Associate Professor

MBA Department

Krishna Institute of Technology

 Kanpur, U.P., India 

Goods and Services Tax (GST) came into effect in India on July 1, 2017, with the aim of unifying the nation's $2.8 trillion economy and facilitating business. It is a single, comprehensive tax that replaced multiple indirect taxes such as service tax, excise duty, customs duty, and state-level value-added tax (VAT) into a streamlined system. GST is expected to play a pivotal role in transforming India's economy by bringing transparency, simplifying the tax system, boost revenues, and promoting enterprise.

One of the primary objectives of the GST is to eliminate the cascading effect of taxes, which led to a higher tax burden on the consumers. With GST's implementation, the tax is now levied only on the value addition at each stage of the supply chain, which results in bringing down the prices of goods and services. This would make the Indian market more competitive, and it would be easier for businesses to operate, and consumers would profit from increased purchasing power.

GST also removes the distortions caused by the multiplicity of indirect taxes and promotes a level playing field for businesses by reducing compliance costs, improving credit flows, and increasing investment. GST has significantly simplified tax compliance in India. Earlier, the system required businesses to comply with various taxes and rules in each state in which they operated, which increased the compliance costs as well as the time and effort involved. However, under GST, a business only needs to report their transactions to one authority, regardless of their presence in multiple states.

Additionally, GST is expected to boost the revenue of the government, as the new regime is more effective in preventing tax evasion and promoting compliance. GST's unified and streamlined approach to tax collection means that tax evasion is more challenging, making it easier to enforce tax compliance. Therefore, the implementation of GST has given the government significant momentum to improve tax collections, which will lead to increased government revenue ultimately.

Moreover, GST has helped to promote enterprise. The introduction of GST made it easier for businesses to expand and enter new markets, as they can now expand across the country without having to be concerned about the different tax structures. As a result, GST has made it simpler and more convenient for businesses to trade across state lines, generating demand for services, which, in turn, leads to increased employment.

Hence, the implementation of GST in India has played a crucial role in transforming India's economy by increasing transparency, reducing compliance costs, promoting enterprise and investment, and increasing government revenue. GST has brought several benefits that have been instrumental in enhancing Indian commerce's overall growth. Therefore, India should leverage this new and innovative tax structure to strengthen her economy and achieve sustainable growth.

In this paper, we will discuss the role of GST in the Indian economy and its impact on various sectors.

GST and Indian Economy:

The introduction of GST has brought several changes in the Indian economy. One of the biggest advantages of GST is the simplification of the tax structure. GST has eliminated the cascading effect of taxes, where the same product is taxed at various levels. This means that GST has reduced the tax burden on goods and services, which has led to the reduction in the cost of production.

The reduction in the cost of production has led to a decrease in the prices of goods and services, which has ultimately benefited the common people. This has also led to an increase in the demand for goods and services, which has stimulated economic growth. GST has also helped in promoting the ease of doing business in India as it has eliminated the complexity of the tax structure and has reduced the compliance burden on the taxpayers.

Impact of GST on Different Sectors

GST has had a significant impact on various sectors of the Indian economy. Let us discuss the impact of GST on the major sectors of India:

1. Manufacturing Sector

The manufacturing sector has been one of the major beneficiaries of GST. The reduction in the tax burden on the production has led to a reduction in the prices of goods. This has resulted in an increase in the demand for goods, which has boosted the manufacturing sector. With the introduction of GST, the movement of goods across state borders has become faster and easier, which has reduced the logistical costs. This has resulted in an increase in the competitiveness of the Indian manufacturing sector.

2. Agriculture Sector

The agriculture sector has not been directly affected by GST as the sector is exempt from GST. However, GST has indirectly impacted the agriculture sector by reducing the cost of inputs such as fertilizers, pesticides, and machinery. This has helped farmers to increase their productivity and has also increased their income. 

3. Service Sector

The service sector has been one of the major beneficiaries of GST. The service sector includes sectors such as banking, insurance, telecom, and transportation. With the introduction of GST, the service tax rate has reduced from 15% to 18%. The reduction in the tax rate has led to a decrease in the cost of services, which has resulted in an increase in the demand for services. This has boosted the growth of the service sector.

4. Real Estate

The real estate sector has been another major beneficiary of GST. Earlier, the real estate sector was covered under multiple taxes such as VAT, service tax, and stamp duty. With the introduction of GST, all these taxes were replaced by GST. This has reduced the tax burden on the real estate sector, which has led to a reduction in the prices of properties. This has resulted in an increase in the demand for properties, which has stimulated the growth of the real estate sector.

5. Small and Medium Enterprises (SMEs)

GST has had a mixed impact on the SMEs. For the SMEs who had earlier avoided paying taxes, GST has increased the compliance burden. However, for the SMEs who were paying taxes earlier, GST has reduced the tax burden as the GST rate is lower than the earlier tax rates. GST has also made it easier for the SMEs to do business as it has simplified the tax structure.

