Implementation of GST in India is a historic decision that is both appreciated and criticized by different sections of economists and taxpayers. There is criticism about the method of implementation, rules, framework, etc. and there is appreciation about the use of technology, transparency, and the law itself. When it comes to a favorable opinion among the majority, it is all about GST payment system, the seamless GST portal, and the tax slabs on different goods and services. But to analyze the actual impact of GST on businesses and the Indian economy, there needs to be a more in-depth look at a broad spectrum of issues.
Impact on Businesses:
One of the most significant changes GST has brought is the periodic filing of tax returns for every registered business and individual. Under the GST regime, a registered company or a taxpayer should file three monthly returns and should submit one tax return annually. If the business is running in multiple states, then there will be a requirement to file numerous forms related to that state. If you are a large business that manages business across the country, then you will have to register for all the 31 states and union territories. For every state registration, you will need to file three tax returns every month. The overall forms to be submitted for each state will be 37. Adding up all 31 states and union territories and multiplying with three monthly tax returns and an annual tax return for each. The total forms a large business will have to submit will come up to around a massive 1147 forms. It not only creates enormous logistics costs but also becomes a hurdle for running a business smoothly.
Effect of Irregularities and changes in GST:
Goods and Services Tax is a very complicated tax regime. Since its implementation, there are about 800 changes made to the original tax law. These changes are made by the GST council that is responsible for all crucial decisions regarding this tax regime. Because there are frequent changes, proper implementation becomes difficult. Taxpayers and businesses struggle to keep up with the changes and often make mistakes, which put them in the non-compliant bracket under this law. There is a considerable increase in the business of chartered accountants and other accounting professionals because average taxpayers and even established companies find it challenging to understand and remain compliant with the continuous changes that have been happening to this law. Businesses or individual taxpayers who have tried to manage taxes on their own are often unsuccessful in following all the rules.
Paradoxical structure – Input Tax Credit:
Under GST, businesses with a turnover below Rs. 40 lakh are exempted from paying taxes. It is mainly to help the growth of cottage industries or small industries. There is an option for businesses with a turnover of Rs. 40 Lakh Rupees to 1.5 Crore Rupees to avail simplified scheme. It creates a somewhat paradoxical problem because it is in tandem with the Input Tax Credit present in the Value Added Tax.
The Input Tax Credit allows registered firms or large businesses to claim the credit on the amount paid on the purchase of services and goods. It creates a chain system, where suppliers on all stages trade with only those who can claim the input tax credit. As small businesses cannot avail Input Tax Credit, the supplier chooses to avoid doing business when they and instead choose to conduct business with more prominent companies from where they can claim Input Tax Credit.
It created more demand for larger companies, and business became difficult for smaller businesses. The main reason for a higher demand for bigger businesses is that suppliers can claim an input tax credit that will lower the overall cost of goods and services. The large firms can supply products at cheaper rates, whereas a supplier will have to pay more for trading with the small firms because of the reverse charge mechanism.
Because of the paradoxical nature of this system, the majority of traders moved from dealing with small businesses to larger firms creating a burden on small businesses. Overall the mechanism to help small firms by exempting them from taxes and other rules connected with that, in turn, created more burden for small businesses and made it difficult for them to conduct business.
Impact on Economy:
Since the past few years, the Indian economy is struggling to keep up with the growth rate of world economies. An estimation is that, because of the overall global negative growth, oil prices, changes in the dynamics of businesses, financial stress, issues with job creation and other factors contributed to the negative effect on the growth of the Indian economy. A large section of experts differs on the impact of GST on the Indian economy.
Negative Impact: The negative impact because of GST that is expressed by some experts is related to the inflation rate, monthly GDP growth rate, etc. The inflation rate is the devaluation of the money, caused by a permanent increase in the price level of Goods and Services is associated with the implementation of GST. Another negative impact on the economy is the indirect tax on consumers that creates an inelastic tax burden on the consumer. Also, the tax slabs on different commodities are said to be higher than compared to the other countries that have implemented GST.
Positive Impact: Experts who see the impact of GST as positive on the Indian economy debate that there is a significant increase of Foreign Investments in India. As GST made India into a single market of 2.6 trillion dollar economy with a population of 1.3 billion, there are reduced costs, and this creates India compete with international markets. There is a boost in business because of lower prices and more production, which helps cater to consumers of all financial levels. Transparency in business is said to have a positive impact on the Indian economy because there is a better collection of taxes that would otherwise be evaded easily in the previous tax regime. The manufacturing and technology sector saw a significant change, and some sections hold GST responsible for this growth.
GST in India replaced 17 indirect taxes into one single tax. Though the actual impact on the economy is still very complex to comprehend, it is easy with which a taxpayer can file returns and pay taxes online that is one change that is appreciated by one and all. The information all about GST payment can be availed from the GST portal along with updates and amendments about GST law that will help you understand the law and overall impact on the economy in a more precise manner.