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The Goods and Services Tax is claimed to be the greatest tax reforms since India became independent. The system before GST was riddled with multiple indirect taxes and the new single tax regime has subsumed these. The primary objective of this tax reform was to eliminate the cascading effect of taxes on the production and distribution of products and services.

Cascading effect of tax

This is the effect of multiple taxes being levied by the various states and central government. Central government taxes included central sales tax (CST), income tax, security transaction tax (STT), service tax, and excise duty. State levies included octroi and state excise, sales tax or value-added tax (VAT), entry tax, agriculture tax, and property tax. This multiple tax structure increased the burden on consumers who paid higher prices for goods and services. It also made Indian businesses uncompetitive in the global markets. All these negative effects will be eliminated under the single tax regime.

Implementation challenges

The government has implemented a dual rate system. It includes the Central GST (CGST) and State GST (SGST). Revenues earned through CGST will be retained by the Central authority. The states will collect the SGST. An Integrated GST (IGST) for intra-state sales will be collected by the Central Government.

An important hurdle in the implementation of the new tax regime is the coordination among different states. Furthermore, states will lose revenues with the elimination of the various taxes. However, the government will compensate such losses for a period of five years.

Overcoming implementation challenges

The dual federal structure of the GST will be beneficial in handling inter-state as well as intra-state transactions. In the new tax structure, all types of supply of goods and services, such as rent, barter, sales, transfer, and exchange will be liable for CGST and SGST.

The single tax rule will also be beneficial in bringing transparency in the entire system. The new rule will overcome the complexities and shortfalls within the supply chain resulting due to the complicated multiple layer regulatory environment.

Benefits of GST

The single tax regime will bring several positives for the Indian economy. Here are six such benefits expected in the longer period.

1. The entire country becomes a uniform single market, which will reduce costs and time and make the movement of goods and services simpler and efficient.

2. Although the industries will benefit from a lower tax burden, the total tax revenues for the government are expected to increase. This is because the simplicity and uniformity will reduce tax evasion and encourage more people to pay taxes.

3. The simple online procedures will reduce the paperwork and eliminate the long and cumbersome processes that were applicable under the multiple tax structure.

4. As tax burdens reduce for the various players in the supply chain, the benefits will be passed on to the final consumers. The reduced expenses will help manufacturers reduce the costs for various products.

5. Over a longer period of time, the Gross Domestic Product (GDP) is expected to increase by 2% to 2.5%.

6. With the Indian prices becoming globally competitive, the exports are estimated to increase between 10% and 14%.

For more GST news and information, readers are recommended to check the Internet. Several informative resources are available online.

The new single tax regime bodes well for the country. Businesses and consumers will benefit from a simplified and uniform structure.