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KAAV INTERNATIONAL JOURNAL OF ECONOMICS,

COMMERCE & BUSINESS MANAGEMENT


A REFEREED BLIND PEER REVIEW QUARTERLY JOURNAL
KIJECBM/ OCT-DEC (2017)/VOL-4/ISS-4/A54 PAGE NO.422-427
ISSN: 2348-4969 IMPACT FACTOR (2017) – 7.8902
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IMPACT OF GOODS & SERVICE TAX ON INDIAN ECONOMY

1
LEENA
1
Assistant Professor, University of Delhi
2
SAMEENA
2
University of Delhi

Abstract
The implementation of Goods & Service Tax is a historic move in India. It has replaced the
earlier Indirect tax regime and subsumed all the central and state level taxes. GST is a unified
destination based tax that intends to overcome all the limitations of earlier tax regime with the
involvement of both Centre and state using Dual GST model. It is implemented with the object of
creating a common national market. This paper seeks to study the contribution made by the GST
and evaluate its impact on various sectors of Indian economy.
Keywords: GST, Economy, Infrastructure

Introduction
Introduction of GST is a significant reform in the history of indirect taxation in India. It has
replaced many Indirect Taxes. The Goods and Service Tax Act came into effect on 1st July 2017.
Merger of various central and state taxes into a single tax has drastic impact on the economy. It
would help to overcome many shortcomings of earlier indirect tax system, thereby leading to a
uniform, consistent and transparent indirect tax structure. Goods and Service tax has replaced the
earlier indirect tax regime and subsumed all the central taxes i.e. excise duty, basic custom duty,
countervailing duty, special additional duty etc. and state taxes namely state VAT, luxury tax,
entertainment tax etc. A single common "Goods and Services Tax (GST)" was proposed and
pushed in 1999 during a meeting between the Prime Minister Atal Bihari Vajpayee and his
economic advisory panel, consisting of three former RBI governors IG Patel, Bimal Jalan and C
Rangarajan. The discussions continued for long and several steps were taken and finally came
into effect on 01st July 2017. Goods & Services Tax Law in India is a comprehensive, multi-
stage, destination-based tax that is levied on every value addition.
Multistage: There are multiple change-of-hands an item goes through along its supply chain: from
manufacture to final sale to the consumer. Goods and Services Tax will be levied on each of these
stages, which makes it a multi-stage tax.
Value Addition: GST is levied on every value addition till the goods reach to the end consumer.
Destination Based: Goods & Service Tax (GST) is levied at the point of consumption not at the
place of production. In case of interstate sale, tax revenue will go in hands of the state
Government where goods are consumed.

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Literature Review
• Dr. G Sunitha and P Satishchandra in their paper ‘Goods and Service tax (GST): As a new
path in Tax Reforms in Indian economy’ described concept, different models of GST and
its impact on Indian economy. It was concluded that GST will overcome all the hurdles of
earlier tax regime and boost the economy.
• B. Mitra Priya in a paper titled ‘GST- A Game Changer’ studied the Goods and Service
Tax Act and examined its implication tax structure, tax incidence and tax payment.
• Vishal Kumar in his paper titled ‘Major Changes & Significance of GST on Indian
economy’ studied importance of GST and impact on Indian economy and concluded that
GST will play a dynamic role in growth and development of the country.
• Srinivasan Pagalthivarthi highlighted possible disputes over the event of taxation,
classification, value, place of supply and rates of taxation.
• G. Raghuram discussed the perspectives of different stakeholders and issues.
• Khurana et al studied GST in present tax scenario and explored benefits and opportunities
in India.
• Dr. R Vasanthagopal in a paper titled ‘GST in India : A Big leap in the indirect taxation
system’ concluded that GST will make the economy grow.
• Sarkar et al studied the features and discussed the issues that might arise for Central and
State Government.
• Manoj Kumar Rathod in his paper titled ‘An Overview of Goods and Service tax (GST) in
India’ discussed model of GST adopted in India and its impact on different sectors and
concluded that it will provide relief to Consumers, manufacturers, Governments and whole
nation.
• Neha and Manpreet Sharma in their paper titled ‘A study on Goods and Service Tax in
India’ studied the current status and benefits of GST. It was concluded the introduction of
GST is essential because of shortcomings of earlier tax regime to increase competitiveness
of the industries.
• Parkhi Shilpa studied the challenges and concluded GST to be a welcome move in
growing economy.
• Sulaksha and Sachin Singh in a paper titled ‘Effect of GST on Indian Marketing’ studied
the benefits of GST for industry, Government and Consumers and concluded GST to be a
successful smooth tax collection system.

Objectives of the study


On the basis of latest developments in GST and existing literature. The study seeks to achieve
below objectives:
• To understand the concept and dual model of GST
• To compare earlier tax regime with GST
• To examine the advantages and challenges against successful implementation of GST
• To study the current status of GST and its impact on Indian economy.

