Why GST rollout is a watershed moment for India: Explained in 10 points

[GST rollout: When the world would sleep tonight, India would wake to the new 'One tax, One Nation' Goods and Services Tax (GST) regime.]

GST rollout: When the world would sleep tonight, India would wake to the new ‘One tax, One Nation’ Goods and Services Tax (GST) regime. The scheduled launch of GST during a special midnight session of Parliament today by President Pranab Mukherjee is arguably one of the biggest moments in the history of Independent India. On the eve of India’s independence in 1947, first Prime Minister Jawaharlal Nehru had said, “Long years ago we made a tryst with destiny, and now that time comes when we shall redeem our pledge, not wholly or in full measure, but very substantially. At the stroke of the midnight hour, when the world sleeps, India will awake to life and freedom. A moment comes, which comes but rarely in history, when we step out from the old to new, when an age ends, and when the soul of a nation, long suppressed, finds utterance.”

In the 70 years since 1947, India has marched many miles on road to political and economic freedom. But the situation now demand a giant economic leap. When President Mukherjee would gift the GST to India at midnight, it would mark the start of one such leap. In the last few months, scores of experts have analysed how GST would be a “watershed” moment, a “game-changing” move for India. Here we take a look at 10 good points about GST experts have highlighted:

1. GST is replacing a plethora of indirect taxes which contribute to bulk of revenues of the states and just about half of the tax kitty (around Rs 16 lakh crore) collected by the Centre at present.

 

2. Direct taxes like income tax concern only a small fraction of the population, the indirect taxes affect every Indian as they are charged on consumption, affecting both the rich and the poor. By ending multi-layered indirect tax regime, GST is expected to benefit all sections of Indian society.

3. Under present system, taxes like excise and Central sales tax are levied on manufacturing at the factory gate or on inter-state movement of goods. Under GST, goods would be taxed at the destination. This would result in gains for the consuming state and loss for the manufacturing state. This was one of the reasons why large manufacturiing states like Tamil Nadu had opposed the GST but large consuming states like Bihar, West Bengal and Odisha favoured the the GST law. This also explains why the GST law provides for compensating the losses made by states for the initial few years.

4. GST is expected to affect prices of services which now attract an average service tax of around 14 per cent only at the Central level. But the same time, the prices of several other goods are expected to decrease (see the infographic). Experts believe that GST would serve as an anti-dote to inflation and be friendly to all stakeholders — people, industry and traders.

5. In the long run, GST would mainstream a lot of unorganised sector of India’s economy. At present, it is hard to understand the effect of various central policies on the unorganised sectors. The recent example being the effect of demonetisation decision on the unorganised sector. We have estimates, not concrete data.

6. GST is expected to boost India’s tax collection and even push the country’s Gross Domestic Product by 1-2%.

7. Even as GST seeks to benefit everyone, its biggest impact will be felt by businesses, especially those engaged in buying or selling of goods from or into other states.

8. GST will help producers sell more goods, who sometimes find it difficult to sell their products to distributors or wholesalers in other states because of a difference in tax rates and cumbersome movement of goods.

9. GST aims to build a complete chain of tax payments at each stage of sale, due to its value-added taxation nature. This will lead to a huge reduction in tax evasion.

10. Under GST regime, all transactions and processes required to be done only through electronic mode. This will help in minimising the physical interaction of taxpayers with tax officials. This will also help reduce tax-related corruption. The GST law provides transitional provisions for ensuring smooth transition of existing taxpayers to GST regime, credit for available stocks, etc. Some other provisions include a system of GST Compliance Rating. Anti-profiteering provisions for protection of consumer rights have also been included in the Acts.
Courtesy: FE