Impact Of GST On Indian Economy – WAT Wednesdays

Welcome to Week 4 of WAT Wednesdays!

To view and comment on previous weeks’ topics, please click here.

The Consitution Bill, 2014 proposed a Value Added Tax to be implemented in India by July 1st, 2017. How would it impact the Indian Economy? Tell us your views in the comments below and get evaluated for the same.

Write an essay on it and let us help you get better at it.

This is how it will work:

1) Users can post their essays in the comments section below by logging in through their www.insideiim.com User id.

2) You can write your essay on the topic for the entire week. You can even challenge your friends and make it more interesting!

3) The thread will be moderated by Team InsideIIM to ensure the discussion is kept relevant and is not abusive.

4) On Saturday, experts and industry professionals at InsideIIM (all ex-IIM, XLRI, MICA only) will rate each essay on the thread on the scale of 10 with some guidance.

This exercise may not replace the practice that you may need daily to master WAT but it will definitely help you to shape your line of thought. We will ensure that if you go through these next few weeks with us on this thread you will markedly improve your content. Hopefully, there will be more substance when you actually write an essay/WAT after going through this exercise.

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Comments

17 comments

Chetan Agarwal

GST for the Indian economy would come as a catalyst. Since our economy is already booming, GST would further take it to new levels. Implementing the GST will remove lots of red tape and will allow swift movement of documents; GST suggests that only one tax will be levied as indirect tax hence removing all other indirect taxes. This move will not only increase the government earnings as more people will apply for this since this system is much easier than the previous ones but also will be a boost to the economy since reducing paperwork and legal obligations will encourage people to further open new businesses. GST will surely attract foreign investments too.

As a whole, implementing GST will be a blessing for the Indian economy as it will make the underlay much stronger and comprehensive.

Team Insideiim

5.5/10 – In a WAT, you need to be more structured and thorough unlike a GD. Although you make some decent points here, it is not back by data nor is there a coherent structure to the writing. For a topic where so much information is available online, you have added precious little.

prachi sopariwala

Impact of GST on Indian economy has been a bone of contention between those vociferously opposing it and the others who are espousing it’s cause.Just like any other decision ,implementation of GST has its fair share of advantages and disadvantages.
First,By following the Revenue Neutral Rate(RNR) of 18% , sectors like automobile , FMCG and home building,which currently pays effective tax rate of 24%, will be positively affected.

prachi sopariwala

Contd…
Second , it will simplify the tax structure by eliminating system of parallel tax payment at state and central levels.
On the negative front , current effective tax rate on services like hospitality is 15% , which would increase to 18% ,thereby increasing tax burden of consumers.It means that GST can dampen the GDP. By reducing consumption power.
All in all , proper tax structure and effective implementation will act as a deciding factor for success of GST .

Team Insideiim

5.5/10 – Everything said to Chetan applies to you as well. In a WAT you need to be more comprehensive in terms of points covered. Effect of rates is just one of the many issues around GST.

Omkar Shukla

Due to the current taxation system in place, India, instead of being a single economic entity is economically fragmented. The GST plans to tackle this system and simplify the tax collection by collecting it only at the location of consumption. This simplification and transparency in taxation should act as a deterrent for governments from increasing taxes. It will also help solve the problems of corruption and delays at each level. And when that happens, economies prosper. It will also help the government keep track of taxations as it will be easier to find out who did not pay.

Second, once tax barriers between states are removed, we as consumers will not end up paying “tax on tax” which is what happens when goods move across state borders as states treat the incoming goods as “imports” currently. This will help a lot of sectors such as FMCGs/E-Commerce as they can reduce the logistics and distribution costs as goods can now move freely across the state borders. The introduction of GST would also make Indian products competitive in the domestic and international markets, thus promoting “Make in India”.

However, products such as alcohol, tobacco, petro products are excluded from GST. For these products, double taxation will not be removed. Many businesses rely on these. The aviation industry is also likely to suffer as the current service tax is charged 6%-9%. With GST, it is expected to be about 15%, if not more. Thus doubling the tax and effectively making it costly to fly. GST, as proposed, is a destination-based tax, which means that the tax collected will go to the state in which the goods are consumed instead of the state where it is produced. This offers no incentive for states to promote to set up more industries.

In its essence, “proper” implementation GST can be a game changer for the economy, proper being the operative keyword here.

Team Insideiim

6.5/10 – Although you have done better than the previous writers in terms of points covered, structure is still a problem. There is also lack of data to make your arguments stronger.

