Think With Me Blogs: July 2017

Introduction

Any civilisation from ancient India to modern India governed by its State machinery. Taxes forms a major part to run that machinery. Perhaps that's why the king, landlord, feudal landlords, government taxed their subjects. Why do govt. levy tax? Answer is simple- to earn revenues and keep working for the benefits of citizen like running the development program and schemes. However in modern India with 132 crore + population, the tax system getting more complex and perverse over time. This new and bold reform will definitely make some reforms as the threat of deglobalisation entered the world politics scenario. For understanding GST (Goods & Service Tax) let's first understand the various taxes in India.

Taxes

It is the amount charged by the govt. on product, income and activity. It become direct tax if it is levied directly on income of a person or of a company. But if it is levied on the price of good and service then it called as indirect tax.

If a tax levied on every sale made then it is called as sales tax. When tax levied at each step of the process - from manufacturer to distributor to wholesaler to retailer to customer then it is called cascading effect of tax. In VAT (Value added tax), the rate should be uniform.

Why GST??

It is VAT which levied on goods and service tax. But even VAT is also unable to stop the cascading effect of taxes. That's why GST had been come in the scenario to eliminate the cascading effect and lowers the overall cost of goods and service to the consumer. It is simply equivalent to the consumption tax which will be levied on goods and services only (as its name suggests). In this GST regime imports will be subject to this while exports becomes zero rated.

It is also expected that it will broad the tax base structure of India, promotes one nation one market theory, boost Make in India program and thus boosting the economy. It will also provide reduction in the compliance cost like the ones on entry tax and e-commerce taxation existing today. It also alleviate for keeping multiple records and filing returns of multiple taxes which also provides the less effective cost to trades. For dispute redressal mechanism GSTN portal must be used.

In terms of Government revenues, when we have broad tax base structure and improving taxpayer compliance then it automatically improves the tax to GDP ratio which also improves our ranking in 'Ease of Doing Business Index'. As per the estimation of GoI after implementing the GST there must be an additional growth of 0.9% -1.6% in GDP. When we have improved taxpayer compliance then it also boost the small taxpayers. Under GST SMSE's(Small medium sector enterprises) will got some benefits like the small taxpayers whose turn over is Rs.20 lakh (Rs. 10 Lakh for Northern- Eastern region, Sikkim, Uttranchal, Himachal Pradesh) need not to register under the GST regime.

Major Impacts of GST

Improving the govt. tax structure and services
Lowers the corruption or red tapism
Generate more employments which is most demanding and challenging part.

How do we become more developed? Answer is simple - by removing poverty. But after the 1947 political freedom, our policies, our govt., our administration is unable to bring that reforms. That's why present govt. use the slogan of ''Sabka Sath Sabka Vikas''. Becuase govt. has realised that removing poverty from India is not their cup of tea alone. The majority of people have to come forward and bring a reforms regarding this context.

So next question is how we can remove poverty? Again answer is very simple- by generating skills, giving proper training and bringing a manufacturing revolution. But most of our entrepreneurs doesn't want to setup a factories in India due to the complex taxation system. Apparel manufacturers will like to setup their factories in Bangladesh (already have GST structure) rather than India. Flipkart itself had their HQ in Singapore due to land acquisitions problems.

With the advent of GST it will create more factories ---- create more business ---- create more jobs ---- create more competition in the market ---- create more taxes to government ---- create more revenues ---- hence lower the prices ---- lower the bank rates for micropreneur.

Simply saying when govt. create more money through GST then it left with only two options. First to have less other tax rates or to create more services. That's how an economic cycle work. It will also create more transparency in the taxation system which automatic lead to lower the corruption in the system.