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Abstract

The Goods and Services Tax (GST), implemented on July 1,2017, is regarded as a major taxation reform till date implemented in India since independence in 1947. GST was planned to be implemented in April 2010, but was postponed due to political issues and conflicting interest of stakeholders. The primary objective behind development of GST is to subsume all sorts of indirect taxes in India like Central Excise Tax, VAT/Sales Tax, Service tax, etc. and implement one taxation system in India. The GST based taxation system brings more transparency in taxation system and increases GDP rate from 1% to 2% and reduces tax theft and corruption in country. The paper highlighted the background of the taxation system, the GST concept along with significant working, comparison of Indian GST taxation system rates with other world economies, and also presented in-depth coverage regarding advantages to various sectors of the Indian economy after levising GST and outlined some challenges of GST implementation.
Abstract
The Goods and Services Tax (GST), implemented on July 1, 2017, is regarded as a major taxation reform till date implemented in
India since independence in 1947. GST was planned to be implemented in April 2010, but was postponed due to political issues
and conflicting interest of stakeholders. The primary objective behind development of GST is to subsume all sorts of indirect
taxes in India like Central Excise Tax, VAT/Sales Tax, Service tax, etc. and implement one taxation system in India. The GST based
taxation system brings more transparency in taxation system and increases GDP rate from 1% to 2% and reduces tax theft and
corruption in country. The paper highlighted the background of the taxation system, the GST concept along with significant
working, comparison of Indian GST taxation system rates with other world economies, and also presented in-depth coverage
regarding advantages to various sectors of the Indian economy after levising GST and outlined some challenges of GST
implementation.
Key words : tax, indirect tax, goods and services tax (GST), taxation reforms, Indian taxation system, GST Council
JEL Classification : G18, H20, Z13
Paper Submission Date : July 17, 2017 ; Paper sent back for Revision : October 26, 2017 ; Paper Acceptance Date :
November 30, 2017
A Comprehensive Analysis of Goods and Services Tax
(GST) in India
* Anand Nayyar
** Inderpal Singh
he word “tax” is derived from Latin word “taxare” meaning to estimate. A tax is not a voluntary payment or
Tdonation, but enforced contribution, exacted pursuant to legislative authority and is contribution imposed
by the government, whether under the name of toll, tribute, impost, duty, custom, excise, subsidy, aid,
supply, or any other name (Chakraborty & Rao, 2010 ; Garg, 2014).
Taxation was first imposed in Ancient Egypt around 3000 B.C.- 2800 B.C. during the first dynasty of the old
kingdom. Records indicate from that period that the Pharaoh would conduct a biennial tour of the kingdom,
collecting tax revenues from the people. Other data indications are granary receipts on limestone flakes and
papyrus.
Taxes are the only way for financing the public goods because of their inappropriate pricing in the market. It can
only be levied by the government, via funds collected from taxes. It is highly important that the taxation system is
designed in such an appropriate manner that it doesn't lead to any sort of market distortions and failures in the
economy. The taxation laws should be highly competitive so that revenue can be raised in a highly efficient and
effective manner.
58 Indian Journal of Finance • February 2018
* Assistant Professor, Department of Computer Applications & IT, KCL Institute of Management and Technology, Jalandhar,
Punjab. E-mail : anand_nayyar@yahoo.co.in
** Associate Professor& Dean - Research, Department of Management, KCL Institute of Management and Technology,
Jalandhar, Punjab. E-mail : arorainderpal8086@gmail.com
In India, the taxation system was started in ancient times. The early taxation system’s existence can be seen in
many ancient books like Manu - Smrti and Arthasastra.
During the British empire, the entire taxation system of India was transformed. It was entirely in favor of the
British empire, but it also incorporated modern and scientific techniques of taxation systems. Another remarkable
transformation came in the year 1922 in the taxation system when Britishers established an entirely new
administrative and taxation system in India. In this system, the taxation system was categorized in two main
categories: Direct Taxes and Indirect Taxes. In India, the taxation system is entirely controlled, imposed, and
updated by Central and State governments. The authority to levy tax is derived from the Indian Constitution,
which allocates the power to levy taxes between Central Government System and State Government System.
