GST in India: A Critical Review

Anupam Verma
Research Scholar,
Faculty of Commerce,
Banaras Hindu University
Email: anupam.verma1@bhu.ac.in

ABSTRACT:

Goods & Services Tax (GST) is an taxation that was introduced in India on 1 July 2017
and was applicable throughout India that replaced multiple cascading taxes levied by the central
and state governments. Goods and Service Tax is a comprehensive tax levy on manufacture, sale
and consumption of goods and services. GST is termed as biggest tax reform In Indian Tax
Structure. It will not be an additional tax, it will include central excise duty, service tax
additional duties of customers at the central level, VAT, central sales tax, entertainment tax,
octroi, state surcharge, luxury tax, lottery tax and other surcharge on supply of goods and
services. The purpose of GST is to replace all these taxes with single comprehensive tax,
bringing it all under single umbrella. The purpose is to eliminate tax on tax. This paper will
throw light on negative aspects of GST .

Keywords: GST, Indirect Tax, Indian Tax Structure, Goods & Services Tax and Comprehensive
Tax.

INTRODUCTION

Introduction of the Value Added Tax (VAT) at the Central and the State level has been
considered to be a major step – an important step forward –in the globe of indirect tax reforms in
India. If the VAT is a major improvement over the pre-existing Central excise duty at the
national level and the sales tax system at the State level, then the Goods and Services Tax (GST)
will indeed be an additional important perfection – the next logical step – towards a widespread
indirect tax reforms in the country. Initially, it was conceptualized that there would be a national
level goods and services tax, however, with the release of First Discussion Paper by the
Empowered Committee of the State Finance Ministers on 10.11.2009, it has been made clear that
there would be a “Dual GST” in India, taxation power – both by the Centre and the State to levy
the taxes on the Goods and Services. Almost 150 countries have introduced GST in some form.
While countries such as Singapore and New Zealand tax virtually everything at a single rate,
Indonesia has five positive rates, a zero rate and over 30 categories of exemptions. In China,
GST applies only to goods and the provision of repairs, replacement and processing services.
GST rates of some countries are given below:

Country Rate of GST

Australia 10%
France 19.6%
Canada 5%
Germany 19%
Japan 5%
Singapore 7%
Sweden 25%
New Zealand 15%

World over in almost 150 countries there is GST or VAT, which means tax on goods and
services. Under the GST scheme, no distinction is made between goods and services for levying
of tax. In other words, goods and services attract the same rate of tax. GST is a multi-tier tax
where ultimate burden of tax fall on the consumer of goods/ services. It is called as value added
tax because at every stage, tax is being paid on the value addition. Under the GST scheme, a
person who was liable to pay tax on his output, whether for provision of service or sale of goods,
is entitled to get input tax credit (ITC) on the tax paid on its inputs.

Features of GST

 GST will subsume central indirect taxes like excise duty, services tax etc and also state
levies like VAT, Octroi, entry tax, luxury tax etc.
 It will have two components, central GST levied by Centre and State GST levied by the
States.
 Only Centre may levy and collect GST on supplies in case of inter-state trade and
collection of tax will be divided between centre and state.
 A two-rate structure will be adopted. It means lower rate for necessary items and goods
of basic importance and a standard rate for goods in general. There will also be a special
rate for precious metals and a list of exempted items.
 Over-lapping of tax, tax on tax will be eliminated with GST.
 Both Goods and Services are taxed in same manner in chain of supply till they are
reached to consumer. They are not distinguished under GST.

Benefits of GST
 GST provide comprehensive and wider coverage of input credit setoff, you can use
service tax credit for the payment of tax on sale of goods etc.
 CST will be removed and need not pay. At present there is no input tax credit available
for CST.
 Many indirect taxes in state and central level included by GST, You need to pay a single
GST instead of all.
 Uniformity of tax rates across the states
 Ensure better compliance due to aggregate tax rate reduces.
  By reducing the tax burden the competitiveness of Indian products in international market
is expected to increase and there by development of the nation.
 Prices of goods are expected to reduce in the long run as the benefits of less tax burden
would be passed on to the consumer.

The Negative Impact of GST in India

 Inflation rate
The inflation rate in India from January 2017 to September 2017. The term
inflation means the devaluation of money caused by a permanent increase in the
price level of products (C+I). Inflation rate has increased from 1.79 % to 5.11 %
during the period July 2017 to September 2017.Why? Because, the negative
impact of GST on price levels in India, It has largely affected consumption and
demand of poor people in India.
 India’s GDP monthly Growth Rate:
India’s economic growth was 8.4% in march 2015 which fell to 5.7% in July
2017, bottoming out from the impact of demonetization and GST, The negative
impact of GST is evidently visible on the Indian Economy.

 The Impact of GST on Poor People

GST is an indirect tax that is finally recovered from consumers of goods and
services, in the form of increase in sale price. Thus every consumer be he/she is
rich or middle class or poor pays same amount of GST for one unit of any product
or service he avails in the market and here in India, the maximum population is of
the middle class and lower middle class where people either belong to service
class or they depend on agriculture for their living. It has negative impact on
common man in India.

 The Impact of Indirect Tax on Consumer

The GST tax is determined by the price elasticity of demand and GST demand is
inelastic the tax burden is mainly on the consumer. The proposed GST may lead
to increase the price of essential products leading to low consumption.

 High Tax Rate in India:

India’s currently tax system is very (28%) second highest tax rate in the world ,it
is not fare in India because more population lies under BPL(29.9%) and income
inequality is high ,India’s 20% people hold country 47.7% of total wealth .thereof,
the negative impact on common man in India.

 The Unemployment Rate:

The unemployment rate is the measure of the prevalent unemployment and it is
calculated in percentage by dividing the number of unemployed individuals by all
individuals currently in the labor force. The implementation of GST (jul-2017)
increased the unemployment rate (3.39 to 6.06 %) during period July- 2017 to
 September in India .It means negative impact of GST in rampant on employment
rate.
 Other Impact:
The negative impact of GST on the real estate market is that it increased new
home buying price by 8% and reduced buyers’ market by 12%. And production
processes are likely to take some time to align with the new framework (change
taxes system) as firms adjust to the input tax credit system and better manage
working capital requirements.

References

1. Http://goodsandservicetax.com/gst/showthread.php?69-CHAPTER-X-Goods-and-
Services-Tax-Theway-forward
2. Http://www.taxmanagementindia.com/visitor/detail_rss_feed.asp?ID=1226
3. Http://www.gstindia.com
4. Http://www.thehindubusinessline.com/todayspaper/tp-others/tp-
taxation/article2286103.ece