Looking Back At GST- An Evaluation Of A Historic Tax Policy Change Post 1 Year Of Its Implementation

On 1st July 2017, probably the biggest tax reform in India’s indirect tax structure hit the country in the form of three alphabets which have become extremely popular in the past 365 days-GST. An acronym for the historic Goods and Services Tax Bill, the new policy brought forth by the 122nd Amendment in the Constitution has generated varied opinions. But a broad consensus has also been achieved, barring the differences regarding various subtleties; most economic stakeholders agree that the GST has been an important and much-needed step. Let us take a look back at this journey of the reform over more than 365 days and identify its present worth and future prospects. Firstly, however, let us have a brief look at what GST actually is-

Imagine a manufacturer of a product, for instance, t-shirts. He pays INR 100 on acquiring raw materials such as cotton, buttons, threads etc. On this cost, he pays a tax of INR 10. He adds his own value to it and decides to sell the product for INR 130. Earlier, the tax on this price, let’s say at a rate of 10%, which comes to INR 13 was a standalone one which got added to the tax accrued in the second stage, i.e.by the wholesaler. But post-GST, the manufacturer, and every other successive part of the product chain, can set off the tax already paid from the tax accrued. Thus the manufacturer in this example needs to only pay INR 13-INR 10=INR 3 while putting up the product for sale.

By stopping the cascading effect and introducing a uniform tax structure across the country, GST has increased tax collection, transparency and accessibility to tax credits across stakeholders. It has brought numerous businesses within the national taxation framework which otherwise existed parallel to it. The input tax credit also motivates producers and manufacturers to deal with registered traders and only accept valid invoices as it would help them to access the credit. This has benefitted the emerging e-commerce sector’s growth, as it is now eligible to claim tax credit for services such as logistics, marketing, advertisements, payment gateways, Internet and more. 

In the long-term, GST is expected to control inflation and help promote the export of Indian goods due to reduced custom expenditure. By doing away with internal tariff barriers, inter-state exchange of goods and services will be facilitated and development of the logistics sector is also expected. It will also result in the timely delivery of goods as warehouses will be established according to efficient geographical routes rather than in a bid to avoid taxes. Easier tax filings and accountancy, reduced cost for consumers, more money for the government to invest in public expenditure, all of these things will contribute to creating a stable and gradually developing economy that has enough wealth to back its welfare objectives. The GST rollout, with a single stroke, has converted India into a unified market of 1.3 billion citizens. Essentially, the $2.4 trillion economy is on a journey to transform itself, and GST is the tool with which the Indian economy is hoping to achieve something bigger and better for every individual piece.