The Indian Taxation System - Scenario Before GST
Tax policies play a vital role in any country's progress and have a direct impact on any country's economy in terms
of efficiency and equity. A good taxation policy is that which takes care of the entire income distribution and also
generates tax revenues in such a manner for Central and State Governments, which can lead to overall benefit in
the nation's infrastructure, defense, public amenities, people's security, and a country's exports.
The entire framework to impose indirect taxes comes under Constitutional provisions of India. Article 246,
Seventh Schedule gives the right to Central and State Governments to levy taxes and collect indirect taxes on the
basis of goods and services transactions. The taxation system varies from manufacturer to manufacturer on point
of sale or level of imports or exports. Indirect taxation based collection systems are based on origin, and are
designed to impose tax and collect the same at the event of happening of any taxable activity.
The Figure 1 depicts a tabular representation of Indian indirect taxation system as per Article 246 of the Indian
Constitution System. The following Table 1 gives a tabular representation of taxes imposed and collected by
Central and State Governments of India.
(1) Journey of Indirect Taxation Tax & Important Turning Points in India : The following points highlight the
Indian Journal of Finance • February 2018 59
Figure 1. Indian Indirect Taxation System as per Article 246
Source: Reproduced from Jain (n.d.) from https://www.caclubindia.com/articles/goods-and-st-basics-25424.asp
journey of Indian indirect taxation and turning points, which reformed the taxation system till date before the
introduction of GST taxation system in India.
1974: Report of LK Jha Committee suggested introduction of VAT system.
1986: Introduction of restricted VAT called “MODVAT”.
1991: Chelliah Committee report recommended “VAT/GST” and recommendations accepted by the Government.
1994: Service Tax introduction.
1999: Empowered Committee formation on State VAT.
2000: Introduction of Uniform Floor State Tax Rates and abolition of tax-related incentives granted by State
Governments.
2003: Implementation of VAT system in Haryana.
2004: Strong progress towards introduction of CENVAT.
2005-06: Implementation of VAT based taxation system in 26+ states in India.
2007: First GST Stuffy released by Mr. P. Shome in January; Finance Minister speech carries the introduction of
GST in Budget; CST phase out starts in April 2007; joint working group created and reports submitted.
2008: EC rolls out the GST Structure of Taxation System in April 2008.
2009: Date proposed for Implementation as April 1, 2010.
2010: Department of Revenue commented on GST discussion paper and finance minister suggested probable
GST rate.
2011: Team was created to lay down the road map for GST and 115th Constitutional Amendment Bill for GST was
laid down by the Parliament.
2012: Negative list regime for service tax was implemented.
2013: Parliamentary Standing committee submitted its report on the Bill.
2014: 115th Amendment Bill lapsed and was reintroduced in 122nd Constitutional Amendment Bill.
(2) Limitations and Issues Pertaining to the Existing Indian Taxation System : Various taxes are imposed on the
Indian population by Central and State Governments like Central Excise, Service Tax, VAT, etc. Before the
introduction of VAT in Sales Tax and CENVAT in Central Excise and Service Tax, the Indian Taxation System was
very complex and this had cascading effects. The tax imposed on one destination was also taxed on another
60 Indian Journal of Finance • February 2018
Table 1. Taxes Imposed and Collected by Central and State Governments in India
Name of Tax When it was Imposed? Imposed by Collected by
Central Excise Goods manufactured in India (Excluding Central Govt. Central Govt.
Duty Goods manufactured in SEZ in India).
Service Tax Any sort of service in territory (wherever applicable). Central Govt. Central Govt.
Sales Tax / VAT Sales of Goods within state. State Govt. State Govt.
Customs Duty Import of goods to India from any place outside Indian Central Govt. Central Govt.
Territory or Export of goods outside Indian Territorial Border.
Central Sales Tax (CST) Inter-State goods sale. Central Govt. State Govt.
Local Body Tax (Entry/Octroi) Goods entry to a state outside of state. State Govt. State Govt.
destination. However, in recent times, the taxation system has seen remarkable revolutions.
