View of A STUDY ON WORKING AND IMPACT OF GST ON INDIAN ECONOMY:AN ANALYSIS

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Vol.04, Issue 02, February 2019 Available Online: www.ajeee.co.in/index.php/AJEEE

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A STUDY ON WORKING AND IMPACT OF GST ON INDIAN ECONOMY:AN ANALYSIS Prabodh Kumar Yadav

Spokesperson - Economics

Sarvodaya Inter College, Shahpur, Sikrara, Jaunpur, U.P., India

Abstract - The biggest and substantial indirect tax reform in an Indian economy is the Goods and services tax since 1947.The main proposed objective of the GST is to replace the earlier taxes such as the value-added tax, excise duty, service tax and sales tax and its implementation strategy for the social upliftment of the Indian economy. At the state level the purpose of VAT is that it prevents the number of repeated taxation of the same product because of a multi-point taxation with set-off for tax paid on the purchases. In spite of the success of VAT and still certain merits and demerits for the successful implementation of framework of VAT both at the state and the central level. There are various issues concerning for the VAT for solving the issues connected with that, the finance minister Pranab Mukherjee introduced the budget on July 6, 2009, and said that GST came into effect from April 2010. There are various issues in the vat for solving the issues connected with the vat, the finance minister Pranab Mukherjee presenting the budget on July 6, 2009, and said that GST came into effect from April 2010.Thus, the government of India introduced a timeline of GST in India by 1^st April 2016. After all, it was tabled as the 122^nd Constitutional Amendment Bill (CAB) in the parliament by December 2014.In this paper applying the exploratory research methodology in the study by using the secondary data.

The paper reveals that GST is reducing the overall cost of commodity to a great extent and benefitted to the all sectors of the economy. It reducing overall cost of commodity to great extent and beneficial for most, however in the agriculture sector GST is not playing an important role because of the fact for domestic consumption there is not charging any tax by the Indian government. Therefore, imposed of tax on agricultural products leads towards rising in prices of agricultural goods when implementation of GST is there, which is considered to be necessary for the survival. The paper reveals the basic concept and characteristics of the proposed GST and their impact on the Indian economy, GST in India and concerned its associated benefits for the present tax scenario and its implementation of GST in India. Therefore, the authors state to draw out to the brief summary and its conclusion for the implementation and its impact on the Indian economy. Thus liberalization of the tax policies on certain goods and services and the implementation of GST will become a beneficial impact on whole sectors of the economy and economy growth of a nation.

Keywords: GST, Framework, Present Tax Scenario, Impact and Implementation strategy of GST.

1 INTRODUCTION

The word tax was derived from Latin

„taxare‟, which means - to estimate. A tax is enforced payment by the legislative authority and is not a voluntary contribution and based on public residing under them. Value Added Tax (VAT) at the state level and CENVAT at the central level are regarded as the largest indirect tax reforms in the country and the next logical steps towards the introduction of GST in India to be called as the unified market. The whole scenario of current indirect tax system is likely to change after the implementation of the proposed GST. It is regarded as biggest tax reform since 1947.The idea of GST was first thought by the finance minister Mr. P Chidambaram in the Budget Speech 2006-07 and regarded as single most

important reforms after 1947 by the Finance Minister Arun Jaitelyexplain the constitutional (122nd) Amendment bill in the LokSabha on 19^th Dec.2014. But GST could not become a reality in all these years owing to irreconcilable differences between the Centre and the States over the framework, taxing powers, issues of revenue loss and compensation. The first major economic policy initiative by the NDA Government is the introduction of the amendment bill of introduces the implementation of the GST. The complicated indirect tax system is followed currently in India and imbrications of taxes imposed by union and the states separately. Thus, GST remove the double taxation which was earlier imposed on the all indirect taxes

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2 and will unify all the indirect taxes under the umbrella and leads towards the smooth national market.It is a composition of comprehensive indirect tax on manufacture, sale and consumption of goods and services at the national level.

