GST (Goods and Services Tax in India) – Essay 1
GST (Goods and Services Tax in India) is a mode of indirect tax that was introduced in India to replace some of the other forms of taxes that existed in the country. GST tax is very beneficial in a lot of ways as it helps to reduce the cascading effect of tax.
GST has been evaluated on the basis of whether the benefits outweigh the negative effects so as to establish whether it is an effective tax system. Its impacts on the economy are massive making it not only be adopted in India but also be adopted in other countries around the world.
The GST tax system came into effect in 1st July 2017 after an Act of Parliament was passed in the Indian parliament on the 29th of March 2017. The tax system operates in a manner that it is very wide in coverage, it is multistage in terms of the points of sale where it is levied, and it is also charged every time value is added to a product after being passed from one stage to the next. GST tax system can also be defined as the type of tax that is charged during the process of supplying goods and services. As it came into effect so as to replace other indirect tax systems in India, it can also be described as a singular indirect tax that would be applied in the whole country. The GST tax system will also see taxes being charged on every point that a sale is made. It will be applied to the sales that take place within the confines of a state (intra-state sales) and also to the sales that take place between different states (inter-state sales).
- It is a multi-stage tax system. Goods and services pass through various stages from the point of production to the point where they reach the final consumer. GST is a multi-stage tax in that it is charged in each of these stages that is, from the purchase of raw materials, the production process, the storage process, the point of sale to wholesalers, the point of sale to retailers and finally the point of sale to the final consumer.
- Charged on every value addition. A good or service increase in value as it is passed from the manufacturer to the consumer. A manufacturer will transform raw materials to finished goods increasing their value and a wholesaler and retailer will also increase value through the packaging process. Value addition occurs when a monetary value is added to the good or service and when the value is added, that is when the GST tax is levied.
- It is also a destination based tax. This means that the tax will be charged at the point where it gets to the final consumer. For example, if a good is produced in state A and sold to state B, GST tax revenues will go to state B which is the point of consumption for the good.
- The GST tax system also comprises of three types of taxes. One is the CGST tax where the revenues go to the central government on the sales that take place within a state. The other is the SGST where the revenues go to the state government for the sales that take place within a state while the last is the IGST tax where the revenues go to the central government for the sales that take place between different states.
- This tax also removes the cascading effect of tax. This happens at the point of sale of goods and services and it is an effect that helps to reduce the costs of goods and services.
Impact on Economy
- The GST tax helps to reduce the tax burden that is born by the manufacturer and producers. This is because the tax is well distributed throughout the various stages and every person in the supply chain gets to share in the burden. This is an aspect that helps to encourage production and manufacturing and hence boosting the economy.
- GST is also a tax that helps to increase the government revenues. This is because various taxes are charged at various stages and this helps to increase the tax base. An increase in government revenues helps the government to have more money that will help the economy.
- GST tax may also leads to reduced costs of goods and services. This is through the elimination of the cascading effect of tax. Reduced cost of goods and services helps to boost the economy through improved living standards of the people.
- GST tax system is one that was implemented in the middle of a financial year. This made it hard for all the people that are involved in the supply chain process to adjust to the system.
- Another problem that this tax system faces is that it contributes to increased manpower cost of maintaining business accounts. This is the costs that businesses will incur in the process of changing their accounts and software to match the GST system.
Advantages of the GST tax system
- It is through the GST tax system that the cost of goods and services is reduced. This through the elimination of the cascading effect of tax.
- The GST tax system also helps to encourage production.
- GST also helps to simplify the tax system. This is because it helps to get rid of multiple taxes which are a factor that complicates the tax system making it hard for people to comprehend.
- GST tax also helps to boost the economy of India through the many advantages that it provides.
- The reduced cost of goods and services that is brought by GST tax will help to increase the demand of goods and services and consecutively consumption.
The GST is a type of tax that complements most of the indirect taxes in a country. It forms one indirect tax that is levied during various points of sale in the country. There are numerous benefits associated with the GST tax system with the main one being the impact that it has on the Indian economy. It is also a tax system that will increase government revenues. This is through the expansion of the tax base where the tax is widely distributed through various people.