Many changes in taxation were implemented, that is, VAT, and implementation of Service Tax by Central
Government. In Central Excise taxation system, the government introduced CEVAT by setting off taxes on inputs,
while producing output products. With introduction of VAT based taxation system in India, the foundation stone of
GST implementation was laid.
The following points highlight the primary and severe issues pertaining in Indian indirect tax structure system :
(i) The CENVAT (excise duty) was imposed on the products manufactured in India. But issues originated
regarding product valuations. The issue regarding implementation of CENVAT only at the manufacturing level
acted as a critical barrier to efficient and neutral flow of tax credit. This led to the replacement of VAT to GST in
many countries.
(ii) The Indian Constitution has distributed the taxation system between Central and State Governments. The State
government has right to impose any sort of tax on any matter or item under the state. In Service Tax, the Central
government enjoys the power to impose tax but in Work Contracts, the State government has the dominance. This
sort of system creates distortions in revenue generation and distribution for the government.
(iii) Various things like copyrights, patents, software are not considered for taxation system by the government. So,
complexity again arose for classifying these goods under the taxation policies.
(iv) With the booming of the service sector, the Central government has monopolistic right to impose tax. The
State Governments, on the other hand, are losing their revenue by not imposing any tax on the service sector.
(v) Considering CST on inter state sales of goods, no set off was allowed, which increased the cascading effect.
(vi) For better monitoring and administration of taxes, major transformations in technology are required, which is
costly and time consuming and has to be redressed.
(vii) Lack of cross verification of returns filed under Central and State taxation systems led to lot of discrepancies.
(viii) Under the Indirect taxation system, there were more than 15 different taxes which had to be filled under
different norms. So, it required immediate and one system regulation of filling and calculating taxes.
(ix) The Indian taxation system was cumbersome and full of burdens and different taxes on same products in
different states led to high inflation, which had to be redressed.
Despite of the existence of multiple taxes in the Indian Economy like Excise Tax, Custom Duty, Service Tax
etc., still the GDP of India is much less as compared to the GDP of other countries like USA - 13.84%, China -
6.99%, Japan - 4.3%, and France - 2.05%. So, the GDP data of various countries demonstrates that there is utmost
need of tax reform, that is, implementation of Goods and Services Tax (GST) in India.
Research Methodology
This paper is based on exploratory research technique and data cited in this paper were collected via secondary
sources available like statistical data available on various websites of Indian Government like Finance Ministry
(finmin.gov.in), GST Council (gstcouncil.gov.in), GST Council Archives (gstindia.com), and many more ;
literature review from journal papers ; annual reports ; newspaper reports ; and wide collection of magazine based
Indian Journal of Finance • February 2018 61
62 Indian Journal of Finance • February 2018
articles on GST. Based on the analysis of above mentioned data collection sources, the objectives of the study are
defined and research design is drafted which is highly descriptive in nature.
Objectives of the Research Undertaken
The research has been undertaken and presented considering the following foremost objectives :
To gain an in-depth understanding of GST taxation system evolution.
Understanding in - depth the concept of new taxation system introduced - Goods and Services Tax (GST) in
India.
Understanding the features, working, and differentiating the current taxation system in India v/s GST.
To evaluate the advantages and challenges surrounding GST.
To evaluate the prospects of taxation position of various goods and services in India.
To furnish the information for future research on GST based taxation system.
Scope of the Study
This paper provides a detailed insight regarding implementation of GST tax among various sectors of the country.
GST after implementation will bring uniformity with tax rates and will also overcome lots of shortcomings in the
Indian taxation system with regard to indirect taxation. The Good and Services Tax would surely be highly
advantageous for major areas of the India economy.
Goods and Services Tax (GST) Current Scenario
(1) Need for GST- Goods and Services Tax : As per the reports of Task Force on Goods and Services Tax (2009),
the Indian taxation system led to misallocation of resources and lower productivity in terms of economic growth,
international trade, and overall development of the Indian economy. Therefore, there was an emergent need to
replace the existing tax system with a new engine of taxation of goods and services to attain the following
objectives (Roychowdhury, 2012) :
The tax incidence fell primarily on domestic consumption.
The optimization of efficiency and equity of the Indian system is desired.