Before the implementation of the prposed GST there were many hurdles to be crossed such as consensus over rates, constitutional amendment, compensation mechanism for States losing out on revenue, varying models, dispute resolution etc. The increasing demand for international comeition consequent to globalizaton and liberlization forthe Central government has reiterated its commitment towards the the adoption of a „flawless‟ GST implementation in an Indian economy.Despite the various impediments to the proposed transition, until the time GST is implemented, it would be worthwhile to assess its positive impacts on the various development areas in India and towards the positive growth of an Indian economy.

2 REVIEW OF LITERATURE

Dr. R. Vasanthagopal (2011) studied,

“GST in India: A Big Leap in the Indirect Taxation System” and concluded that GST in India will be positive step and for economic development in booming Indian economy from current complicated indirect tax system in India Success of GST will lead to its approval by more than 130 countries in world and a new preferred form of indirect tax system in Asia also.

Nitin Kumar (2014) studied, “Goods and Service Tax- A Way Forward” the author concluded that implementation of GST in India are expected to encourage the unbiased tax structure and help in economic distortion by current indirect tax system in India which is indifference to the geographical boundary. New Article 366 (12A) the Indian Constitution defines Goods and Services Tax (GST) to mean tax on supply of goods and services or both except taxes on the supply of the alcoholic liquor for human consumption.

Shah (2014) the author highlighted the objectives of projected GST in our force marked economy to discussed the possible threats and challenges, opportunity of GST in Indian economy.

Pinki, Supriya Kamma and Richa Verma (July 2014) studied, “Goods and Service Tax- Panacea For Indirect Tax

System in India” and concluded that the new NDA government is positive towards the implementation of GST, if implementation of GST is backed by strong IT infrastructure is beneficial for the central, state as well as the consumers in the long run. Garg (2014) focused on the impact of GST (Goods and Services tax) and concluded that the brief description of the Indian tax structure of historical scenario and discussed the possible challenges , threats an opportunities that GST brings the uniform tax structure with brings to strengthen the free market economy.

Indirect Taxes Committee of Institute of Chartered Accountants of India (ICAI) (2015) observed a PPT naming Goods and Service Tax (GST) which stated in brief details of the GST and its positive impact and implementation on Indian economy and the various stakeholders.

Objectives of the Study:

 To understand the concept and features of Goods and Services Tax

 To identify the impact of GST in the present tax scenario in India

 To examine about Goods and Service Tax and its impact on the economy

 To study about the

implementation strategy of GST in India.

3 RESEARCH METHODOLOGY

The main objective of the study based on the major sources of the secondary data basis that were collected from the different books, national and international Journals,government reports and various kinds of publications from the various websites which proposed on different aspects related to the Goods and Service tax.

3.1 Concept and Features of Goods and Services Tax:

Concept of goods and services tax:

Section 1, deals across the world India is one of the 123 countries among them that is following by the VAT mode. VAT was released on white paper with the basic design by the Finance Minister P.

Chidambaram on January 17, 2005. VAT was introduced and implemented in Haryana in 2003 and later on 1^st April 2005 both at centre and state level and after some time in the Indian taxation

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3 system as an Indirect tax in the remaining states. At the national and the state level VAT was replaced the central excise duty and the sale tax system. Thus, indirect taxation system in the Indian economy was improved by the VAT. From June 2016 Goods and Services tax to be implemented in India and GST bill officially known as the constitution bill (one hundred and twenty second amendment) bill,2014 to be a national value added tax. The GST consists of two components and by implementation is dual in nature. However, base of GST tax levied would be an identical and it removes the various types of taxation.GST is a type of indirect tax and after subsume all the indirect taxes of central and the states governments that will be converted into a unified tax as a single tax. GST as the name suggest at all the stages of the production levied on both goods and services GST has consist of dual model including central goods and service tax (CGST) and states goods and service tax (SGST). CGST will subsume all the

central indirect taxes like central excise duty, central sales tax, service tax, special additional duty on customs; counter veiling duties whereas indirect taxes of state governments like state vat, purchase tax, luxury tax, octroi, tax on lottery and gambling will be replaced by SGST.

