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| Comparative Study of Pre and Post GST Era and Its Impact on Different Sectors of The Economy | |||||||
| Paper Id :
16086 Submission Date :
20/05/2022 Acceptance Date :
23/05/2022 Publication Date :
24/05/2022
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| Abstract | Goods and Services tax is a major fiscal instrument to ensure transparent and balanced economic growth. implementation of GST is a significant reform in the area of indirect taxation. In this paper effort is made to know the situation of different sectors of the economy under previous tax structure and GST. Before implementation of GST seventeen different indirect taxes was applicable in our country which was subsumed under the preview of GST and Goods and services tax is an indirect tax. It is a multistage & destination-based tax. This study reveals that implementation of GST have a mix impact on economy. Few sectors like Manufacturing sector, service and iron sector & steel sector have positive impact but it has few demerits also. GST ensures transparency due to online mechanism and removes cascading effect. | ||||||
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| Keywords | GST, Cascading Effect, Taxation, Indirect Tax, VAT, Input Tax Credit, Economy. | ||||||
| Introduction |
GST known as goods and services tax is an indirect tax which replaced almost all the indirect taxes like central excise duty, service tax, sales tax etc. GST act was passed on 29th of March 2017 and. It is the biggest reform in Indian taxation system. Several rate like 0%, 5%, 12%, 18%, and 28% is effective under GST. It is a comprehensive (Subsumed major indirect taxes except few), Multistage (Imposed on all the level of production) and destination based (Collected from the place of consumption). I t was implemented to ensure the transparency, enhance foreign trade, increase the employment in our country. It was the assumption of the experts that this system will help in economic development of our country. In this system four types of taxes are implemented in the form of IGST (Implemented on inter-state supply of goods and services), CGST (Implemented on intra-state supply of goods and services by central government), SGST (Implemented on intra-state supply of goods and services by state government) and UTGST (Implemented on supply of goods and services in Union territory. Before implementation of GST major taxes implemented in our country were Excise duty (Levied on goods produced in India for domestic consumption), Sales tax (Collected on inter-state supply by state government), countervailing duty (Imposed on export of specific goods to nullify the price of local goods, value added tax (Imposed on all the levels of supply from manufacture to the point of sale.
Purpose of GST Implementation
1. To eliminate the complexities of previous tax structure: In previous taxation system it was very tough for tax payers to remember all the due dates because several taxes were implemented in our country. Now under GST all the previous taxes removed so it is easy for a person to file it.
2. To avoid cascading effect: The GST was implemented to avoid the cascading effect of previous tax structure. Under previous tax structure cascading effect was the major problem. Cascading effect means tax on tax for example if a manufacture purchases raw material and pays CST or VAT on it. After manufacture of the product the producer was liable to pay excise duty and sales tax on finished goods. After GST implementation manufacture will pay only GST.
3. To decrease corruption: Before the implementation of GST to avoid the compliances, save the taxes & avoid cascading effect the tax payers may use short cut method. To receive the permission and licence the taxpayer give bribe to officers and save the tax which was harmful for economy and government. Under GST all the taxation system is based on online GST portal. So, it is not easy to avoid the tax. |
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| Aim of study | This study aims to find out the comparative impact of pre and post GST on economy. The implementation of GST is a significant improvement in the indirect taxation system. So, it is tried to know that what are the basic difference between previous taxation system and this new law. Is the implementation of GST is providing positive impact on economy in comparison to previous system? In this paper it is tried to know that how GST is playing its role in improving the transparency and easy control due to GST network. This paper has following objectives: 1. To compare the GST with previous tax structure and to know the differences and similarities between pre and post GST system. 2. To study the mechanism of GST and to know the challenges & advantages of this system. 3. To ensure easy tax compliance and intimation after GST implementation. 4. To study the structure of GST. | ||||||
| Review of Literature | Dr. (Mrs.) Shilpa R Kulkarni and Mr. Sudhindra Apsingekar (2021) have concluded that the implementation of GST improves the ease of doing business. In initial tax structure cascading effect was a major problem which is removed by GST. It has positive effect on export business also. Input tax credit is also beneficial for the export firms. After implementation of GST the cost of production specially cost of capital goods decreases. This study concludes that GST is helpful in minimization of complexities of previous tax structure and is encouraging employment opportunities. FDI and foreign exchange is also positively affected by GST.