There should be no export of taxes across the taxing jurisdiction.
The Indian market should be brought under a single umbrella of common market.
Enhancement to the cause of cooperative federalism.
Apart from the above listed objectives, Kelkar (2009) summarized the overall advantages of implementation of
GST in India as follows:
It will bring about a phase change on the tax firmament by redistributing the burden
of taxation equitably between manufacturing and services. It will lower the tax rate
by broadening the tax base and minimizing expectations. It will reduce distortions…
[and] foster a common market across the country and reduce compliance costs. It
will promote exports. Perhaps more importantly, it will spur growth. (para 1)
(2) Introduction to the Goods and Services Tax (GST) : New Article 366 (12A) of the Indian Constitution (GST
India.com, 2016) defined Goods and Services Tax (GST) to mean any tax on supply of goods or services or both
except taxes on the supply of alcoholic liquor for human consumption. New Article 366(26A) defines service to
mean anything other than goods. Existing Article 366(12) defines goods to include all materials, commodities,
and articles.
As per the government, the Goods and Services Tax (GST) is regarded as a ‘Reform’ rather than amendment in
the existing Indian taxation system to sort out all backdoors and cons of the indirect taxation system. India was one
of the 123 countries in the world following the VAT taxation system. VAT was designed and introduced on January
17, 2005 at the Centre and State levels by finance minister P. Chidambaram. VAT replaced Central Excise Duty
Taxation at the national level and Sales Tax System at the state level, bringing major reform in the taxation system.
Goods and Services Tax (GST) was proposed in 2014 to be implemented with effect from (w.e.f) June 2016.
The GST implementation is “dual” in nature - one component is implemented by Centre (CGST) and another
component by State (SGST). The base of tax would be the same by Centre and State governments. GST came into
effect in India on July 1, 2017. With some major modifications, the GST would now have three prime models :
(i) Central GST : GST to be levied by the Centre.
(ii) State GST : GST to be levied by the States.
(iii) Dual GST : GST to be levied by the Centre and the States concurrently.
GST is regarded as a comprehensive and one tax system on manufacture, sale, and consumption of goods and
services at the national level. As GST is implemented, all other taxes have been discontinued. There is now one
tax, that too at the national level, strictly under the control of the Central Government. Under GST, there is one tax
for both goods and services, which is a clear tax policy and this will improvise collections of tax. It would also lead
to a clear system and abolish tax based theft and corruption at the national level. GST being a friendly taxation
system for the corporate sector will provide easiness in tax policies, reduce inflation levels, and make the overall
system more transparent.
(3) Importance of the GST Taxation System - Trade, Government, and Consumer : GST will overcome various
issues of development via greater interactions between VAT/GST systems along with overcoming the potential
risks of double taxation and unintended non-taxation systems. GST will lay a strong foundation of collecting tax at
early stage of value addition. Every business/tax payer would be a part of controlling and collecting the tax and
remitting the proportion of tax corresponding to its margin. GST will thereby flow through the business to tax
supplies made to the final consumer.
GST Reforms will play a crucial role for trade, government, and consumers in the following manner :
(i) Trade : In order to harmonize trade and bring significant reforms to boost up development, GST will act as a
stepping stone for the following parameters: (a) multiplicity of taxes will be reduced, (b) tax neutrality, especially
for exports goods, (c) development of one nation or one common economic market, (d) simpler tax with fewer
rates and exemptions, (e) effectiveness in reducing cost for domestic industries.
(ii) The Government : GST promises a lot for transparent working system for the government in the following
manner : (a) easy and simple taxation system - one common tax across the country, (b) tax base broadening,
(c) great improvements towards collections of revenues, (d) resource utilization would be more effective, (e)
investments out of savings by consumers - due to mitigation of cascading effect, which contributes to increase in
Indian Journal of Finance • February 2018 63
availability of funds out of savings of consumer - which may be used for development.
(iii) The Consumer : For a normal Indian citizen, GST promises a lot in terms of better taxation system as follows:
(a) reduction in the cost of goods and services due to significant elimination of cascading effect on taxes, (b)
increase in household income and purchasing power , (c) increase in savings of common man, (d) high increase
towards investment potential.