Integrated goods and service tax (IGST) is also a kind of GST and can be called as interstate goods and service tax It is a system to identify the interstate transaction of goods and services and not an additional tax and further assure that the tax should be received by the importer state as GST is a destination based tax.

3.2 Goods & Services Tax (GST) in India – Type of GST:

For computation of National Income of a country following the three methods were applied are as follows:

They are Income Method, Production Method and Expenditure (or Consumption) Method.GST can also be classified in similar types – Gross Income, Production and Consumption.

The diagram demonstrates the type of GST and its corresponding features:

Source: An Insight of Goods & Services Tax (GST) in India India is proposed to follow and apply the

'Consumption -type GST'.

3.3 Goods & Services Tax (GST) in India - Why Consumption Type of GST?

Indian is proposed to follow the destination based, consumption type of GST. The main reasons behind for adoption of consumption type GST are:

 Most favored tax base from both the perspective of economic neutrality and ease of administration restricts tax burden to final consumption goods

 No difference drawn between the proportion of capital goods and other inputs and no depreciation need to be computed

 A broad measure is argued for consumption for ability to pay taxes, much like income.

 It excludes savings from the base, hence does not discourage investment Both income and product type from the perspective of economic growth, have an anti-investment bias. This is more significant in countries that impose

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4 substantial income taxes. Hence, consumption type GST is adopted.

3.4 Latest on GST:

 The Joint Committee has proposed and introduces a common e-return for CGST, SGST, IGST and additional tax.

 The Empowered Committee of State Finance Ministers constituted the Joint Committee, has made suitable suggestions for registration, payment and refund processes under GST.

3.5 Features of Proposed GST:

Ambit of GST:

 GST is applied to all the taxable goods and services and on those transactions those below the threshold limit except the exempted goods and services.

 Exempted goods and services include alcohol for human consumption, electricity, custom duty, real estate.[Proposed article 366(12A)]

 Petroleum products includes [crude oil, HSD(high speed diesel),motor spirit( petrol), natural gas, ATF(aviation turbine fuel)] are initially exempted from GST till the GST Council announces date of their inclusion.

 In GST tobacco products are included along with the central excise tax.

 Impositions and Collection of GST: The power of making law and rule on taxation of goods and services on the both union and state legislative assemblies In GST a law made by union will not overrule a state law. (proposed article 246A)

 As discussed from the above it has two components CGST and SGST CGST were collected by the Central government whereas SGST collected by the states government.

 The central government collected the IGST exclusively levied on supplies in the course of interstate trade including the imports and distributed to imported states as it is destination based tax. On recommendation of GST Council

the proportion of distribution is divided between the center and states (proposed article 269A).

3.6 GST Council:

 Under article 279-A GST is set up by the president and it is chaired by union finance minister..

 It will constitute union minister of state in charge of revenue and minister in charge of finance or taxation or of any other field nominated by state governments.

There preventatives of GST is 2/3 in council are from states and 1/3^rd from union.

 The decision of council is made by 3/4th majority of the votes cast and quorum of council is 50%.

 It will make suggestion on the:

Taxes, surcharge, cess of central and states which will be integrated in GST.

 Goods and services which may be exempted from GST

 The proportion of distribution between central and the state is Interstate commerce-IGST (Integrated goods and services tax)

 Registration threshold limit for GST

 GST floor rates

 Special rates during calamities

 In GST provision with respect to special category states specially north east states

 It may also work as Dispute Settlement Authority for GST.

3.7 Additional1%Tax

 Additional 1% tax on interstate taxable supply of goods which is levied by center and directly portioned to the exporter state (origin state).

 The recommendation by GST Council tax will be charged and imposed for two years or for longer time period.

3.8 Compensation to States:

 After the implementation of GST the revenue losses are arising out of it and union will compensate states for the revenue losses for the maximum of 5years. This compensation will be made on the recommendation of GST Council.