Sanchali Hoare

GST: Such an innocuous acronym for something that has been hogging more print space than any singular event (save demonetization) for the year gone by. I have struggled to understand why a difference in the indirect taxation regime would set so many tongues wagging and bring together querulous state parties. This is what I deciphered.
Say a shirt manufacturer procures raw material for Rs100 out of which Rs10 is tax. He adds value to it and sells the finished product to the wholesaler at Rs130. The wholesaler buys the shirt at Rs143 (130 + 10% tax). This chain of tax-on-tax continues till the final consumer, thus massively inflating the cumulative tax paid. Under GST the tax at each stage shall be offset by the tax paid at the previous stage thereby integrating everything into one single tax component.
Tax-on-tax shall be done away with to make place for tax on value addition ONLY. Now let us look at what this means for the economy as a whole:
• States: Manufacturing states like Karnataka and Tamil Nadu fear imminent loss of revenue. This is because unlike VAT, which is an origin-based tax, GST is a destination-based tax, meaning the state where the product is finally consumed gets the tax. In view of this, Centre has promised to underwrite all losses for the first 5 years of GST implementation from such states
• Consumers: Standard GST rate is probably going to 18% which is markedly lesser than the overall indirect tax rate for MOST goods. However, for some goods like textiles and edible oil, where VAT was nil earlier, GST is going to 8-9%
There are numerous sticky spots which need to be dealt with and numerous parties to be appeased which explains the revised and ‘more realistic’ deadline of July 1. All we can do is wait for 5 more months to see how one of the most disruptive tax amendments is implemented!

Team Insideiim

7/10 – Well articulated and thanks for trying to explain some of the core issues that GST tries to solve around cascading effects of current taxation system. Well structured arguments around impact on States and Consumers and the sticky issues in the implementation. Although better than all previous writers in every possible way, you still could have added more points. But you’re doing well.

Sakshi Kochar

In India, idea of GST was first brought to discussion by Atal Bihari Vajpayee’s government in year 2000. Since then the relevance of bringing this single tax regime has been debated multiple times.
If we look at the current status of indirect taxation there are so many of these taxes which results in multiple problems faced by the business community. For example – multiple taxation on single item by states and the centre , maintaining separate documents for different taxes, managing the complexity which arises and also getting tax credit for all the taxes due to multiplicity of taxes. On part of consumer, there is no transparency as what all taxes s/he is paying on the Base amount. On the part of government the entire system provides many loopholes for tax evaders.
Looking at this entire scenario, many see GST as an effective solution.
The benefits envisaged through GST are:
– More funds with government for development as tax Base increases
– Simplified tax structure for buainess people
– Availability of more tax credit helping businesses meet their credit needs
– Prices of many essential commodities is expected to reduce
– Transparency in th system due to dual governance at state and centre level

More than significance of implementing GST, the challenges we see are the final design it will have and how it will be implemented. Proposed multiple slab system though critisized hy many seem to take care of various elements of Indian economy. While we may not have a perfect start. One must understand the process of change in such complex system. Where we do and learn and change dor better. GST is the need of the hour to simplify the way we do business. We must start and see how it evolves rather than expeting a perfect system at start.

Team Insideiim

7.5/10 – Well done. Good summary of the GST and its impact. However, data to back claims like tax base will increase (or how low it is currently) would have helped in making your essay complete in all respects. You have covered origin, the logic, the impact and the issues in the implementation – which is great.

Debashish Mishra

The Good and Service TAX is currently being seen as a giant leap toward One Nation One Tax policy of the government.The foundation for the same was laid back in around 2000.The gst bill would supposedly reform indirect taxation and bring about ease in administration and enforcement.
I agree with all my friends here specially the logical deduction based on Shirts,however certain drawbacks which can be easily deduced are:-
1.soring prices in the service sector – electricity, water, etc.
2.A short term inflation
3.If actual benefit is not passed to consumer and seller increases his profit margin,the prices of goods can also see a rising trend.

However,GST is a long term strategy and the positive impact shall be seen in the long run only.This can happen if GST is introduced at a nominal rate to reduce the overall tax burden of the final consumers.The rate of GST also plays a crucial role in deciding the actual impact of GST on the common man.

The gst has been a success in countries like Australia and we may hope the same for our country with fragmented tax and administrative regime.

Team Insideiim

6.5/10 – The articulation is poor but points mainly for focussing on the negative impact (even if short term) of demonetization which most writers seem to have missed. A lot of work needed on structure and presentation.

AmitKumar

GST (Goods and Services Tax) is a landmark event for the Indian Economy. The objective of GST is ‘One Nation, One Tax, One Market’. GST will introduce a uniform tax rate across the country making India a tax neutral avenue. GST will subsume a number of indirect taxes collected by the Centre (customs, excise and service tax) and State (sales tax, entertainment tax, octroi etc) governments. This should help in easy tax compliance for the people as there will only be a single tax to be paid. For the government, it would be easy to collect and monitor taxes and reduce tax evasion thereby increasing the revenue efficiency.
GST will make tax collection more transparent. GST will prevent any cascading of taxes at different stages, hence reducing the overall tax burden on people and also reduce the hidden costs of doing business. The tax filings and returns process will be online reducing the delays involved in paperwork. GST will have different tax slabs for different goods. Food grains and essentials goods have been placed in lowest tax slab and luxury goods and demerit goods in highest tax slab.
As GST has a federal structure- CGST (Centre GST) and SGST (State GST), devising an effective mechanism to deal with dual policing by Centre and State to administer and implement GST will be crucial. GST implementation and administration needs robust IT infrastructure to be set up which needs to be done quickly. As states will face revenue losses in the initial years of GST implementation, the Centre government will provide compensation to them for 5 years.
On the whole, GST will boost the Indian economy with higher revenue efficiency and more transparency. It will promote investments in India by increasing the ease of doing business supplementing the Make in India program.