Some of the challenges and the current status of GST in India

1. Complex Structure: One of the major challenges of GST implementation in India is the complex structure of the tax. GST is levied at multiple rates, including 0%, 5%, 12%, 18%, and 28%. This multiplicity of rates has resulted in confusion and compliance challenges for businesses.

2. Compliance Burden: GST compliance involves various processes, such as registration, filing of returns, and maintaining detailed records. Small and medium-sized enterprises (SMEs) have faced difficulties in adapting to these compliance requirements, leading to increased compliance burden and administrative costs.

3. Technology Infrastructure: GST relies heavily on technology infrastructure for processes like registration, filing returns, and invoice matching. The initial implementation faced issues related to the technological readiness of taxpayers and the GST Network (GSTN), the IT backbone for GST. Although improvements have been made, technical glitches and system downtime still occur occasionally.

4. Multiple Registrations: Businesses operating in multiple states need to register for GST in each state separately. This requirement adds complexity, particularly for small businesses that operate across different states, resulting in additional administrative burden and compliance costs.

5. Classification and Interpretation: Determining the appropriate tax rate for different goods and services has been a challenge. There have been instances where the classification of certain products/services has led to disputes and litigation. Clarity and consistency in tax classification and interpretation are essential to minimize disputes.

6. Input Tax Credit (ITC) Challenges: GST allows businesses to claim input tax credit on taxes paid on inputs, but certain restrictions and conditions apply. Ensuring seamless availability of ITC and addressing issues like mismatched invoices, fake invoices, and fraudulent practices remain a challenge.

7. State Compensation: During the implementation of GST, the central government promised compensation to states for any revenue loss they may face due to the new tax regime. However, the COVID-19 pandemic and economic slowdown have affected the revenue collection, leading to delays in providing compensation to states.

The current status of GST in India is that it continues to be the prevailing tax system, with efforts being made to address the challenges. The government has been actively working on simplifying the GST processes and addressing concerns raised by businesses and stakeholders. Several amendments have been made to the GST law to ease compliance and simplify procedures. The GST Council, comprising representatives from the central and state governments, regularly meets to discuss and resolve issues related to GST implementation.

Despite the challenges, GST has led to some positive outcomes, such as the elimination of cascading taxes, increased tax base, and improved efficiency in the movement of goods across state borders. The government is committed to further streamlining the GST system and addressing the concerns of businesses and taxpayers.

Benefits of GST

Streamlined Tax Structure: GST has replaced multiple indirect taxes with a single tax, simplifying the tax structure. It has brought uniformity in tax rates and procedures across the country, making it easier for businesses to understand and comply with the tax laws.

Reduction in Tax Burden: GST aims to eliminate cascading taxation by providing input tax credit, thereby reducing the overall tax burden on businesses. This helps in lowering the prices of goods and services, benefiting consumers.

Ease of Doing Business: GST has facilitated a seamless flow of goods and services across state borders. It has removed inter-state check-posts and entry tax barriers, reducing logistics costs and improving the ease of doing business.

Increased Tax Compliance: GST has led to an expansion of the tax base by bringing previously unregistered businesses into the formal economy. This has increased tax compliance, reduced tax evasion, and improved overall tax revenues for the government.

Boost to Manufacturing and Export Competitiveness: The unified tax regime under GST has eliminated the cascading effect of taxes on inputs, making manufacturing more competitive. It has also provided export-oriented industries with the facility of zero-rated supplies, promoting exports.

Digitization and Transparency: GST operates on a robust online platform, promoting digitization and transparency in tax administration. It has streamlined processes such as registration, return filing, and tax payments, reducing manual intervention and improving efficiency.

Rationalization of Supply Chain: GST has facilitated the rationalization of supply chains as businesses can now optimize their warehousing, inventory, and distribution networks based on economic considerations rather than tax considerations. This has led to cost savings and improved supply chain efficiency.

Simplified Compliance for Small Businesses: GST has introduced a composition scheme for small businesses with a turnover below a certain threshold. It allows them to pay taxes at a lower rate and reduces their compliance burden, making it easier for them to operate and grow.

It's important to note that the implementation of GST is an ongoing process, and there may have been further developments and refinements since my last knowledge update. It's advisable to refer to the latest information and updates from official sources for the current benefits and status of GST in India.

The implementation of Goods and Services Tax (GST) in India has faced several difficulties like:-

Complex Tax Structure: GST introduced a multi-tiered tax structure with different tax rates for different goods and services. This complexity in tax rates and classifications has posed challenges for businesses in understanding and implementing the tax system correctly.

1. Compliance Burden: GST compliance involves various processes such as registration, filing of returns, and maintaining detailed records. Small and medium-sized enterprises (SMEs) have faced difficulties in adapting to the new compliance requirements, leading to increased administrative burden and compliance costs.

