Open Access Research Article
IMPACT OF GST LAWS ON INDIAN ECONOMY: ISSUES AND CHALLENGES
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AUTHORED BY - SAMAARA WHIG
I.
Introduction
In the changing of economic scenario globalization, liberalization and
privatization, policy of the Government, in the recent time have made an
ineligible impact by bringing into existence of new economic and indirect tax
system in the country. In the 20th century of globalization, the
wind was blown to swept across the World, embraced all World including those
country which were either to be considered as conservative and communist as
Rule by the Governmentregimes policies. In the opening of domestic economies to
World-wide stake holders has led to a number of chances of opportunity to
participate country along with the threat of being exploited by the counter
parts. So, in the race of economies to grab financial benefits to the maximum
possibility to the extent of fulfill the desired requirements. At what extent
we are able to exploit the economic and financial benefits depends upon the
extent, are able to create an environmental congenial for such deeds or
activities. It is a imperative for every country to analyze the contemporary
situation and determine and forecast the expectations of the globe economic
environment, to ascertain the demands to be fulfilled and frame the necessary
policies to meet out the demands of the globalize countries and suitable oneself
to exploit the chances to attain economic growth and thereby achieve all
development of the country.
The globe system of taxation has attained the position of the existing
system of taxation, which are convertible to make it suitable or acceptable, effective
and efficient. The journey of restructuring the tax system has been going to
make it more and more meaningful when innovation and developments in the
information and communication techniques have made the tax system more
effective, objective, subjective and transparent. The innovation and
developments techniques used in the contemporary model of business,
globalization and liberalization policy adopted by the globe to emergence of
MSME’s as lead player and successful to increase the international trade have
contributed in making the tax system, a complex one.
In the past several years,our country has formulated an attractive and
dynamic investment destination and has witnessed to increase presence of
multinational enterprises and in a resultant to increase the international
trade. This situation has given an opportunity to the State of our country, to
customize and develop the taxation system which is competitive to the other
country. The change of the economic policy has been incepting from the year
1991, where a Government efforts has started to reach at this destination.
Along with the change of economic policy, the country needs to change the
taxation policy to modify the whole system. The Government of our country has
made many changes in the indirect taxation system, which was very much
complicated and regulated and controlled in a federal way. According to the
Constitution of India, there were several tax regime, enacted by the Union
Government and other are by the State Government the restructure and
replacement policies of the indirect tax system has been started from the year
2000 and country has made a replacement of old Goods Sales Tax Act by
introducing the VAT system in the year 2004 by the recommendation of
EmpoweredCommittee and remaining indirect tax structure was same. From the long
journey, the Union Government of India has a dream for attaining
simplification, harmonized, uniformity and avoids the cascading effect of tax
in the value of transaction to meet out the globalization in the indirect
system of the country. In the year 2016, the Union Government has attain the
goal of dreams, which the Government has in the past, to amend the Constitution
of India through amendment (One Hundred and First Amendment) a great reform in
the World to replace and sub-summed of indirect taxes by enactment of new
indirect taxation system regime i.e. Goods and Service Tax law by introduce of
new act of GST-CGST Act, SGST/ UGST, IGST and Compensation Cess Act w.e.f. 1st
July, 2017.
From the change of indirect tax system in India, it is naturally some
impacts have on the Indian economy due to introduction of GST law. These impact
may be short term, long term, favorable and unfavorable on the Indian economy.
To further, study the secretarial impact on Indian Economy such are
agriculture, manufacture, services, finance, FMGC, Telecommunication,
infrastructure, Export & Import, Logistic etc. We are going to elaborate
these impacts one by one. In this chapter, we have also studied the issues and
challenges before the Indian economy by impact on introduction of Goods and Service
Tax Law.
II.
