The Goods and Service Tax or GST, in short, is a significant reformation in the indirect taxation structure which India currently follows. The main objective behind the introduction of GST is to ensure that input credit is made available across the value chain and to minimize the cascading of tax.
GST has put in place a seamless flow of cash and accredit it across the entire supply cycle across the states with a centralized tax base. It harmonizes the tax base, tax laws, and the administrative procedures governing it. This, in turn, would reduce the inter-state competition, which is harmful to the nation’s development.
GST bill ensures that the indirect taxes (which are inclusive of the service tax and excise duty levied by the State and Centre) would be based on production and not on the consumption of the goods or service.
This has further unified and simplified the traditional tax structure by replacing it with all the current indirect taxes like the central excise duty, special additional duty of customs, cesses, and surcharges, among many others.
All businesses with an annual turnover of more than 20 lakh are required to get a GST certificate. This certificate can be downloaded by the taxpayer from the GST portal.
However, cooperative federalism, minimizing corruption, and unifying tax rates are some of the most apparent benefits of GST. Let us look at some of the hidden aspects of GST that can be deemed progressive for our economy.
Top 7 Ways GST is Progressive Tax for Our Economy
In this blog, we would predominantly focus on the lesser-known benefits rather than harping about the already established and popular ones.
#1 Positive Impact on Small Businesses
There is an evident positive impact on small businesses due to this reformed tax structure. By this bill, the Government has brought down the perceived incentives associated with tax evasion, thus bringing down the illegal transactions.
Also, with the introduction of GST, small businesses with a turnover between 10-50 lakhs fall under a lower taxable slab. This step is a boon for start-ups and new entrants as they would not have to feel the pressure of the standard rate of tax immediately.
#2. Increased Tax Net
Due to the introduction of GST, companies that were previously enjoying exemptions in excise duty have come under the tax net. In the traditional taxation structure, SME’s with a turnover of less than 1.5 crores enjoyed tax exemptions. However, with the introduction of the GST, the scenario has changed.
In case a taxpayer dealing with GST applicable goods/services opts for composition scheme GST, they can avail GST at a fixed turnover rate (1% for 1.5 crores turnover).
This is applicable only for businesses having a turnover of less than 1.5 crores. The composition scheme would help the small business owners to minimize tedious paperwork and legal formalities and get high liquidity.
#3. The Decrease in Expense and Time Delay on Logistics of Goods
Before the advent of GST, many small and big companies faced a delay in the movement of goods between states due to the presence of many checkpoints and minor border tax disputes.
Interstate transportation was not only costly but also laborious. There was also a lot of wastage and product deterioration on the way due to these factors. However, with the introduction of GST, the logistics expense incurred currently by the organizations has gone down by 20%.
The movement of goods across the State has thus become organized and orderly. The expense incurred in maintaining high stocks has also come down due to the smooth flow of goods and the elimination of taxes.
#4. Boost in Exports
With the inclusion of GST, customs duties have come down drastically. It has further led to a notable contraction in the production cost. This ultimately has increased the rate of exports in India. Companies have become keener in the global expansion of the business.
#5. Boost in Domestic Manufacturing
Unlike the earlier system, which made imports more lucrative when compared to a domestically produced good, GST boosts the domestic production. The imports are now treated as inter-state supply of goods and attract an IGST.
This would further increase the overall duty involved in the import of a good. On the other hand, a domestically produced good would only have 18% GST (in contrast to the 10% Import duty +18% IGST) levied on it, making it a more lucrative option.
#6. Relief for Businesses Falling Under Both Service Product and Services Category
Small businesses like restaurants and Product Sales and Services Companies earlier faced the problem of having to compute taxes in both the service product and service category. The VAT and Service Tax needed to be calculated separately for both the offerings.
But after GST was put to force, the computation became more straightforward and easy to comprehend. There is no differentiation between either of the business offerings, and GST computation is the same for both service and product. The entire tax calculations are done on the total bill amount and not individually.
#7. More Data Availability
Since the levied tax is not imposed on the manufacturing stage, the Government would get more data on the manufacturers and the end consumers. It would also give data on the local firms and producers outside the state borders. This collected data would be a common one for both the Centre and the State, making it more reliable and efficient. The data would enable Direct Tax collections easier, effective, and seamless.
An Aftermath
Since GST involves rigorous online data recording, the tax payments and transactions have become real-time and make it easier for financial institutions to access for credit lending purposes. It would benefit smaller organizations to establish their credibility and repayment capability effectively.
It has made the entire taxation system easy to administer and manage by eradicating the cascading effect of multiple taxes. GST has thus created a definite win-win situation for both the companies and their end-consumers.
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