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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Impact of GST on Pharmaceuticals

The Goods and Service Tax Bill was finally cleared by the parliament. It has come into effect since July 2017. GST is expected to make taxation easier. It will also reduce the number of corrupt practices. It is expected to reduce the confusion that people have about the tax system in our country. Let us check out the impact of GST on the pharma sector

Effect of the new tax system on pharmaceuticals:

This new tax system is going to affect the pharma industry in a big way. It will have a good impact on the supply chain management. The manufacturing costs will come down. The profit of the manufacturers will obviously increase. The GST bill is a reliable one as it has been discussed in detail for past two years. The corporate world is very much keen to understand the impact of this bill on the different industries.

The tax burdens at State and Central level will get reduced:

The central level taxes like excise duties, service tax, excise duties under the medicinal and toilet preparations Act 1955 will be removed by this new system. Surcharges will also get removed. Different State level taxes will be merged under this tax. This will include CST, VT, sales tax, entertainment tax, luxury tax etc.

Understanding the tax law on pharmaceutical products:

One the formulations the VAT rate is 9%. On the pharma products the VAT rate is 5%. The excise duty is 12.5%. The government gives excise free manufacturing zones to these products. This is beneficial to the small manufacturers who are located in remote areas. The manufacturers in this zone have to pay an excise of just 1.5%. The VAT is normally charged on the MRP that is maximum retail price. The charges are implied at a single point. As a result no taxes have to be filed by the distribution channel. The GST on pharmaceuticals is going to ease down many things.

It is not just the pharma industry, but the entire business world is going to get affected by the Goods and Service Tax. What the business community and the common man need to understand is that this is a very good thing for the entire country. One country, one tax will surely help in reducing the taxation complications and the burdens associated with it. It is also a major step that the government has taken to curb corruption in the country. It is a step which will make the common man feel more confident. The entire country will reap the benefits of this tax. In the long run pharmaceutical manufacturers will realize that their profits have increased and the taxation is become lot simpler.

This is the just the beginning of a big revolution in the country. This bill has been discussed a lot of different levels of the government. Different amendments and changes were made and only then the new tax has been introduced by the government. This is a positive step which is going to help in the progress of not just businesses but of the entire country.