2. Technological Issues: The implementation of GST heavily relies on technology infrastructure, particularly the GST Network (GSTN), which is the IT backbone for GST. Initially, technical glitches and system downtime were observed, causing difficulties for taxpayers in filing returns and generating invoices. While improvements have been made, occasional technical issues continue to arise.

3. Input Tax Credit (ITC) Challenges: Claiming and verifying input tax credit has been a challenge for businesses. Mismatches in invoices, delays in receiving credit, and issues related to fake invoices have caused difficulties in availing and reconciling input tax credits.

4. Multiple Registrations: Businesses operating in multiple states need to register for GST in each state separately. This requirement increases the administrative burden, particularly for small businesses operating across different states.

5. Classification and Interpretation: Determining the correct tax rate and classification of goods and services has been a challenge. Ambiguity in tax laws and differences in interpretation have led to disputes and litigation between businesses and tax authorities.

6. Initial Disruptions: The transition from the previous tax regime to GST initially caused disruptions in business operations. There were issues related to the availability of input tax credit, reworking pricing strategies, and managing changes in accounting systems and processes.

7. Increased Compliance Costs: GST compliance has led to increased costs for businesses, especially small and medium-sized enterprises. They have had to invest in accounting software, hire tax professionals, and allocate resources to ensure proper compliance with the new tax system.

8. Lack of Awareness and Education: Many businesses, particularly smaller ones, have faced challenges due to a lack of awareness and understanding of GST. Educating businesses about the various provisions, processes, and compliance requirements of GST remains an ongoing challenge.

It's worth noting that the government has taken steps to address some of these difficulties by making amendments to the GST law, simplifying processes, and addressing concerns raised by businesses. Efforts are being made to enhance the technology infrastructure and provide clearer guidelines to promote better compliance and minimize challenges associated with GST implementation.

GSTN

GSTN, which stands for Goods and Services Tax Network, is the IT backbone and technology platform for the implementation of GST in India. It is a non-profit company formed to provide the necessary IT infrastructure and services for the smooth functioning of the GST regime.

GSTN is responsible for developing and maintaining the GST portal, which is the online platform used by businesses to register for GST, file returns, make payments, and perform other tax-related activities. The portal acts as a centralized system for processing and recording GST transactions.

Some key functions and features of GSTN include:

1. Registration: GSTN facilitates the registration of businesses under GST. It provides an online portal where businesses can apply for GST registration and obtain a unique Goods and Services Tax Identification Number (GSTIN).

2. Return Filing: The GSTN portal enables taxpayers to file their GST returns online. It provides various forms for different types of returns, such as GSTR-1 for outward supplies, GSTR-3B for monthly summary returns, and GSTR-9 for annual returns.

3. Invoice Upload and Matching: GSTN facilitates the upload and matching of invoices. Businesses upload their sales and purchase invoices, which are matched and verified to ensure accuracy and compliance with GST regulations.

4. Payments: GSTN provides a platform for taxpayers to make their GST payments online. It supports various payment methods, including internet banking, debit cards, credit cards, and NEFT/RTGS transfers.

5. Data Management and Analytics: GSTN collects, manages, and analyzes data related to GST transactions. It provides insights into tax revenues, compliance trends, and other statistical information, which can be used for policy-making and decision-making purposes.

6. Integration with Other Systems: GSTN integrates with various other systems, such as the systems of tax authorities, banks, and accounting software providers. This integration enables seamless data exchange and streamlines processes related to GST compliance.

7. Grievance Redressal: GSTN has a grievance redressal mechanism to address issues and concerns raised by taxpayers. It provides a helpdesk and support system for resolving queries and technical difficulties faced by taxpayers while using the GSTN portal.

GSTN plays a crucial role in the implementation and functioning of GST in India. It ensures the smooth flow of information, enables compliance, and helps in capturing and analyzing data for effective tax administration and policy formulation.

Features of GST Model Adopted by India

The basic features of the GST model adopted by India i.e. dual GST model as done under:

Tax on goods or services or both shall be levied simultaneously by both the Central Government and State Government Applicable to the whole of India including Jammu & Kashmir.

i. Destination-based consumption tax

ii. Comprehensive value-added tax on goods and services

iii. Collected at each stage of the supply chain

iv. Seamless input credit throughout the supply chain

v. The final consumer will bear the burden of GST.

vi. Uniformity in the basic features of law

Benefits of GST

GST is a win-win situation for the entire country (India)

The following are the benefits to Govt / Trade / Businessman / Ultimate Consumers:

a. Elimination of multiple taxes

b. Saving More Money

c. Ease of business

d Easy Tax Filing and Documentation

e. Cascading Effect Reduction

f. More Employment

g. Increase in GDP

h. Reduction in Tax Evasion

i. More Competition in Product

j.Increase in Revenue