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5 3.9 Impact of GST in the present tax scenario in India:

Present Indirect Tax Structure (some major constituents as per Article 246):

Under the Constitutional provision in India Article 246 consists the structure for levy of indirect taxes, the Central and the State government to levy and collect applicable on transaction of goods and services of taxable- event based on the indirect taxes which will composed on the empowers of the seventh scheduled. The taxable event varies from point to point on different criteria based manufacture or sale or provision of services or imports/exports. The existing indirect tax

laws are origin-based tax, structured to levy and collect at the point of happening of the prescribed taxable event. In India the structure of present Indirect tax is very complicated and complex in nature and it possess the hurdles in smooth functioning of the Indian tax structure because the tax structure consists of the various cascading effects of tax and thus add to cost of goods and services through

“tax on tax” so the final consumer have to bear through the burden of tax on it.

There are manifolds in indirect taxation structure. It is bifurcated in five parts as depicted in Table1 below:

Table1: Five Major types of Indirect Taxes in the country

Excise Duty Service Tax Sales

Tax/VAT/CST Custom Duty Party

Tax/Entertainment Tax Entry no.84

List I, Schedule VII

Residuary entry no. 97, List I, Schedule VII

Entry no. 54 of List II (VAT) and 92 A of list 1(CST)

Entry no.83, Unit I, Schedule VII

Entry no. 52 & 62 List II, Schedule VII

Taxable event is

manufacture. Taxable event is provision of service.

Taxable event

is sales. Taxable event is import &

export.

Taxable event is

entertainment and entry of Goods.

The major reforms being undertaken in Indian Taxation System in reference to Indirect Taxation System is presented in Table 2 below:

Table 2: Reforms in Indirect Taxation System

Year Reforms

1974 Report of LK Jha Committee suggested VAT should be introduced 1986 Introduction of a restricted VAT called MODVAT

1991 Report by the Chelliah Committee recommended either VAT or GST which was accepted by Government

1994 Introduction of Service Tax @ 5%

1999 Formation of Empowered Committee on State VAT

2000 Implementation of uniform floor rate of tax for VAT at the rate 1%, 4% and 12.5%. and Abolition of tax related incentives granted by States

2003 VAT implemented in Haryana in April 2003

2004 Significant progress towards CENVAT, MODVAT was abolished and credit account was merged with service tax and excise to provide for cross utilization.

2005-06 VAT implemented in 26 more states

2007 First GST released By Mr. P. Shome in January

Finance Minister announces for GST in budget Speech and CST phase out starts in April 2007. Then, Joint Working Group formed and submitted report

2008 EC finalizes the view on GST structure in April 2008

2009 First discussion paper on GST was released and commission submitted report proposing GST to be implemented from 1.4.2010

2010 Department of Revenue commented on GST discussion paper and Finance Minister suggested probable GST rate.

2011 Team was set up to lay down road map for GST and 115th Constitutional Amendment Bill for GST was laid down in Parliament

2012 Negative list regime for service tax was implemented

2013 Parliamentary Standing Committee submitted its report on the Bill 2014 115th Amendment Bill lapsed and was reintroduced in 122nd

Constitutional Amendment Bill

Source: Reference on Goods and Services Tax, ICSI

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6 Impact of goods and service tax:- Section 2, GST has a positive impact on the economy and on various sectors which are as follows:

 Fast moving consumer goods sector: - FMCG sector play an important role in implementation of GST in Indian economy. It consists proportion of 50 and 30 percent of Food Beverage and household personal care. FMCG sector should contribute in taxation and play an important role both direct and indirect in an economy. There are different forms of taxation which affect the decision on company, manufacturing location and distribution of goods and services.

FMCG companies accessing the tax benefits set their manufacturing units the warehouses. In the warehouses transfer the stock among the states they have to pay the taxes. Therefore, GST play an important role on FMCG sector and it influences the cost to the company.