Dr. Tanveer Ahamed Dar (2021) in his paper titled “A study on the impact of goods and services tax on Indian Economy has concluded that the implementation of GST has positive impact on producers and manufacturers due to the decreased cost of supply chain and lack of cascading effect. He also concluded that in spite of several challenges of its implementation it is a significant tax reform in our country because it ensures a single and uniform taxation system.
K. Reddappa, Nagaraju E (2021) have concluded that in our country GST rate is high on food products, personal care, health care, transportation and entertainment. The rate of GST is comparatively low on communication sector in comparison to UK and South Africa. In this study it is suggested that the policy makers should reduce the high rate of taxes from essential commodities and services.
K. Murugan (2021) found in his research that several small and medium industries were in trouble in recent times and a large no. of people become jobless due to implementation of GST. Nearly fifty thousand MSME units were closed by the state government, GST refund and delayed payment are also major problem of GST. During last decade this sector has never seen such shut down. Industries like automobile, textiles, leather, electric and general engineering were in serious problems due to GST related pressure.
Samapti Goswami (2018) found that GST have both positive and negative impact on the participants of GST. To remove the problems of GST policy makers should listen the problems of stakeholders and spread awareness about complications of GST.
Anand Nayyar & Inderpal Singh (2017) have concluded that GST will increase the GDP and check the inflation to a specific limit. This new law is beneficial for manufacturing sector and challenging for service sector. Everything needs to be carefully planned for systemic rate of taxation. |
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| Methodology | This research is conceptual and exploratory in nature. This research is based on secondary data which is collected from different journals, magazines and reports of the government. Different research papers published in peer reviewed, national and international journals are also a good source of data in this work. |
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| Findings | Manufacturing Sector Pre and Post GST Implementation 1. Before implementation of GST manufacturer was liable to pay excise duty which was very complicated to calculate because there were different methods for its calculation like Ad valorem duty and specified duty makes complicated to estimate it and under GST system all the method of tax calculation is smooth because it subsumed all the taxes like octroi, CST etc. Due to GST manufactures have less burden of indirect taxes. 2. In the previous taxation system different states were charging different taxes and manufacturers were forced to open different warehouses in different states to save the tax but now under GST there is only one tax so, manufacturers need not to open different warehouses in different states and they can focus to increase the efficiency. 3. Before implementation of GST manufacturer were paying around 24 to 26 % extra expenses because of the cascading effect of VAT and excise but after implementation of GST the taxation system is simplified and cascading effect is not found so, the cost of production decreased. 4. Before implementation of GST, it was not possible for manufacturer to operate several factories under one registration but now it is possible because only one GST number is necessary. 5. Under previous taxation system the assessment process was tedious because of several taxes and different assessment authorities but after the implementation of GST only few authorities. Negative Impact on Manufacture Sector 6. Under GST manufacturers requires more working capital because the transfer of goods form one state to another and transfer from one branch to another in now taxable under GST. 7. For logistics and power industries credit of tax will not be available because petroleum products are out of the umbrella of GST. 8. In previous taxation system reverse charge was applicable only on certain services but under GST it is available for goods also, in reverse charge mechanism tax burden borne by the person receiving the goods and services instead of supplier of services so, manufacturing sector will face the problem of high costs. Service Sector Pre and Post GST Implementation 1. In the previous taxation system every transfer of goods, invoice includes both the value of goods supplied as well as services, so tax rate becomes double (Goods + Services) but after implementation of GST both (Goods + Service) will be treated as supply of services only. 2. Pre GST system was not able to clearly differentiate between goods and services like the sellers of online software were not sure whether VAT will be taxed or service tax but now after implementation of GST such confusion is not available because GST law clearly differentiate goods and services. 