Impact of
GST Law
Before implementation of Goods and Services Tax Law, the indirect tax
regime was in the country. The Central Government levy, manufacture of goods
inform of Central Excise Duty, Service Tax and Central SalesTax etc. Similarly,
the State Government levy tax on inform of Value Added Tax, Entry Tax, Luxury
Tax and Purchase Tax etc. There is a multiplicity of the taxes which are being
levied on the same supply chain. The present tax system on goods and services
in facing certain difficulty and deficiency as under:-
137There is cascading tax as
tax levied by the Central Government or not available as set of against the
taxes being leveled by the State Government.
138Certain taxes levied by the
State Government are not allowed as set for payment of other taxes being levied
by them.
139The Varity of Value Added
Tax Law in the country with disparate tax rate and dis- similar tax practices
divided the country into separate economic sphere and
140The creation of tariff and
non-tariff and barrier such as a octrai, entry tax, check post etc., hinder the
free flow of trade throat the country. Inside that, the large number of tax of
the country tax create high compliance cost for the tax payers in the form of,
number of return, payment and etc. In view of above difficulties are all above
mentioned taxes are propose to be subsumed in a large tax called the Goods and
Services Tax which will be levied on supply of goods or services or both at
each State of supply chain starting from the manufacture or import till the
last retain level. So, any tax that is presently being levied by the Central
Government and State Government on the supply of the goods or services is going
to be converged in Goods and Services Tax which is proposed to be a dual levy
where the Central Government levy and collect tax in the form of Central Goods
and Services Tax and this State Government is levy and collected the tax in the
form of State Goods and Services Tax or intra-State supply of goods or services
or both.In view of above, it has become necessary to have a Central Legislation
namely Central Goods and Service Tax Bill, 2017. The proposed legislation will
confer power upon the Central Government for livingGoods and Services Tax on
the supply of goods or services or both which take place within a State. The
proposed legislation will simplify and harmonized indirect regime in the
country. It is expected to reduce the cost of production and inflation in the
economy. There by making the Indian trade and industry more competitive, domestically
as well as internationally. Due to seamless transfer of input tax credit for
one State to other in the chain of value addition, there is an inbuilt
mechanism in the design of Goods and Services Tax that would incentive voice
compliance by tax payers. The proposed Goods and Service Tax will broaden the
tax based and reach in the better tax compliance due to robust information
technology infrastructure.
The Central Goods and Service Bill, 2017 inter-alia, provide for the
following namely:-
1)
To levy tax on all intra-State supplies of
goods or services or both except supply of alcoholic liquor human consumption
at a rate to be notified, not exceeding 20% as recommendation Goods and Service
Tax Council, (the Council)
2)
To broad base be input tax credit by making
it available [1]in
respect of taxes paid on any supply of goods or services or both used or
intended to be used in the course or furtherance,
3)
To impose obligation on electronic commerce
operators to collect tax, sources at such rate not exceeding 1% of the net
value of taxable supplies, out of the payments to supplying goods or services
through their portals.
4)
To provide for self-assessment of the taxes
payable by the registered person.
5)
To provide for conduct of audit of register
persons in order to verify compliance with the provision of the Act,
1)
To provide for recovery of arrear of taxes
using various modes including detaining and sale of goods, movable or immovable
property, defaulting taxable person.
2)
To provide for powers of inspection, search,
seizure and arrest to the officer
3)
To establish the Goods and Services Tax
Tribunal by the Central Government for hearing appeals against the order passed
by the Appellate Authority or Revisional Authority
4)
To make a provision for penalty for
contravention provision of the proposed legislative
5)
To provide for an anti-profiteering in order
to ensure that business passes on the benefits of reduce tax incidence on
goods, all services or both to the consumer and to provide for elaborate
transitional provision for smooth transition of existing tax payer to goods and
services regime.