 Food Industry: -Food constitutes a large proportion of the customer expenditure of lower income households and mostly tax on food would be regressive in nature. Thus, to remove the difficulties caused in the food processing sector to extend the implementation of GST in Indian economy because of production and distribution of food is largely contributed on the unorganized sector in India. Most of the countries tax food at a lower rate for keeping in view of fairness and equity on the global front. The food constitutes a small proportion of the consumer bracket and is taxed at the zero rates of such countries countries like that Canada, UK and Australia .At the inception of GST on Indian economy a standard rate for the food is fixed, which is as low as in 3% in Singapore and Japan.

 Information Technology enabled services: -Under the IT sector is not yet decided the proposed GST rate, and for the discussed combined rate of GST is 27%According to proposed GST if the software is replaced through electronic form it would be concerned as service (intellectual property).and if it is replaced

through media or any other tangible property then it should be regarded as goods. Thus, the proposed implementation of GST will beneficial for removing the double taxation and thereby reduced price and help in the single point taxation.

 Infrastructure sector: -The Indian infrastructure sector mostly includes power, road, port, railways and miningetc, and this is complex in nature for indirect tax levied and different for each of them. Because of the national front this sector enjoys this sector benefited from several exemptions and concessions.

The multiplicity of taxes will be removed and it would widen the tax base structure because of implementation of GST with the continuation exemption and concession for the national interest and economy growth.

 Financial Services:-The GST is not charged in most of the countries on the various financial services.

Example, In New Zealand most of the services covered except financial services as GST. Under the service tax, India has followed the method of bringing virtually all financial services within the ambit of tax umbrella, thus reducing the cost of production and the double taxation on it. Where consideration for them is in the form of an explicit fee. GST also include financial services on the above grounds only.

 Impact on small enterprises:- In the small scale enterprises there are three categories are as follows:

 Those below the limitation of threshold limit should need not to register for the GST.

 Those who proportionate between the threshold and composition turnovers will have the option to pay a turnover based tax or opt to join the GST regime.

 Those above threshold limit will need to be within the structure of GST.

The situation of central GST is slightly complex from the other.GST is expected to adding and contributed to 2%

of GDP and encourage compliance to widen the tax base. Thus, Manufacturers,

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7 traders will have to pay less tax with the implementation of GST.

 Impact of GST on Consumers and businessmen: The several types of taxes that currently exist such as excise, octroi, sales tax, CENVAT, Service tax, turnover tax etc. would come under the GST umbrella. Since this would eliminate double taxation, it might result into fall of prices; thus relieving consumers.

This is also because the GST provides tax credit at every stage of taxation from manufacturing to consumption. Currently, margin is added at every stage and tax is paid on the amount including margins.

These taxes on profit and taxes on tax add to the cost of goods and services whose burden is to be borne by the final consumer. GST would provide a continuous chain of set- off from the producer‟s point to the retailer‟s point and would result in fall in prices. The chain of set offs would also result in better tax compliance of industry, trades and businessmen. For businesses, the GST would make life easy because of easier compliance (due to absence of multiple taxes) and easier return filing, tax payment and refund process due to robust IT infrastructure.

 Impact of GST on Make-in- India:The purpose of the „Make in India‟ campaign to create a world- class manufacturing hub. GST will play an important role to attract large to achieve a large scale investment after the tax reforms.

GST promises a progressive tax system to avoids the difficulties of tax cascades for achieve India as a true common market after impending the Goods and Services Tax. It removes the cost of production and allows the easy availability of hassle free supply of goods, which increase the ease of doing business in India.