3. The persons who were providing services like maintaince and repair was only liable to claim credit of input services under previous taxation system but under GST they can claim credit of input and credit of input services as well. 4. In previous taxation system it was not possible to claim input tax credit due to difference in tax collection and tax payment. For example, A service provider was charging service tax from his client and paying VAT on inputs used but under GST it is possible now because of one tax only. 5. In previous taxation system service provider can operate different businesses located at different places by a central registration but GST does not provide such benefits, now registration is required in respective states. Due to the lack of centralised system the firm can cannot use centralised system of accounting also. 6. In previous taxation system the service provider has to file a centralised return but under new rule separate registration is required. 7. As per provision of GST If, supplier will provide free services then also it will be taxable. MSME’ s Pre and Post GST Implementation 8. Under previous taxation system separate VAT registration was required in every state but under GST only one registration is enough for all the branches. 9. Under previous taxation system some states were charging VAT if turnover exceeds Five lakhs and, in some states, VAT was applicable if turnover exceeds ten lakhs. But under GST only one registration is required. Real State Pre and Post GST Implementation 1. Before implementation of GST buyer of property was liable to pay several taxes like VAT, stamp duty, service tax and registration charges and tax structure was very complicated but goods and services tax makes it easy because only one rate of tax is applicable now. 2. Before implementation of GST builder has to pay VAT, excise duty, entry tax which increases the material of cost, builders were also liable to pay service charge on services like approval charges & legal services. Iron and steel sector Pre and Post GST Pre GST several taxes like excise duty, VAT and service tax were charged on manufacture of iron and steel. Rate of excise duty was 12.5%, VAT @ 5% and sales tax @ 2% to 5%. But after the implementation of GST 18% tax is applicable on iron and steel. Products like cooker, pan stainless steel is taxed @ 12 %. So, it can be concluded that GST has positive impact on this sector because all the major inputs (ore, coal) of steel industry are taxed at 5%. Agriculture Sector Pre and Post GST Agriculture sector is a major sector of our economy which contributes around 20% of our GDP. During covid pandemic also this sector performed very well. Before implementation of GST fertilizer was taxed @ 6% (1% excise + 5% VAT). Due to different rate of VAT and agriculture produce market committee it was a difficult task to implement national agricultural market but after GST implementation it is easy to establish such markets. Dairy form, poultry form and stock breeding are not the part of agricultural activities and now GST is taxable on these businesses. General Price level Before and After Implementation of GST It was supposed that prices of services will fall in the initial phase and a mixed impact may found on the prices of the goods. Cost of production was supposed to decline by 10% to 15% due to the removal of cascading effect and benefit if input tax credit. So, we can conclude that there is positive impact on prices of the goods. In case of services effective tax rate was 15% in previous taxation system but after implementation of GST tax rate on most of the service is 18%. This 3% increasement in the tax rate will lead to increase the prices of services. Due to the elimination of double taxation and input credit this sector has some benefit also. Thus, it can be concluded that there is mixed impact on the prices of services under GST. | ||||||
| Conclusion | In this study it can be concluded that previous indirect taxation system was complicated. Cascading effect was major problem. Implementation of GST is a significant tax reform and now the indirect taxation system is quite simple and systematic. GST removed the problem of cascading effect and input tax credit is also a major benefit of this taxation system. After five years of implementation of GST everything is not going as per plan specially in case of healing of losses of the state governments. Covid 19 have also badly effected collection of GST. This is also a reason that central government was not able to compensate the losses of state governments. Implementation of GST have mixed impact on economy, some sectors are highly benefited and others are facing problems. In conclusion it can be said that GST is a significant and positive move by the government which ensures transparency in indirect taxation system. | ||||||
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