Learn about GST and its Implications

The idea of unifying all of the many indirect taxes in the Indian market into a single new tax initially appeared in the 2006 budget. The Goods and Services Tax (GST) was a significant step taken in indirect tax reforms in India. The fundamental reason for GST implementation was to bring growth to the economy by eliminating the number of taxes. It was intended to create a unified tax system, i.e., unifying all central and state tax systems into one single tax. Simply put, it leads to higher tax compliance and a more open and transparent tax system. 

How GST works in various countries

In 1959, France was the first country to implement the idea of unified taxes. Since then, over 150 countries have accepted this concept, with India being one among them. There are two forms of GST throughout the world.

• A single, united one

In this approach, nations have a single GST rate for all manufactured products and services. The notion of a single unified GST works efficiently to unite the market. It reduces misunderstanding to a bare minimum and effectively eliminates any possibility of the Inspector Raj system. Furthermore, it can make the process of online reporting of GST easier and increase the convenience of doing business. Most nations have a single and unified GST system and collect both central and state-level taxes in a single place.

• One with many slabs

It is also known as dual slab GST. Only a few nations, like Brazil and Canada, have implemented this method in their markets. This method is also practised in India.

Unlike a single unified GST system in which taxes are collected by the government and dispersed to the states, this system collects taxes from both the central and state governments simultaneously for the manufacturing of goods and delivery of services.

The main purpose of GST implementation

The entire point of implementing GST in our nation was to eliminate the presence of a huge number of indirect taxes on goods and services. These are the taxes levied by the central and state governments.

• Realise the concept of “one nation, one tax”

GST replaced the multiple indirect taxes that existed previously with a single tax that applied to all of them. It will be applied uniformly in all states across the country. It can help the administration system by enacting general legislation that can be implemented across the country without the need for intricate state-by-state implementation.

• Eliminating tax evasion

With a countrywide tax and a rigorous surveillance mechanism, GST has decreased the number of defaulters. Online text verification makes the procedure more responsible in any area and reduces human apathy.

• Ease of conducting business

Previously, the number of taxes made taxation a commercial and complex chore for taxpayers, with the participation of offline and human differences leading to corruption and high cases of red-tapism. Now, all operations from registration to submitting returns are done online.

The benefits of GST implementation

• Streamlining the taxation system

In India, the adoption of GST merged a significant number of indirect taxes into a single tax. Prior to the introduction of the GST, multiple taxes were a burden on consumers’ purses as well as the country’s economy. The introduction of GST put a stop to the practice of tax cascading.

• Combating corruption

The administrative clarity of the taxing system has been the largest advantage of GST adoption. Previously, tax evasion inflicted enormous damage to government income.

• Establishing transparency

The use of technology in the taxing system gathers all the details with the development of GST. In the form of the GST, the customer learns the correct amount they must pay as tax while purchasing products and services.

• Advantages for e-commerce

The GST implementation system has established new standards for the e-commerce sector. The GST adoption has facilitated the operations of e-commerce companies such as Flipkart and Amazon by eliminating the need for unnecessary registration and the risk of being detected by the system of inspectors.

• Supports the ‘Make in India’ project

It promotes manufacturing in India by enhancing the standards of competitiveness in the Indian and worldwide markets for goods and services produced in India. International products are likewise taxed under an integrated text, resulting in inequity in the taxation of both domestic and foreign items.

• Technology-driven

The use of technology aids in reducing corruption in India’s taxes system. GST implementation is technology-driven, with the GSTN network serving as a conduit for communication between taxpayers and tax authorities. It makes taxes more viable and less time-consuming. Registration, returns, tax payments, refunds and claims are all part of the procedure. The online verification of the taxes system increases accountability and reduces human involvement.

Distribution of taxes in GST between Centre and State

The delays in the GST compensation payments have always been a flashpoint between the centre and the state governments. With the application of the GST, the states had to give up their value-added tax. According to the GST Act, the states should be compensated with a minimum amount by the central government due to the deficiency in the revenue collected for the GST implementation.

How is the compensation collected? 

The compensation is collected by the central government. The government levies the compensation on the consumers. This compensation is then credited to the Goods and Services Tax Compensation fund. The compensation is distributed to the states every two months. 

The Goods and Services Act mentions that the centre would be required to compensate the state governments for five years from the date of the implementation of the GST.

Conclusion

GST implementation brought with it numerous benefits. Compliance became easy and tax rates and structure became uniform to pave the way for the development of a common national market.