Goods and Services Tax- Accelerating Growth

Thanks to the conciliatory approach adopted by the ruling and the opposition parties, the prospect of  long desired Goods and Services Tax Bill seems bright during this winter session of Parliament.

India has been reeling under umpteen number of indirect taxes ranging from Central excise duty, additional excise duty, Service Tax, additional duty of custom, State VAT, entertainment tax, luxury tax, cleanliness tax, education cess, taxes on lotteries, betting and gambling, entry tax etc etc. It makes a web of taxes, no one is able to understand as  on what amount tax is to be levied, sometimes it amounts to double taxation and  the burden on the ultimate consumer goes up to 30%.

The introduction of Goods and Services Tax (GST) would be a significant step in the reform of indirect taxation in India. GST will be a uniform tax replacing all existing multiple Centre and State indirect taxes - easy to understand, easy to be implemented.    GST system has been adopted by over 130 countries around the world. However, in India, the proposed GST will have a 'dual' structure, which means it will have two components - the Central GST and the State GST. They will both have separate powers to legislate and administer their respective taxes. Thus equally empowering both.

The benefits of GST are numerous but a few are illustrated below:-

1. The tax-rate under the proposed GST would come down, whereas the number of assesses would increase by 5-6 times.  With the cap of 18% GST proposed, it will be a win-win position for both consumer and the government since tax collection would go up due to increased buoyancy. Individuals will also be benefitted as prices are likely to come down- lower prices means more consumption, more consumption means more production, more production means more employment.

2. The present indirect tax system in India is complicated with overlapping taxes levied by the Centre and the States separately, in turn, compelling the consumer to avoid taxes.  With  the passing of GST bill, we can expect a climate of improved tax compliance.

3. Currently, companies have to pay taxes on entire underlying value of product/service, but under GST, companies in a chain will have to pay tax only on value-addition. So, the actual tax paid will likely to be small and reduce the incentive for evasion.

4. GST will be levied only at the final destination of consumption and not at various points (from manufacturing to retail outlets). This will help in removing economic distortions and bring about development of a common national market.

5.  According to a study, by implementing GST, India will gain $15 billion a year. This is because, it will promote more exports, create more employment opportunities and boost growth.

How GST will change the face of Indian Economy?. An illustration:-

One of my friends sent me a message, which I would like to share here under.

"Indian truck drivers clock an average of 280 km per day, much below the world average of 400 km per day and far below the 700 km the average truck driver in the US does every day. The under performance of Indian truckers has less to do with bad roads  and more about prevailing archaic laws.

"Truck drivers in India spend 60 per cent of their time off roads negotiating check posts and toll plazas, says UBS Securities, which has also found that there are 650-odd check posts in the country and 11 categories of taxes on the road transport sector.

"Since road traffic accounts for 60 per cent of freight traffic in India, the slow movement of trucks across states leads to productivity loss. If the distance covered goes up by 20 per cent per day, Indian truck productivity would improve by 12 per cent.

"Higher productivity would cut the need for buffer stocks; reduce the loss of perishable goods, cut down the need for many warehouses, etc."

The implementation of the Goods and Services Tax (GST) could provide the kind of productivity boost illustrated above.

(The views expressed in the article are merely for academic purpose and are not subscribed by the organisation where the author is working)

Tilak Gulati,  Assistant General Manager, UCO Bank. 

Author: www.itstrgulati.blogspot.in