3.10 Implementation Strategy:

India achieved the modified version of existing VAT system of GST as the single market for the Indian economy and for the accomplishment the goal of economic growth of a nation. The modified version

of existing VAT, GST can make functional as the unified taxation in India for the sooth progress of the economic development of the country. An existing GST have to be approved by every state existing in India, and for their implementation strategy adopted in India, else the total exertion on GST will be a disaster. A well- formulated of GST are necessary in India and have a unified type of taxation for goods and services, and as formulated taxation of GST has to be exercised by Central, State and Interstate where lies the complexity. It is necessary to bring the uniformity in system dual GST system like dual VAT system followed recently in India. The GST is called to be as the ;uniform taxation, low charges comparable to the earlier VAT system, better taxable system, tax return and registration system to be practiced and is more beneficial for the Indian economy. The PAN (Permanent Account Number) should be allotted to each and every citizens of India for put the GST into practice. The goods and services like agricultural goods, health, education and financial services have to be exempted from the GST because of attain the basic amenities of higher cost and it would hit the poor people in India and can well be recognized as the impact of GST on economic development of a country and economic growth of the nation. GST is exercised on both export and import of goods and services, thus under GST export is rated as zero, and it also charged at the high rate for the same, this would more than 25% GDP lays on export and exercised on the import of goods and services, would to direct to economic success for the development of the country. Therefore, the dealer declare within the prescribed limit of time in the importing state every import made monthly and it‟s also same as for the return on it. Thus the dealers pay the same tax if they purchasing within and from outside the state Therefore, the GST would be more effective if it implemented with pre-payment of the taxes and it would lead towards the more beneficial for the Indian economy.

3.11 Key findings and suggestions:- Section 4, GST has the following implications:

 GST will improve the tax compliance and remove the unhealthy

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8 competition and widen the tax base for beneficial impact on the Indian economy. GST will redistribute and remove the burden of taxation equitably among the manufacturing and services.

 It also widen the tax system with uniformity across the different states. GST will reduced the cost of goods and services because to remove the double taxation and will integrate and allow seamless flow of Input Tax Credit (ITC) with widen the tax base

 It will also improve the disclosure different types of economic transactions.

 It will remove the cascading and double taxation effect on different kinds of goods and services and thus ensures the better compliance thus enables better compliance. GST will remove the difficulty of tax evasion and it will benefitted towards the transparency in tax system.

The suggestions which are being drawn out from the various studies are as follows:

 The Central Government provisioned and monitored the Tax payer education or public awareness campaign for the beneficial impact on the economy growth of a nation.

The respective states government should conducted the various seminars and conferences, public workshops and other training

 States must examine and deduce their revenue neutral rates, revenue implications as well as compensation packages for beneficial towards the implementation of GST in the Indian economy.

 Government should create and contribute efforts towards the proper monitoring system a proper monitoring system for monitoring the dummy registrations and refunds problems.

4 CONCLUSION

GST is leviable on all spheres of the economy on all supply of goods and services and as well as the combination thereof. The major service sectors have an impact of GST in the Indian economy

whether it will be industry, business and government department etc. GST will provide a wide base of taxation framework that subsuming of the various taxes and compressive coverage of the input tax credit set-off, service tax set off and relief to the producers and consumers. After the efficient formulation of GST the centre and states majorly play a crucial role and initiated the contributed efforts towards the implementation of GST and will lead to resource and revenue gain and widen the tax structure compliance for the economy. From the above discussion it is concluded that GST play an important role and positive impact on each and every spheres of an economy.GST provided the contrbuted efforts and their implementation of all stakeholders namely, Central and State Government, trade and industry.Thus, necessary and effective steps taken by the GST would lead to an improved disclosure of tax transaction and transform the unified tax framework in an Indian economy and it also have an impact on direct tax collection. In the international market GST will reduce and remove the barrier of double taxation and burden on companies and the cost of Indian goods and services.With the tax exemption for the certain goods like agricultural commodities it will leads towards the increasing in revenue at the centre and the state because of the proper implemetation of GST in an Indian economy.After all the implementation of GST in Indian economy become the transparency of the tax collection system and also vanishes the problem of the tax evasion to help to the Indian people for regain the wealth lost within the country and leading towards for the economic development of the country.

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Various Websites:

11. www.//en.wikipedia.org/wiki/Goods and Services Tax (India).

12. www.taxmanagementindia.com 13. www.gstindia.com

14. www.thehindubusinessline.com 15. www.economictimes.indiatimes.com 16. www.moneycontrol.com