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Read Current Affairs Topic: GST: A Boon or Bane
The midnight of July 1, 2017, was a historic moment in the Indian economic history when the multitudes of indirect taxes were merged into one Goods and Service tax (GST). The earlier date conceived for the implementation of GST was April 1, 2010 but the lack of consensus among the states led to the delay of more than seven years in implementations. With the GST, India has been unified into a one common market.
Expected Benefits of GST
The government launched GST with much fanfare expecting following benefits to accrue:
- GST would eliminate the cascading effect of taxes in the production and distribution of supply chain, which would eventually improve the competitiveness and bring down the prices.
- Fall in prices will assist in bringing down the inflation rate.
- With the increased compliance and widening of base, GST would increase the revenue.
- GST regime will introduce transparency in the indirect taxes framework.
- GST on exported goods and services will be refunded. It was not possible in the erstwhile regime due to the fragmented nature of indirect taxes between the centre and states.
- GST will synergise the indirect tax laws across the states.
Merely 100 days have passed since the implementation of GST and it is too early to predict its real impact on the economy and to decide whether it is a boon or bane for the people of the country. However, as expected, a wave of discontent is being felt among the various sections of the society, which are being called as teething troubles by the experts. Nevertheless, as the elections in Gujarat are due later this year, government tweaked some rules under GST for the cause of small businesses.
Some of the so called teething troubles faced by the businesses during the first hundred days are as under:
- The infrastructure placed by the government for the filing of GST was not adequate to handle the filing of tax returns. The Goods and Services Tax Network (GSTN) portal often got clogged with multiple applications and for small businesses which lacks technology, GST increased the cost of compliance.
- Exporters were also hit to the tune of INR650 billion due to the pending refunds. The locking up of working capital in the form of GST affected the competitiveness of exporters.
- Ambiguities on input tax credit on input services related to immovable property also created confusion. For instance if a business traveller will get refund for his stay in hotel only if hotel is located in the same state where the company is registered. If hotel is located in another state, there will be no refund on input tax credit.
- In the erstwhile regime, several companies have announced benefits to the businesses in the form VAT exemption. There is no such provision under GST.
- During the months preceding the GST implementation, many businesses tried to de-stock the inventory which resulted in the business activity eventually impacting the GDP growth numbers.
- Because of the initial problems faced by the businesses, the Business Confidence Index dropped by 13.3 basis points to 72.1 in July 2017 as compared to July 2016.
The initial hiccups witnessed by the industry after GST implementation was expected by the government as well as industry itself. The tweaking of GST policy will continue for a year or so to tackle the many unforeseen challenges emerging from the switchover. Although government claimed that the so called teething troubles will disappear after two months experts believe that businesses will continue to face the hurdles till the end of current financial year i.e. March 31, 2018.
Malaysia and Australia too witnessed decline in growth and similar hiccups after implementing the GST. Even the initial GST collection of INR900 billion reported from the first two months is not real and may drop when the real figure emerges in February/ March 2018. The concrete effects of GST are expected to emerge only after a full financial year is passed that is after March 2019. Till then, it is unjustifiable to call GST either an unprecedented success or an utter failure.
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