(4) Taxes Abolished and Items Exempted from GST : The Table 2 enlists the taxes to be subsumed in GST:
The following is the list of items exempted from Goods and Services Tax (GST): (a) all types of public services
of the Government (Railways, Postal and Telegraphs, Public Sector Enterprises, Banks and Insurance, Health and
Education services), (b) any service transactions between employer and employee either as service provider,
receiver, or vice-versa, (c) education services provided by non-government schools and colleges, (d) health
services provided by non-government agencies, (e) any unbranded food items.
(5) GST Council (GST Council, 2017) : In order to implement GST taxation effectively in India, the Constitutional
nd
(122 Amendment Bill) was introduced and passed by Rajya Sabha on August 3, 2016 and by Lok Sabha on
August 8, 2016. The GST council was framed officially on September 8, 2016 after clearance from the Honorable
President of India.
As per Article 279A (1) of Amended Constitution, the GST Council was created by the President within 60 days
of the commencement of Article 279A. The GST Council comprises of the following members : (a) Union
Finance Minister- Chairperson, (b) The Union Minister of State, In - Charge Revenue of Finance - Member, (c)
The Minister In-Charge or Taxation or any other minister nominated by each State Government - Members.
The GST Council was setup to perform the following duties : (a) taxes, surcharges, cess of Central and States
which will be integrated in GST, (b) goods and services to be exempted from GST, (c) interstate commerce -
IGST – distribution between State and Central governments, (d) registration threshold limit for GST, (e) GST
floor rates, (f) calamities special rates, (g) provision with regard to special category rates, especially North-
Eastern states.
64 Indian Journal of Finance • February 2018
Table 2. List of Taxes Abolished After GST implementation
Government List of Taxes
Central Government Taxes Central Excise Duty
Service Tax
Additional Custom Duty
Surcharges and all Cess
State Government Taxes VAT/Sales Tax
Entertainment Tax
Entry tax not in lieu of Octroi
Other taxes and Duties (Luxury Tax, Taxes on Lottery etc)
Taxes imposed by State Stamp Duty
Governments on Goods Vehicle Tax
on Services Tax on Goods and Passengers
Taxes and duties on Electricity
(6) GST Models : Considering the importance of taxation reforms and other countries’ based GST
implementations, the following are the various GST models that are designed and proposed by experts for
successful implementation of GST :
(i) The Kelkar - Shah Model
(ii) The Bagchi - Poddar Model
(iii) The Australian Model
(iv) The Canadian Model
(i) The Kelkar - Shah Model : It is based on “Grand Bargain” to merge various taxes like Central Excise, Service
Tax, and VAT into one common tax. According to the model, GST can be implemented as per the following four
stages :
Stage 1: Establishing information technology systems.
Stage 2: Building Central GST.
Stage 3: Political effort of agreeing on “Grand Bargain”.
Stage 4: Interaction with States.
(ii) The Bagchi - Poddar Model : It is similar to the Kelkar - Shah Model, which envisions the combination of
Central Excise, Service Tax, and VAT into one common umbrella of VAT. The difference between Kelkar-Shah
and Bagchi-Poddar model is that Kelkar-Shah model proposes tax collection at Central and State levels, while the
Bagchi-Poddar model stresses only on the Centre. The Kelkar - Shah model is like the Canadian Model, while the
Bagchi - Poddar Model is like the Quebec model.
(iii) Australian Model : The Australian GST model is federal tax collected by the Central government and then
distributed to the State government. But as India is a heterogeneous country, this model is not applicable in India.
(iv) Canadian Model : The GST in Canada is dual between the Centre and the States and has three varieties: (a)
Federal GST and provincial retail sales taxes (PST) administered separately - followed by the largest majority, (b)
Joint federal and provincial VATs administered federally (Harmonious Sales Tax - HST), (c) separate federal and
provincial VAT administered provincially (QST) - only for Quebec as it is like a breakaway province.
(v) GST Models - Adopted by Foreign Countries : Among various countries which have adopted GST, France was
the first country to adopt GST in the year 1960. The Table 3 enlists the GST models along with their applicability in
different countries of the world.