The new tax reform was introduced in the country w.e.f. 1st
July, 2017, in inform of Goods and Services Tax Law to meet goal of one tax,
one nation and one market in the country. The primary object of this regime is
to attain the uniformity, ceased the cascading effect and applies harmonized
tax rates structure in the country to remove the cumbersome in the inter-State
trade and to complete with other country of the globe regarding import and
export. The new tax reform and with the change of tax regime in the country, It
was natural there will be some impact on the economy of the country whether
favourable or unfavourable and short term and long term by the implementation
of new indirect tax i.e. Goods and Service Tax Law.
The introduction of GST law will impact on the Indian economy, we are
classified the impact of GST law in the following manner and mechanism, as
described for the common nature of the impact in the all industry and service
provider in the country.
III.
Favourable
Impact of GST Law
The long term impact of GST law on Indian economy[2]
is defined as the impact which are affect the economy for the long term or over
a lapse of some period after implementation of GST law. The long term impact on
the industry and services in the country are that lower rate of tax, minimum
slab, reform in Indian economy, RNR (Revenue Neutral Rate) may revise, positive
impact on medium terms, removal of, cascading effect, rationalization or
harmonize tax rate and uniformity of tax rate all over the country.
From the above, we are further defining the common general impact on
Indian economy of introduction of Goods and Service Laws, which describesas
under:-
i.
Simplify
of Tax Procedure
Before the introduction of GST law, the numerous of indirect tax regime
were implemented in the country. These regimes were introduced control by the
Central and State Government. The primary tax regime relates to the goods and
services are Value Added Tax, Central Excise Duty and Service Tax. The Value
Added Tax regime was controlled by the State and the procedure to implement the
Value Added Tax was developed and implemented by the different States in the
country. There are so many complications regarding the procedure of compliance
of the tax law due to variety of the system adopted by each State. In case of
Central Excise, has own procedure for compliance of Central Excise Duty
regulated by the Central Government and lastly the service tax had also its own
infrastructure, for the harmonious reading from the three tax regime it is
important to define that each tax regime has own procedure of compliance which
was most complicated and tax payers are not able to comply with and there is
more complexity in adopting the procedure in the previous indirect tax regime.
At the time of introduction of Goods and Services Tax Law in the country
in the mid of July, 2017,there is no any doubt regarding the Acts implemented
in number four i.e. CGST Act, SGST Act or UTGST Act, IGST Act and Compensation
Act. But, the compliance of all Acts is same and one. The Central Government
has created non-profit organization to simplify the procedure of compliance
with the GST law in all Acts known as GSTIN network which is amended and
updated by the need of requirement time to time to simplify the procedure of
GST law and the Central Government has created one portal in the country to
comply with the procedure of GST law.
In the implementation of GST law, the Centre Government has inserted the
provision regarding the simplify procedure of compliance of law i.e.
registration, define under Section 22 of CGST Act means1091 a single registration
prescribed under the all Acts and threshold limit is fixed. The next
simplification is regarding tax invoices and its debit and credit notes is
explains in the section 31 of the CGST Act states for issuance of invoice
within prescribed period showing prescribed particulars for goods or supplies
for the taxable person. The Central Government has further simplified, to file
the periodical return in a common portal is defined in under section 39. The
payment procedure has also simplified there is no requirement of separate
challan for payment of State and Centre Tax and it is defined in under section
49 of CGST Act.
From the above expression and explanation that under the GST law, the
procedure to comply with the law are very simple and centralized by the both
Government and there is no need to go another site except Goods and Service Law
site whereas, in the previous tax regime every tax system has on infrastructure
which was very tedious and cumbersome but in case of present law the procedure
is very simple and customize according to the requirement of the time. The
simplify procedure will be helpful for the betterment of economy of the
country.
ii.
