The Goods and Services Tax in India has been one of the most contentious issues in the sphere of indirect taxation in the country. The indirect taxation structure of the country was an extremely complicated and time-consuming affair.
Various types of indirect taxes had been levied by various agencies around the country, each with their own systems and collection methods. This created a severe lag in the economy, particularly hampering smaller businesses.
The kind of taxes that existed pre-GST, which were subsumed, are local levies, various cesses, value-added taxes, etc.
With the advent of the GST, all that has changed and now, a centralized body, the GST council, can collect all the subsumed taxes – amalgamated into one tax – GST.
Some of the GST FAQs which provide some necessary information about the GST are:
1) Subsumed almost all of the indirect taxes – very few exceptions like petroleum and alcohol for human consumption. All of the indirect taxes have been taken under the umbrella of the GST.
2) Centralized tax collection: GST is managed by a centralized agency called the GST council.
3) The GST system runs on the GSTN (Goods and Services Tax Network) which manages the entire IT infrastructure.
4) There are five slabs in the GST structure – 0%,5%,12%,18%, and 28%.
These are some of the essential aspects of GST, and a comprehensive GST FAQ section is available on the official GST website. The GST system has created many opportunities in India, even if there are a few disadvantages.
The most significant advantages that GST has presented in India are listed below:
1) Creating a Unified Tax System: The biggest advantage of GST has presented for businesses, both small and large, is the ability to pay one single tax on the goods and services they produce.
Under the earlier system, the tax collection bodies would vary by state. Each state had different types of taxes, including taxes at the city level. This complicated matters and created a burden for smaller businesses that did not have the resources to manage all of this.
The advantages of unified and clear tax policies are not only helpful for businesses, but they are also beneficial to consumers. Pre-GST, consumers had almost no idea how much tax they were paying on goods and services they purchased.
So, the GST system has helped businesses out by reducing complications as well as bringing in clarity to the system.
2) Centralized Governing Body: Another significant change brought in by the GST system has been the creation of a centralized tax collection body. Earlier, one of the major gripes of businesses was the multiple tax collection agencies that used to handle the tax computation and collection in various states.
This led to a host of problems and was also a source of corruption. Now, under the current GST regime, this has changed with the creation of the GST council, which is the centralized body that manages the entire GST system.
There is now one point of contact for businesses to get in touch with the government about their indirect taxes. This has increased opportunities for small businesses to thrive because it has reduced the cost of managing taxation.
3) Reduction of Expenses: Simplification of the tax code, as well as the collection, has significantly reduced the expenses for businesses. The money which is not having to be spent on unnecessary procedures can be spent on productive purposes, which is a huge growth opportunity for the country as well.
The introduction of the GSTN network, which is the system on which the entire Goods and Services Tax runs on, has also significantly enhanced the cost-effectiveness of the tax structure.
This has also led to a decrease in corruption due to the transparency which the GSTN has brought about. Now that businesses can directly file taxes electronically on the network, the scope for corrupt practices has reduced.
4) Ease of Doing Business: India has been steadily increasing in the Ease of Doing Business rankings. The GST has played a significant part in this. Not only has GST reduced corruption, but it also has increased efficiency and trust in the tax system.
Foreign businesses looking to invest in the country can now have a clearer picture concerning taxes and administration.
Since a single governing body controls the GST system, there is more certainty on tax policies than before, so that contributes to policy stability, which is very important when it comes to getting investors from abroad to invest in the country.
5) Business Transparency: The GST system has increased overall business transparency concerning taxation and governance; not only is this important from the standpoint of businesses, it is crucial for consumers as well.
Consumers now have an exact idea of how much tax they are paying for the products and services they purchase. Since GST requires complete information from producers of goods and services at every step of the way and requires the complementary filing of details in the returns, tax compliance is very high now.
This has presented growth opportunities for the government. Higher tax compliance means more tax revenues so that those revenues could be used for better infrastructure, more spending for social services, etc.
To conclude, GST has marked a sea change in the way the country collects, computes, and files taxes. It has brought about some challenges, but overall it has helped in increasing tax compliance, reduce corruption as well as help businesses have tax certainty.
There have been a few hitches with the rollout of the GST tax system. Still, the advantage the GST council has is that it is a single body handling the system so it can make changes and respond to market conditions faster than if multiple government bodies were handling it.
More GST FAQs regarding specific slabs and tax rates for various products can be found on the GST council website.