Indian Journal of Finance • February 2018 65
Table 3. GST Models Implemented by Various Countries like Australia, China, USA, Brazil, Canada, and India
Name of the Model Feature Countries (Wherever Applicable)
National GST Tax imposed by Central government with provision for sharing revenue with states. Australia & China
State GST Tax imposed by States. USA
Non-Concurrent Dual GST GST on goods imposed by State & on services imposed by Central government.
Concurrent Dual GST Tax imposed by Central and State governments on both Goods and Services. Brazil, Canada, and India
Quebec Model Separate taxation system for tax collection, administration, and enforcements by provinces.
66 Indian Journal of Finance • February 2018
(7) Statistical Analysis and Comparison of Indian GST Rate with Other Foreign Nations : The Table 4 enlists the
comparison of Indian GST rates with other economies of the world. In comparison with emerging market
economies (EMEs), India has highest rate of GST @ 18% with major commodities falling under this rate of
interest. Countries like China and Brazil have most of the commodities falling under 17% tax. Some of the
developed economies like France, Germany, UK have GST @ 19 - 20%.
(8) Working of Goods and Services Tax (GST) : In order to understand how GST works, the detailed description is
demonstrated in this section in lieu of manufacturer, distributor, and retailer along with the impact of cost of goods
on final consumer.
(i) Manufacturer : In the previous taxation system, the manufacturer had to pass through two stages of taxation
before transferring the benefit of products to the distributor. At the first instance, he had to charge excise duty @
10% and then VAT @ 5 % , which means a total of 15% of indirect tax. If cost of product was ` 100, then Excise
duty was charged @ 10% on cost & VAT @ 5% on cost. The total cost of production became ` 115.
Cost of Production ` 100
+ Excise Duty@ 10% ` 10
+ VAT @ 5% ` 5
Total Cost ` 115
However, in GST, he has to deal with only one department and also, tax has been reduced by 5%, that is, he has to
pay tax @ 10%. If cost of production is ` 100, GST @ 10% will be charged and the total cost of production will be
` 110.
Table 4. List of GST Rates Applicable in Various Countries
Name of Country GST Rates (in %)
Netherlands 21%
United Kingdom 20%
France 20%
Germany 19%
India 0%, 5%, 12%, 18% and 28%
Russia 18%
China 17%
Pakistan 17%
Mexico 16%
New Zealand 15%
Australia, Brazil, Indonesia, Korea 10%
Japan, Switzerland 8%
Thailand, Singapore 7%
Malaysia 6%
Canada, Jersey 5%
Note : Ranking as per Descending Order . Source: Central Board of Excise and Customs (2017)
Cost of Production ` 100
GST@ 10 % ` 10
Total Cost ` 110
It will give a benefit of ` 5 to the producer and this benefit will be passed to the distributor and ultimately to the
consumer.
(ii) Distributor : In the previous tax regime, a distributor received goods at a cost of ` 115 from the manufacturer,
he added 20% for his profit, VAT @ 5 %, and Service Tax @15% .The total cost that came out was ` 167 as
illustrated below :
Cost of Good Received: ` 115
+ Profit ` 23
+ VAT @ 5% ` 7
Service Tax@ 15% ` 22
Total Price ` 167
In GST, a distributor will add only 20% profit margin & GST will be charged at 10% and the total price will come
out to about ` 145 as illustrated below :
Cost of Goods Received : ` 110
Profit Margin @ 20% : ` 22
GST @ 10% : ` 13
Total Price ` 145
Thus, benefit of ` 22 (` 167 - ` 145) to the retailer in the new system. This benefit will be ultimately passed to the
consumer.
(iii) Retailer : From the above explanation, it is clear that benefit of ` 22 is already received under the GST
system. Now, if we study the retailer under the previous taxation system & GST, we will be clear about the total
benefit received under the new tax regime. In the previous taxation system, the retailer received goods at a price of
` 167. Say, he will add 20% profit margin. VAT will be charged @ 10% and Service Tax @ 15%, then the total price
to be charged from the consumer will come about ` 242.
