Brief Description Of GST: A Boon Or Bane

The goods and services tax (GST) was created to unify indirect tax applicable on most products and services in India. It was introduced as a replacement to several other taxes that were present in the country. GST was a measure to reduce the discrepancies and loopholes that existed with all the previous taxes.

What is GST?

GST is the common indirect tax applicable on most products and services we consume or use in our daily life. It is applied to the supply of goods and services. 

GST was first introduced by the Indian government in 2017. To understand the impact of GST and to determine whether the policy change has been good or bad, it is essential to understand how things functioned before and after its implementation. 

Before GST

Before the GST, we had VAT or ‘value added tax’, service tax, excise duty tax etc. VAT was introduced in 2005 by the Indian government with a similar intention to unify the Indian tax system. VAT is also a form of indirect tax. It was calculated on the basis of the value the product adds to the supply chain. It also considers the product’s price and takes in account previous tax added to the product.

VAT was not uniform across the country and varied from state to state, defeating its purpose. Every state had its own municipality, making it even more cumbersome to calculate taxes and even resulting in higher tax rates. There was also no reliable source to claim tax credits on services. One had to jump through hoops to get a simple thing done. Hence a uniform tax reform was introduced again, this time in the form of ‘GOODS AND SERVICE TAX’ also known as GST in the year 2017.

Working of GST

GST was brought into motion to:

• achieve the ‘one nation, one tax’ goal 
• eliminate the avalanche of taxes and procedures 
• promote online procedures for tax payments and smoothen the workings of municipalities overall
• reduce tax evasion
• increase competitive prices and increase consumption 

Composition of GST

GST is made up of three components: the CGST, SGST and IGST. There are parts of GST that are levied upon transactions between states.

The CGST is the tax collected by the central government on sales within the state.

The SGST is the tax collectable by the state government on sales within the state.

The  IGST is the tax collectable by the central government on sales outside the state, and transactions between states. 

For example, if we were to purchase an electric motor vehicle within the same state, the tax applicable would only be 5 % (CGST & SGST) whereas if any goods from Kerala are sold to the state of Andhra Pradesh only a certain percentage of IGST is applicable (around 18% for goods).

Henceforth, the GST mode of tax payment and collections made a significant impact on products, reducing the amount of resources spent on the previous tax collections as well, making the procedure much more user friendly and also bringing about some degree of uniformity in the indirect tax department of India. 

The taxes that have redirected or reduced into the GST taxes are :

• Central Excise Duty
• Duties of Excise
• Additional Duties of Excise
• Additional Duties of Customs
• Special Additional Duty of Customs
• Cess
• State VAT
• Central Sales Tax
• Purchase Tax
• Luxury Tax
• Entertainment Tax
• Entry Tax
• Taxes on advertisements
• Taxes on lotteries, betting, and gambling

Boon of GST Implementation

It’s nearly impossible to collect all indirect taxes due to that these taxes do not come under the GST spectrum and are added upon separately 

• Electric duty 
• Alcohol consumption
• Toll tax
• Property tax
• Countervailing taxes

Therefore, looking at the overall comparison between the VAT and the other pre-existing taxes and GST tax system, there is more support for states to be able to earn their share of income in a more fair method rather than a central government monopoly; it has also reduced the cascade of repetitive taxes of certain goods and has caused an overall reduction in prices of products for the general public.

The GST method of taxing is mentally and resourcefully slightly taxing, especially initially, for businesses. But at the same time, considering online tax portals, reduced steps in filing of taxes and reduced conversions overall is very beneficial to them in the long term.

The VAT system allowed taxes primarily on goods and the services were ignored; there was the concern of patents, software products, which could not be categorised and fell through the cracks. There were multiple grey areas.

The VAT system also did not allow fair distribution of taxes among states and the centre. It also did not have a practical methodology for input tax credits to be legitimised. The GST system addresses many of these issues and has systematically tackled major faults of our previous tax system.

Bane of GST Implementation

Due to the government not setting up proper portals and infrastructure to handle the implementation of GST, a lot of issues have arised. The most important of these issues is the confusion that has arised amongst businesses since most business models were tuned to the existing VAT regime. This has ultimately caused the Business Confidence Index to drop too. Another disadvantage of GST has been the slowing down effect it has caused on the GDP. This has occurred due to business practices changing and the confusion related to GST existing in the minds of business owners.

Conclusion

On paper, the GST system sounds like a fairly impactful change in the tax policy, even though it may be true partially in terms of goods price reduction, convenience of tax filing and simplifying taxation. After almost five years of implementation, many major issues still remain. According to The Hindu, the GST system has undergone nearly 700 minor changes since its implementation.

It promised to boost the GDP and provide the much needed funds to state governments. The GDP has actually dropped since its implementation.. The central government only released partial funds to the state governments after the COVID-19 pandemic struck in 2020 and states were in desperate need of funds creating a huge debt of funds to be given to the state governments for the year 2020-21.

It is important to note here that implementing any major policy reform is tedious and time- consuming. Despite its slow results, the GST system appears to benefit the country in the long term. 

It has increased uniformity in the system—not 100% yet, but inching towards that—it has also made product cost and tax differentiation more transparent. It has helped in achieving an effective tax credit system. If GST payments were not open to online transactions, the pandemic would have had a much more significant impact on the economy.