Impact of GST on India

The Goods and Services Tax (GST) has been one of the most significant tax reforms undertaken in India's history. Implemented in 2017, it subsumed a complex web of indirect taxes into a unified tax system. More than three years since its rollout, GST tax reforms in India have impacted almost all sectors of the Indian economy. Here, we analyse some key effects of India's pre and post-GST tax reforms.

Pre and post-GST Tax Reforms

1. Simplified Tax Structure

Pre-GST Scenario: India's previous indirect tax system was complicated, with several taxes levied by the central and state governments. These included foremost excise duty, services tax, additional customs duty, surcharges, state-level value-added tax, and more. Cascading of taxes was common.

Post-GST Scenario: Indian GST has assimilated the majority of indirect taxes under a single, comprehensive tax regime. With a simplified structure of tax slabs - 0%, 5%, 12%, 18%, and 28%, it has eliminated the complexity of multiple taxes. GST has reduced the compliance burden for businesses.

2. Boost in Tax Revenue

Pre-GST Scenario: Complexity in the pre-GST tax structure resulted in tax leakage and lower collections. Only about 56% of the commodities were taxed, allowing room for evasion.

Post-GST Scenario: As more commodities have come under the tax net, India’s tax base has widened under GST. Combined with an efficient system of tax credits, tax evasion has been reduced. GST collections crossed the Rs 1 lakh crore mark for the first time in April 2021.

3. Relief for Exporters

Pre-GST Scenario: Indian exports suffered due to the cascading effects of various indirect taxes. Taxes were levied on inputs at multiple stages, increasing costs.

Post-GST Scenario: Under GST, Indian exports receive favorable treatment. Exporters can claim refunds on GST paid on inputs and zero-rated supply. It has made Indian exports more competitive globally.

4. Mixed Impact on Prices

Pre-GST Scenario: Tax rates varied widely for goods and services depending on states, resulting in price variations. Essential common-use items were taxed higher.

Post-GST Scenario: The tax burden on essential goods like food grains has fallen under GST. For certain categories, like restaurants, prices have gone up. The overall impact has been mixed, with limited inflationary effect.

5. Ease of Inter-state Business

Pre-GST Scenario: Differing state tax regimes meant procedural delays for inter-state trade and movement of goods, affecting supply chain efficiency.

Post-GST Scenario: By unifying India as a single market, GST has eased cross-border trade. The smooth flow of input tax credit has removed bottlenecks and delays for inter-state transactions.

6. Boost to Manufacturing Sector

Pre-GST Scenario: Taxes on manufacturing were high, along with exemptions. Cascading taxes increased production costs.

Post-GST Scenario: Uniform lower rates of Indian GST on inputs, capital goods, and reduced transport times have reduced costs. The make-in-India initiative has received a shot in the arm.

7. Evolving Compliance System

Pre-GST Scenario: Pre-GST tax filing systems were ambiguous and fragmented at the central and state levels.

Post-GST Scenario: Though the rollout faced tech challenges, GSTN has facilitated online registration, filing, and payments across India. Glitches are being ironed out to improve compliance.

Wrapping up

In summary, while the impact of GST tax reforms in India remain ongoing, the new regime has positively transformed the ease of doing business, created unified common markets, and boosted tax collections. Despite initial hiccups, it has laid the groundwork to make India's complex indirect tax system more efficient. With time, compliance is likely to improve further, and GST will deliver on its full potential for the Indian economy.

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