New Delhi: GST, the biggest tax reform in India is constituted on the notion of “one nation, one tax, one market”. It is a path breaking indirect tax reform which has created a common national market by dismantling inter-state trade barriers. Beyond shadow of doubt, Goods and Services Tax (GST) has become a reality from July 1, 2017.
GST is a destination based consumption tax which revolves around concept of value addition at each stage in the supply chain. Businesses get a credit for taxes paid on input and services used, which will make them more competitive as it eradicates cascading effect of taxes Says Managing Partner of AKGVG & Associates, FCA Vineet Gupta.
A breakthrough in the Indian economy is manifested in the way the nation is moving to the foreaccelerating a lucent business environment. Huge shift is apparent as Indian market transforming from unorganized to organized sector. GST was hailed as biggest Indian tax reform sinceindependence, a potential game-changer that would, at one stroke, unite the country of 1.3 billion people into a single market.
GST is a win-win situation for the entire country benefiting stakeholders, industries, government and consumers at large.India markets are reaching new heights every other day where “seamless flow of credit under GST” has emanatedenlarged consumer base with reduced cost of production of goods and serviceseventuallygiving a boost toIndian economy and makingproducts and services globally competitive. On a macro level, GST has turned to be a boon to Indian economy by
Creation of unified national marketwith common tax rates and procedures
Mitigation of ill effects of cascading by subsuming most of the taxes at central and state level into single integrated tax
Boost to “Make in India Initiative” by making goods and services produced in India competitive in the national as well as international market.
Buoyancy to government revenue by widening the tax base and improving the taxpayer compliance.
According to CA Vineet Gupta GST is a comprehensive, multi-stage, destination-based tax that is levied on every value addition.GST is a replacement to all previous state and central government taxes and duties.GST implementation has unified Indian market but impact on all industries cannot be adjudged as same. The first level of differentiation would be categorization of industry on whether the industry is manufacturing, distributing, retailing or is providing a service. Then references must be drawn from individual impact of GST on each component of the industry under consideration to analyze whether one is on the winning edge or on the other end.
For instance, distinctive advantages to “Real Estate sector”would include availability of input tax credit to the builders on the raw materials procured thereby curtailing the base prices of property projects launched post GST implementation. Buying under-construction properties will attract a net effective rate of 12% as against the earlier rate of 5.5% (including value added tax and service tax). As quoted in a report by Edelweiss “For new projects with 100% input credit passed to the buyer and land cost being 50% of the project cost, we expect property prices to fall by around 1% in western and northern markets and around 3% in southern markets,”
GST has been fruitful to “FMCG sector” as huge unorganized Indian market is being transformed to an integrated organized market. GST rate for products like hair oil, soaps and toothpaste has been lowered by 500-600 bps from the previous rates. Companies such as Colgate-Palmolive, HUL, Britannia, Heritage Foods, etc.are among major gainers.
IMPACT ON GDP
Gross Domestic Product has tendency to loom on the shoulders of revenue generated by the economy in a year. Still, a worthwhile point includes that GST has capability to extend GDP by a total of 2 percent in order to complete ultimate goal of increasing per-capita income of every individual. Also, GST scheme expected to improve indirect revenues to the government as tax compliance will be further enhanced and extending taxpaying base which will add to revenue. Increased income of the government will redirect towards developmental projects and urban financing creating an overall implied scenario.
Economic activity in the country lost some pace amid pre-GST related disruptions but underlying growth momentum remains strong and the country may clock 6.7 per cent growth this fiscal, says a Morgan Stanley report. Commenting on the GDP numbers of 5.7% in Q1, Morgan Stanley said, “We are inclined not to read this as a sign of general slowdown in aggregate demand”.
The factual reports of the second quarter are yet to be promulgated for which the facts and figures cannot be quantified as of now. Although, GDP is expected to remain between 6.2% to 6.3% as per NITI Ayog vice chairman, Rajiv Kumar.
World Bank President Jim Yong Kim also said that GST is going to have a hugely positive impact on the Indian economy. Kim addressing a group of reporters during a conference call ahead of the annual meeting of the International Monetary Fund quoted “There’s been a deceleration in the first quarter, but we think that’s mostly due to temporary disruptions in preparation for the GST, which by the way is going to have a hugely positive impact on the economy”.
Therefore, it is convincingly evident that GST has made a positive impact on the economy at macro level.
As such Indian economy has come up with flying colors post GST not only natively but also internationally