Harmonize
the Indirect Tax Regime
When the goods and service law was not implemented in the country, the
old Indirect Tax System was applied which are primarily divided into goods and
services, as regards to the goods there are two main tax regime was implemented
i.e. VAT and Central Excise Duty for the services only Service Tax Act. The
rates were determined in the VAT regime by the classification of goods in
scheduled which were part of the Act. The main threshold was given regarding the
paying capacity of the tax payers, some goods were fall in the category of the
tax free goods which were includes the promote and encourage the specific
sector and specific category of the people who are living in the country. The
second scheduled includes the goods that are essential for human being and
third are categorize are luxuries goods. The last classification goods has high
rate of tax as compare to the former. In case of, Central Excise Duty, the
classification of the goods determines the rate of tax in two scheduled one and
two. And rate of Excise Duty were levied according to the schedule. In case of
service tax the one rate of tax was implemented on the taxable services. In the
old system, there is no harmonization and uniformity of rate of tax structure.
The variation of rate of tax was very common.
The tax rate is determined and finalized by the GST Council the
provision of tax rate is prescribed under section 9(1) of CGST Act regarding
the rate of tax and section 5(1)1097 of ICGST Act for rate of tax inter-State
transaction.
In case of present goods and service law, it is a first feature of GST
law to implement and levy harmonize tax rate structure. The uniformity and
rationalizationof rate of tax is the priority of the Government and the goods
are classified by adopting by the international classification of goods law
which are specified in the Custom Tariff Acts. The all State in case of State
and Centre has a uniformity and rationalization tax whereas in the former tax
regime it was not possible. The principal adopted in the rate of tax is more
uniform, rational and harmonious. The harmonious rate structure of GST law has
positive impact on the economy of the country and at the time of introduction
of GST law. The view of tax expert and organization that in the implementation
will be helpful to increase the GDP and betterment for economy.
iii.
Reduce the Cost of Production
The introduction of GST will help to reduce the cost of production which
will be beneficial for the economy of the country. In the old regime indirect
tax some part of the tax was include the price or cost of the goods such are
Central Excise Duty, Entry Tax, infrastructure development tax and central tax
which were not adjustable in the price of the goods. The non-adjustment of the
tax was resultant to increase cost of the goods, which were necessary for the
production industry. The raw material which was used by the manufacture
industry was included element of tax and other many tax which were imposed by
everyStatein the movement of the goods. In brief we can say that price of raw
material include the element of tax in the price which is not adjustable
against the local tax on goods. Hence, the cost of production was higher.
The valuation of supply of goods or services or both is determined
according to the section 15 of the CGST Act, 2017 is contains1098 that the section apply to
both goodsor services supplied for purpose of valuation of taxable supply. The
consideration is quid pro quo in a contact and price is the consideration
expressed in money terms. Value is the price agreed at when a transaction take
place although contained in the CGST Act, the valuation of method provide in
the section apply on the all acts on GST law. There are two conditions for
transaction value to be price paid or payable are, transaction in between
person not related and price being the sole consideration.
In the implementation of new tax regime, every tax which is imposed by
the State and Central Government in the intra-State and inter-State trade is
eligible for adjustment of tax inform of input tax credit against the price of
the goods or services or both. Therefore, the cost of production is lower as
comparison to former tax regime. When cost of production is reduce, it will be
helpful to increase the production of the goods and helpful to generate the
more economic activity and effect on the Indian economy. At last in the present
system in the cost production is reduced as compare to previous which will be
helpful and favourable impact on the Indian economy.
iv.
More Competitive
At the time of implementation of GST regime, it was opinion of the tax
expert and different organization that with implementation of GST law there
will be more competition in the manufacturing, traders and service sector. In
the previous tax regime due to complicity and hindrances regarding the tax
regime, the industry and service sector was not able to compete the
international and national. In all regime was lack of clarity and different
method were adopted the valuation of the goods under the Value Added Tax Act
and Central Excise Duty and in service sector was also has a different method
for valuation of the services in the service sector. Hence, the business
organization and service sector was not able to compete in the market
nationally and internationally.
The place and time is defined in Central Goods and Service Tax Act. The
section 12 is the basic provision which deal the time of supply of goods or
services or both. Under section 12(1) and (2) defined as “section regarding the
time of supply of goods or service or both.
