Introduction of GST
GST stands for Goods and Services Tax. It is a unified taxation system which has brought a revolution in the economy of India. The GST is the biggest ever reform in the history of Indian Economy.
The much-awaited taxation system, for which Indian Government has been waiting for past many decades has finally come to reality in July 2017. It has made the idea of “One Nation – One Tax” possible.
Implementation of GST
GST was implemented throughout the country on the notion of a win-win situation for everyone, including manufacturers, consumers, and the Government. In GST regime a manufacturer is benefited with transparent rules, fewer tax fillings, and smooth bookkeeping, whereas the consumer is benefited by paying fewer taxes and as for Government, it is benefited by generating more revenues.
Goods and Services Tax is the biggest indirect tax. It has eliminated all other cascading taxes which were used to imposed by Central and State Governments by subsuming into unified GST.
Today all the registered goods and services are taxed at following homogeneous rates: 0%, 5%, 12%, 18% and 28%.
Expectations from GST
It’s been few months that GST has been implemented, and the expectation from this unified taxation regime is high already. Not only India but its neighbouring countries and the developed economies of the world are also expecting something big from this tax reform.
It would be interesting to see, how India, the country of 132.42 crores is affected by the newly introduced taxation system, what are the impact of GST in India and how GST affects Indian economy?
How GST is Affecting Various Businesses and Industries in India
Ever since from its implementation, the country is watching various protests and supports for GST. Like every coin, one can see both positive and negative impact of GST on Indian Economy. Let’s proceed further and take a look how has GST effects on economic growth of India through various significant industries.
Effect of GST on Transportation
The transportation industry is one of the vital industries in India that contributes a big chunk of revenue to the Government. The transportation industry has been affected by GST in following ways:
- Roadways – People who travel from roadways are benefited. The rides by cabs and taxies are taxed lower. Rates decreased from 6% to 5%.
- Airways – People travelled by economic class are benefited as the tax rate is lowered to 5% while the business class tax rate is lowered to 12%.
- Railways – This sector is least affected as the change is minimal i.e. from 4.5% to 5%. Travelers traveling by sleeper class are not affected while those travel through first class is charged more under GST regime.
Effects of GST on Start-ups
India is a booming place for start-up’s. Every new day comes up with the new start-up’s. It is a good thing for the economy of India. The impact of GST on start-up’s has many positive impacts:
- GST carries tax credits on purchases for start-up’s.
- GST has made simple the compliance model.
- GST allows free flow of goods and services.
- GST has made the limits for registration increased.
- GST has made the complication of VAT go away.
Effects of GST on Consumer Goods and Services
GST itself is an acronym of Goods and Services thus it is evident to have the goods and services being affected by the launch of newly introduced taxation policy. The list of goods is compact with food items majorly while services refer to the major service sectors. The impact of GST on consumer goods and services have mixed effect:
- Food products taxed at 0%.
- Services are increased from 15% to 18%.
- Tax on footwear and garments of INR 500 are taxed higher to 18% from 14.41%.
- Ready-made garments are taxed lower to 12% from 18.16%.
- Tax on mobile services is increased to 18% from 15%.
- DTH is now taxed lower at 18% which was earlier 10% to 30%.
Effects of GST on Entertainment and Hospitality
- GST on movie tickets is increased.
- GST on tickets of amusement park increased to 28% from 15%
- Hotel room less than INR 1000 – No GST charged.
- Rooms available in more than INR 5000 – 28% GST charged
- Restaurants of 5 Star which serves alcohol – 18% GST charged
- Restaurants which do not serve alcohol – 12% GST charged
For Small Scale Hotels and Restaurants
- 5% GST if annual turnover is less than 50 Lacs.
Effects of GST on Asset Investment
Acquiring asset under GST regime becomes quite expensive.
- Purchasing car is expensive – tax rate is fixed at 28%.
- Additional cess of 1% 3% or 15% is charged on purchase of car.
- Jewellery investment is more expensive with 3% tax rate.
- On jewellery making 5% GST is being charged.
Effects of GST on Financial Services
- Increase in the tax rate of insurance premium (health, life, general insurance and etc.)
- GST on banking and other financial services is increased to 18% from 15%.
Experts Views on The Impact of GST on Indian Economy
All the above-discussed industries collectively have an important place in Indian economy. GST has affected all industries in either positive or negative way which ultimately has the final consumer affected.
As GST on service sector is raised to 18% from 15%, it is obvious to have the inflation rate raised.
On the contrary, CEO- ICICI Chanda Kochhar said that GST has multiple benefits in the long run. GST allows consumers to establish themselves in the national market, it also smoothens the way of starting and doing business and ultimately helps in enhancing the productivity and efficiency.
The GST is the biggest tax reforms. A huge step has been taken in the history of Indian economy by implementing Goods and Services Tax. What may seem not suitable today for the country might get beneficial in the coming future.
Or there are chances that things might get worse with the increase in the inflation because of it.
It is not even a year being competed of the implementation of GST therefore it is not a right time to decide if the impact of GST on Indian Economy is good or not so good. It’s better to stay and watch the impact of GST on Indian economy.