Cost of Goods Received : ` 167
Profit Margin @ 20% : ` 33
VAT @ 5% : ` 10
Service Tax@ 15% : ` 32
Total Price ` 242
Under GST, the retailer is receiving goods at ` 145, after adding profit margin of 20% and GST @ 10%, the price
charged will be only ` 191 as compared to ` 242 being charged under the previous taxation system.
Cost of Goods Received: ` 145
Profit Margin @ 20% : ` 29
GST @ 10% ` 32
Indian Journal of Finance • February 2018 67
68 Indian Journal of Finance • February 2018
Total Price ` 191
It will give a benefit of ` 51 (` 242 - ` 191) to the consumer. Hence from the above examples, it is clear that not
only the manufacturers, distributers, and retailers, but also the consumers will be benefitted under the GST
Regime.
Figure 2. A Working Example of GST Vs. Current Taxation System
Reproduced from S. Tripathi, & N. Tripathi (2016, August 3). India : In a historic move, Rajya
Sabha passes the GST Bill : Annexure (p.4). Retrieved from
https://www.icicibank.com/managed-assets/docs/corporate/global-trade-service/economic-
70 Indian Journal of Finance • February 2018
(9) Live Demonstration of Tax Imposed via GST Taxation System in India : The Figure 2 demonstrates the
working of GST. The example highlights that a manufacturer of a product requires raw material as inputs for the
final product.
Impact of GST on the Indian Economy : Advantages and Challenges of GST
Implementation
(1) Impact of GST on the Indian Economy : GST will impact the overall taxation system of the Indian economy. It
will improvise the country's GDP ratio and also control inflation to a certain extent. However, the reform will
mainly be advantageous to the manufacturing industry, but will make some things challenging for the service
sector industry.
GST is expected to raise the GDP growth from 1% to 2%, but these figures can only be analyzed after successful
implementation. Some countries have faced a mixed response in growth like New Zealand saw a higher GDP as
compared to countries like China, Thailand, Australia, and Canada (Shokeen, Banwari, & Singh, 2017).
The GST rate is implemented in various slabs like 5%, 12%, 18%, and 28%, which will automatically provide
great tax increments to the government and the manufacturing sector will face immense growth with reduction in
tax rate. There is definitely something good for everyone. Various unorganized sectors which enjoy the cost
advantage equal to tax rate which will be brought under GST. This will make various sectors like Hardware, Paint,
Electronics etc. under the tax slab. GST requires everything to be planned meticulously for organized rate of
taxation. There are still lots of sectors which are to be discussed under GST and this requires proper planning. For
the common man and different companies, the collection of Central and State taxes will be done at point of time
when sales originate, both components will be charged on manufacturing costs and price of the product will
downgrade and consumption will thereby increase (Shokeen et al., 2017) .
(2) Impact of GST on Various Sectors : Goods and Services Tax (Taqvi, Srivastava, & Srivastava, 2013) will
unite the Indian economy into one common market under a single umbrella of taxation rates, leading to easiness of
starting and doing businesses, leading to increase in savings and cost reduction among various sectors. Some
industries will be empowered by GST because of reduction in tax rates, while some will lose because of higher rate
of GST interests (Panda & Patel, 2010).
In this section, we discuss various sectors and elaborate the impact of GST on them :
(i) IT Companies: GST will allow more implementation of digital systems and services. GST will increase the rate
of tax from 14 -15% to 18%, which will increase the cost of electronic products like mobile phones, laptops, etc.
(Adhana, 2015).
(ii) FMCG Industry : GST will have a significant impact on the FMCG sector. Some food items are exempted under
GST like grains and cereals, milt, meat, fish, fruits and vegetables, candy etc. Before GST, FMCG companies paid
24-25% tax including Excise Duty etc. With GST, the rate of return would be 17-19% leading to strong impact in
production and consumption (Jain, 2013).
(iii) Online Shopping : With the introduction of GST, various Ecommerce companies will face much burden of
work in rate of filling taxes and cost will be increased.
(iv) Telecom Sector : With the current VAT charges of 15% being replaced by18% GST rate, the price of mobile
calling, SMS, and broadband services would be impacted. This will have a negative impact for big telecom giants
like Airtel, Vodafone, Idea, etc.
