The Union Cabinet approved four GST legislations — the Integrated GST Bill, the Central GST Bill, the Compensation Bill and Union Territory GST Bill— which had earlier been approved by the GST Council over 12 meetings spanning about six months.
Now the Bills are to be passed by the Parliament, while the State GST Bill is required to be passed by the Legislative Assemblies of each State.
GST will turn India into one common market, leading to greater ease of doing business and big savings in logistics costs from companies across all sectors.
By subsuming most of the Central and State taxes into a single tax and by allowing a set-off of prior-stage taxes for the transactions across the entire value chain, it would mitigate the ill effects of cascading, improve competitiveness and improve the liquidity of the businesses.
While the rate of GST is yet to be decided, industry observers have assumed an 18% rate recommended by a government panel in making their impact calculations.
GST is set to get implemented on 1st July 2017. There are various goods and services which will have different rates prescribed by GST, which may impact their cost. Here we have described the positive impacts of the GST on Indian Economy:
GST is might turn out to be a win-win situation for the entire country. It will bring benefits to all the stakeholders of industry, the consumer and the government because it will lower the cost of goods and services and give a boost to the economy and make the products and services globally competitive.
The aim of GST is to make India a common market with common tax rates and procedures and remove the economic barriers. It will pave the way for an integrated economy at the national level.
By engrossing most of the Central and State taxes into a single tax and by allowing a start off of prior-stage taxes for the transactions across the entire value chain, it would reduce the ill effects of cascading, improve the liquidity of the businesses and improve competitiveness.
The GST system is largely based on technology. It will reduce the human interface to a great extent and this would lead to speedy decisions. Hence, it will result in a better and speedy environment for doing businesses.
2. Strengthen Make in India initiative
GST is expected to give a major boost to the ‘Make in India’ initiative of the Government of India by making goods and services produced in India competitive in the National as well as International market.
Apart from it, all imported goods will be charged with integrated tax (IGST) which is equivalent to Central GST + State GST. This will bring equality with taxation on local products.
The indirect tax laws would be more transparent after the implementation of GST. Since under the GST, the whole supply chain will be taxed at every stage with credit of taxes paid at the previous stage is available for set off at the next stage of supply.
This will make it easier to distinguish the economics and tax value of supplies.
Eventually, this will help the industry to take credit and the government to verify the correctness of taxes paid and the consumer to know the exact amount of taxes paid.
4. Easy Tax Paying
The GST will eradicate the requirement to maintain records and show compliance with a myriad of indirect tax laws of the Central Government and the State Governments like Service Tax, Central Excise, VAT, Entertainment Tax, Central Sales Tax, Entry Tax, Luxury Tax, etc.
They would only need to maintain records and show compliance in respect of Central Goods and Services Tax Act and State (or Union Territory) Goods and Services Tax Act for all intra-State supplies (which are almost identical laws) and with Integrated Goods and Services Tax for all inter-State supplies (which also has most of its basic features derived from the CGST and the SGST Act).
5. Improvement in Internal Trade
It is reasoned that in the wake of GST internal trade is showing the sign of growth.
The GST is expected to bring about reduced tax exemption, which could have a bearing on prices of goods and capital requirement for managing cross-border supply chains.
It will also reduce duty benefit imposed on imports and reduced export incentives and drawback on exports.
6. Research and Development
The government made an important announcement that it will withdraw the R&D cess, with effect from April 1, 2017.
Consequently, the service tax abatement/exemption of R&D cess enjoyed by taxpayers so far is also proposed to be done away with.
This would be welcomed by the industry as R&D cess was a sunk cost to taxpayers, being non-creditable in nature. Only a set-off of R&D cess already paid was available against service tax.
Withdrawal of R&D cess would certainly encourage technology imports and incentivize domestic value addition.
Services in relation to undertaking the process of manufacturing/production of goods, have been omitted from the negative list and moved to list of exempted services.
Similar amendments have been made in the past where an entry has been moved from the negative list to the general exemption list.
While the amendment doesn’t seem to entail any immediate implications, this gives the power to the government to impose the tax on all the services falling in this category in future by an introduction of a mere notification, instead of adopting a circuitous path of amending the Finance Act provisions.
Keeping in mind the Make in India initiative, the Budget proposals also seek to correct duty inversions that have been plaguing certain manufacturing sectors in India.
Customs and excise duties on certain inputs and raw materials used for manufacturing final products in the automobile, renewable energy sector and petrochemical sector (among others) have been reduced which shall help in correcting the issue of accumulation of credits, which affects the cash flow of various taxpayers. This rationalization of duty rates would certainly boost domestic manufacturing.
The GST is believed to be a beneficial factor for Technology Industry as it will eliminate multiple levies. It will also allow deeper penetration of digital services. After GST, IT companies can have several delivery centres and offices working together to service a single contract. With GST, companies might require each centres to generate a separate invoice to every contracting party.
9. Reduction in the Cement Prices
The current effective rate of tax for cement companies is 25%. If GST rates are fixed at 1820% then the overall tax incidence will be lower on cement. GST IS expected to lead to savings in transportation cost, which currently comprises up to 2025% of total revenue. One common market will bring down the number of depots in the country. It will save the transportation cost and will bring down the prices.
The GST will contribute in setting up a National Agricultural Market for agricultural products.
This will involve all the farmer and traders in the regulated markets with a common e-commerce platform for a transparent, impartial trade of agri-commodities.
The GST will improve the supply chain mechanism which would ensure the reduction in wastage and cost for the farmers/retailers.
Under the model GST law, dairy farming, poultry farming, and stock breeding are kept out of the definition of agriculture. Therefore these will be taxable under the GST.