In the present system, the place, time and valuation are defined as
under the GST law and uniform system of valuation is applied on the goods or
services or both. The scope and levy of GST is well defined and each and every
circumstances and events are deals and the legal and dynamic procedure is
defined for the valuation of the goods. Under the Goods and Service Tax Law,
there is no confusion or doubt regarding the valuation of the goods and
services or both. Being a uniformity, rationalization and harmonization in the
rate structure and uniform procedure are adopted the valuation which is very
crystal clear and beyond the doubts. Hence, the industry and service sector are
able to understand the valuation without any confusion which will be more
beneficial and helpful in the development of the economy of the country. Hence,
our business organization and service sector are in a position to compete
national and international market. It is a favorable for the country economy.
Seamless Transfer of Input Credit
Seamless transfer of input credit is a favorable impact on the Indian
economy. Before the enactment of the goods and service law, there were separate
rule and regulation framed regarding the transfer of input tax credit against
the output tax or output liability. The law was regulated by the different
statute and there weremuch impunity in the law. In case of VAT Tax regime, the
transfer of input law made by the each State which has own system and lack of
uniformity and acceptability. In case of Central Excise Duty, there was a
provision regarding the adjustment of Central Excise Duty and made own rule
regarding the CENVAT time to time. In case of service tax, it has own law and
regulation in the adjustment of input tax credit maximum services were not able
to eligible for input tax credit. Due to non-corporation and uniformity, the
law regarding input tax credit was not conversant and update according to the
demand of time.
In the present tax regime, there is a mechanism regarding the input tax
credit and that credit is available for the goods or services or both in
uniform basis. The input tax means that a tax which has paid by the taxable person at the
time of receipt of supply of goods or service or both except composition supply
and the input tax credit means the credit of input tax. Under the GST law,
there are three stages defined regarding the input tax credit, in proviso
mentioned in the Act that how the input tax credit is determined, next apportionment
of input tax credit and distribution of input tax credit. The clear proviso is
provided regarding the denial of input tax credit. In the GST network, there is
provision regarding the automatic tally of input tax credit from provided
supply of goods or services or both. Hence, a speedy and automatic provision of
adjustment is provided under the GST law. Therefore, there is seamless transfer
of input tax credit which will be resultant for more beneficial for the economy
of the country because stake holder of GST law has speedy recovery of input tax
credit and avoid the unnecessary payment of tax against the output liability.
CONCLUSION
The road map of or Goods and Service
Tax Law was indicated in February 2007 with the primarily object for destination
based GST in the country in the year 2010. The several Committees were
constituted for preparation of GST law namely Empowered Committee, Finance
Committee, under the Chairmanship of Finance Minister of India. The mainly
object of these committee to study regarding the scope of existing tax system
governed and regulate by the Centre and State. In November, 2007, a joint
working group consisting of presentation of the Empower Committee and prepare a
report for change over from hold tax regime into GST law. The model and road
map was prepared by the committee in the year, 2008.While recommended the road
map of new tax system it was decided in the beginning that new system was on
the basis of dual tax system and regulate in the federal system of India. Before
reached in such conclusion the consultation with the all States were taken into
consideration regarding several others object regarding GST. After that several
meeting and discussion were take place between the Central Government and State
Government and first discussion paper was prepared on Goods and Service Tax in
India in November, 2009. The paper had detail regarding the nature, tax to
subsumed, provision of compensation of inter-State trade transaction, treatment
of area based scheme, and additional step required to be taken, it however does
not any provision or guides regarding the revenue neutral rate which needed to
be adopted at the Central and State level and regarding the modality of the
implementation of tax.
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Article Information
IMPACT OF GST LAWS ON INDIAN ECONOMY: ISSUES AND CHALLENGES
Authors: SAMAARA WHIG
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/05/03
- Issue 7
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International Journal for Legal Research and Analysis
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- ISSN 2582-6433
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