggled a lot for this. Let us understand The benefit of GST. We should know whether it is beneficial for consumer or not? What benefit would industry get? How will it affect the small businessman?
Let us know about the classes which would be affected by the GST.
Following these classes which would be affected by the GST.
- Corporates –Because it pays the excise duty. The GST replaces excise duty as well
- Transporter– Because it pays Octroi/entry tax. The GST subsumes this tax.
- Distributor– It pays VAT. The GST replaces VAT.
- Retailer –It pays VAT and service tax. The GST Replace these taxes as well
- Consumer –Because indirect taxes affects the price of a product.
GST Benefits For Business and Industry :
The Goods and Services Tax would benefit the industry most. That is why the industry was demanding it for a long time. A study tells that Because of the GST, the industry would grow rapidly. Which in turn would increase the GDP by 2%. Following are the benefits of GST to the industry and Businesses
Reduce Hassle and Expense:
The GST not only replaces various taxes but also It would be easier for the businessmen. Currently, a Businessman has to various taxes, file return and reply for the scrutiny. The businessman has to visit many tax offices. The GST would end all these hassles.
There would be an advanced IT platform for the GST. It will handle the all related issue of GST. This platform would be used in the whole country. This platform would facilitate Single registration, Single payment, and Single return. All the process would be online. It would make the whole system of GST payment and return filing easy and transparent.
One GST Rate And One Mechanism:
GST ensures that indirect tax rates and structures are common across the country. A product has one GST rate across the country. Businesses are not required to calculate differently for different states. The Same Rule and the Same rate Across the country.
No Overlapping of Taxes:
If a product is produced and sold to the consumer, there would be a single indirect tax. There is no overlapping of taxes. If the GST rate is 20% and product is sold to a consumer for Rs 200, the GST would be Rs 40.
The total GST paid by the manufacturer, distributor, and retailer would never exceed the Rs 40. Out of this Rs 40, every player would pay their part of GST.
The government ensures this by the system of the tax credit. In the above example, a retailer who is liable to pay 20% of GST would not actually pay the Rs 40. Rather, he can reduce some tax because manufacturer and distributor would have paid GST on the same product.
The GST paid for the same product can be claimed as the tax credit. The retailer would deduct this tax credit from its total tax liability. Thus, The retailer might pay only Rs 20 as manufacturer and distributor would have paid remaining Rs 20.
This system of seamless ‘tax-credits’ reduces hidden costs of doing business.
GST Improves competitiveness:
Reduction in transaction costs of doing business improves competitiveness for the trade and industry.
The GST helps those businesses which have been paying right taxes. Since GST will minimize the tax evasion, the good business would become more competitive.
Gain to manufacturers and exporters:
The GST would decrease the cost of locally manufactured goods because of the following reasons.
- Most of the central and state taxes would go away
- Central Sales Tax would not be charged
- Complete and comprehensive set-off of the input goods and services
Because of the reduced cost of Indian industry, It would be more competitive in global market. It will give a boost to Indian Exports.
GST Benefits For Central and State Governments
Simple and easy to administer:
GST replaces multiple indirect taxes at the Central and State levels. Backed with a robust end-to-end IT system, GST would be simpler and easier to administer than all other indirect taxes of the Centre and State. All the management of GST would be handled by the GSTN. Also there are lots of GST e-filing software which can be helpful for file GST returns.
Better control on leakage:
Because of the Advanced IT platform, it would be difficult to evade GST. The system of GST also promotes the tax payment.
A businessman can claim tax credit only if it has the tax invoice for the purchase. If it doesn’t have tax invoice of a purchase, It has to bear whole tax. Thus, a retailer would ask tax invoice from the dealer and in return dealer would ask tax invoice from the manufacturer.
The in-built mechanism in the design of GST incentivizes tax compliance by the traders.
Higher revenue efficiency:
GST is expected to decrease the cost of tax collection. It will lead to higher revenue efficiency. The duplication of indirect tax collection would end after the GST. It would finally decrease the cost of revenue collection. Both, the centre and state government would benefit.
GST Benefit to the Consumer
GST Would Decrease Tax on Certain Product and Services:
Since there are only three rates of GST. Many products would come into lower tax band. Such as watching a film or buying luxury goods would be cheaper.
Since, there is no overlapping of taxes, the overall tax on a product would go down. It would also lead to lower prices.
Relief in overall tax burden:
Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit consumers.
If GST manages to increase the revenue of government we can expect a lower rate on direct taxes.