Research Methodology
The study is based upon secondary data collected through various sources like websites,
newspapers, articles and magazines. Here, we consider GST as a factor introduced into an
economic system and its impact is being studied based upon latest news and views.
Tax structure before GST
Prior to the implementation of GST, tax structure was based upon distribution of powers between
Centre and State. The Centre had the power to levy tax on manufacture of goods and states had
the power to charge tax on sale of goods. The Centre used to levy Central Sales Tax - collected
by the states, Service tax on all services, in addition, additional duties of custom of goods. These
duties i.e. Countervailing Duty and Special Additional Duty were levied in addition to the Basic
Customs Duty which used to compensate excise duties, state VAT, sales tax and other such taxes.
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423
The implementation of GST empowered the Centre and states to levy and collect GST.
Features of GST Regime
GST is applicable on the “supply” of services or goods as against the earlier model of taxation on
manufacture, sale of goods, or service provision. GST is a destination-based tax structure unlike
the origin-based structure that existed previously.
There are 3 taxes applicable under GST: CGST, SGST & IGST.
• CGST: Collected by the Central Government on an intra-state sale.
• SGST: Collected by the State Government on an intra-state sale.
• IGST: Collected by the Central Government for inter-state sale.
CGST, IGST and SGST/UTGST are levied at the rates fixed states and Centre. Businesses with
annual turnover upto Rs.20 lakh are exempt from GST. For special category states, the ceiling is
Rs.10 lakh. Benefit of compounding is available to small-scale taxpayers with annual turnover of
Rs.50 lakh or below. The choice of threshold exemption and the compounding scheme are
optional. Input tax credit of CGST can be set off against CGST on output and SGST against
SGST on output except for the payment of IGST in case of interstate sales.
Benefits of GST Implementation
• Common national market that boosts foreign investment.
• No cascading effect of taxation.
• Consistency and uniformity in laws, rates of taxation and procedures across states.
• Internationally competitive goods and thereby increased exports
• Simpler tax regime and transparent procedures.
• Input tax credit process is accurate, transparent and electronic.
• Reduced tax evasion due to electronic and transparent system.
• All interactions to the department through a common GSTN website.
GST in various sectors of Indian Economy
GST has brought uniformity in tax system across all the states. However, its impact on every
industry is not favorable. Apart from being favorable or adverse, quantum of effect is also a
significant factor while evaluating contribution of GST in the Indian economy. Here we have
evaluated the impact of GST in certain sectors of the economy.

Manufacturing and Service Industries


Earlier due to multiplicity of taxes cost of production was unduly high for the manufacturers.
With the introduction of GST, burden of compliances and multiple taxes is reduced and the sector
is growing.
Sector-wise Impact Analysis
Logistics
Logistic sector is one of the pillars of economy. A well-developed logistics sector will place India
on its destination at a very fast pace.
E-commerce
E commerce sector is rapidly spreading its roots in every corner of all other sectors of the
economy. It provides a platform to many industries to grow. GST has built its roots within a setup
provided by e commerce. GST will foster the growth of this sector by promoting cash less and
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electronic transactions nationwide.
Pharma
GST is creating an environment where healthcare industries will grow. There might be a concern
with respect to pricing structure. The Pharma sector is hoping for a tax respite that will make
affordable healthcare easier to access by all.
Telecommunications
As GST negates to set up state- specific entities ad transfer stocks, the logistics cost of handset
manufacturers is reduced and thereby prices will face a downward trend.
FMCG
GST rate for products like hair oil, soaps and toothpaste is lowered by 500-600 bps and the
market for such products is large. So the share of this sector will grow.
Airlines
GST on economy class fare is reduced but travelling in business class has become expensive as
compared to earlier tax regime.
Financial Services
There is no significant impact on Long term investors due to higher tax rate but short term
investors will have adverse impact.
Cement
The cement industry has neutral impact as the tax rate earlier and current tax rate work out to be
of insignificant difference.
Automobile
Impact of GST in this sector is neutral except for hybrid cars that are taxed higher. Tractor
companies are also negatively impacted.
Freelancers
Freelancers work as service providers. With the introduction of GST, it has become convenient
file taxes online and maintain accountability.
Startups
GST model supports startups with the single registration for all type of transactions rather than
registering separately with every authority under chaotic and unclear tax structure.
The idea behind implementing GST across the country is that it would offer a win-win situation
for everyone. Manufacturers and traders would gain in terms of fewer tax filings, transparent
rules, simplified accounting requirements. Consumers would be enjoying reduced prices of goods
and services, and the government would generate more revenues with the least tax evasion.
The Short-Term Impact
From the consumers’ point of view, they have a mixed impact on their budget. Some items of
their basket have gone cheaper, some are costlier and some have neutral impact.
Further, there is a compliance cost associated with GST. It may seem cumbersome for the
manufacturers and traders to get registered for GST first and further provide details of each and
every transaction at the portal. This procedural cost will somehow pass to the consumers in the
form of increased prices. Big industrialist may somehow manage to preserve their market share
but small traders who protested earlier will loose a big share of their market.
A Road Ahead
The impact of GST on macroeconomic factors is perceived to be positive. The tax revenue will be
stable and have an increasing trend. Fiscal deficit is expected to remain under control. Inflation
would be reduced as cascading effect would be eliminated. Further, exports will grow, Foreign
Direct Investment will increase and thereby leading to economic growth.
Conclusion & Recommendation
GST is implemented at a stage when the country does not have a broad base to accept and bring
into practice. There has been a huge protest by small traders. IT infrastructure is not well
developed to bring GST to a reality. At the current stage, it is essential to develop an efficient IT
base and lower compliance cost and support to small manufacturers and traders. GST is going to

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425
be a milestone to the growth of Indian economy if whole nation unites and work together with the
Government.

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