(v) Automobiles : GST will provide reduction on on-road price of vehicles to max by 8% as per the latest report.
Lower prices mean various automobile companies can boost up volumes and sales and have tremendous
opportunities for expansion in India.
(vi) Small Scale Enterprises : There are three categories: (a) below threshold, need not register for GST, (b)
between threshold and composition turnovers will have the option to pay a turnover based tax or opt to join the
GST regime, (c) above threshold level, will be within the GST framework. Manufacturers and traders will pay
less tax after GST Implementation.
(vii) Entertainment : With GST, taxes can do down by 2 - 4%, but the rate of tax for cinema lovers will be
increased. GST will soon comprehend with demands and bring best for boosting up the film industry’s business.
(3) Challenges of GST Implementation : The following are some of the major challenges for GST
implementation in India (Poddar & Ahmad, 2009) :
(i) Nature of Taxes : In India, there are various taxes like Central Excise, VAT, CESS, and other state level taxes
which will all be removed and come under one tax, that is, GST, but still lots of states and union territories have
other taxes out from GST which has to be worked upon.
(ii) Types of GST : As GST would be of two types : Central GST and State GST and further division is required on
the basis of utmost necessity and property based like need, location, geography, and resources which has to be
worked upon.
(iii) Rates of Tax : Still the tax rate is not fully finalized and lots more has to be worked upon considering the
standard of living of people, etc.
(iv) Tax Management and Technology Infrastructure : It is utmost necessary that proper management of tax and
infrastructure is required to implement proper policies and plans.
Conclusion
Primarily, the concept of GST was introduced and proposed in India a few years back, but implementation has
been done by the current BJP government under the able leadership of Prime Minister Shri Narendra Modi on July
1, 2017. The new government was in strong favor for the implementation of GST in India by seeing many positive
implications as discussed above in the paper. All sectors in India - manufacturing, service, telecom, automobile
and small SMEs will bear the impact of GST. One of the biggest taxation reform- GST will bind the entire nation
under a single taxation system rate. As forecasted by experts, GST will improvise tax collections and boost up
India's economic development and break all tax barriers between Central and State Governments. No doubt, GST
will give India a clear and transparent taxation system, but it is also surrounded by various challenges as discussed
in this paper. There is need for more analytical based research for successful implementation.
Limitations of the Study and Scope for Future Research
The following are the limitations of the study: (a) GST is still in maturity phase, so tax reforms can occur from
time to time via GST council meetings regarding finalization of tax rates and even imposition of new rates and
even deduction of existing rates, (b) most of the data cited in the paper was speculatively exploratory in nature as
Indian Journal of Finance • February 2018 71
72 Indian Journal of Finance • February 2018
GST meetings are going and still, a lot more needs to be done, (c) final conclusions may vary considering different
perceptions.
After GST implementation, there is emergent requirement of modern technology based infrastructure like
GSTNET for successful monitoring of taxation system as well as the GST Council should regularly conduct
meetings for change in tax reflections. These areas can be covered by researchers in future studies.
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Indian Journal of Finance • February 2018 73
About the Authors
Dr. Anand Nayyar is currently working as an Assistant Professor and Head - Research and
Development Cell in Department of Computer Applications & IT at KCL Institute of Management
and Technology, Jalandhar, Punjab. He is a Certified Professional and has acquired various
professional certifications from Microsoft, CISCO, Oracle, EXIN, Cyberoam, BEINGcert.com,
GAQM.org, and many more. He has published more than 200 papers in various National and
International Conferences and Journals including SCI/SCIe/Scopus and has published 20 Books.
He has acted as Session Chair and Keynote Speaker in various National and International
Conferences and has even delivered lectures in various Colleges and Universities across India
including Faculty Development Programs. He has been awarded more than 20 Awards in field of
Education and Contributions towards research in Computer Science.
Dr. Inderpal Singh is currently working as an Associate Professor and Dean Research in
Department of Management at KCL Institute of Management and Technology, Jalandhar, Punjab.
He has published several research papers in the area of Management in National and
International Journals. He has acted as a Session Chair and Keynote Speaker in various National
and International Conferences.
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