TABLE OF CONTENTS

S.NO TITLE PAGE NO.

.
1. Introduction 3
2. Research Methodology 4
3. GST – An Explanation 5
4. Comparison of GST system of India with that of 9
New Zealand
5. Overall Impact of GST 12
6. Suggestions 16
7. Conclusion 17
8. Bibliography 18
 Introduction

Goods and Services Tax, abbreviated as the GST is an ambitious tax system
implemented by the Government of India. It came into effect on 1st July 2017.

The GST system presently functioning is recognized widely for the concept of
‘One Nation, One Tax’. It is a multistage, destination-based, comprehensive
indirect tax model which has been brought into force to regularize the indirect
taxation system in India.

Goods and Services Tax isn’t a new concept in the world economy. It has been
in existence since the 1950s. It was first brought into effect by the French
government. However, the system adopted by France is different from the one
brought into effect by India and various countries.

Apart from India, Canada, New Zealand and Australia are some countries who
have shifted their indirect tax system towards a unified taxation policy.

Goods and Services Tax, as we break down the term, refers to the tax which
shall be applicable on the supply of goods, or services, or both. Alcoholic liquor
for human consumption and petroleum products haven’t been included in the
reforms.

Before the GST reform of 2017, indirect taxes were governed by the Value
Added Taxes (VAT) regime. In VAT, the state governments had autonomy on
imposition of the taxes and thus, every state had a different rate of tax for every
product. This had made the taxation system immensely complex, hampering
diversification for various companies. Also, it was acting as an hinderance for
foreign investors who may not be comfortable with state-wise rates of taxes.

Thus, to get rid of these problems and to increase investment and ease of doing
business in India, the government decided to implement the GST which had
been in the developing stage for more than a decade.

2
 Research Methodology
Objective:

 To understand the concept of Goods and Services Tax and to analyse its
overall impact on the economy.

 To identify various advantages and disadvantages of GST, and to

eventually compare it with New Zealand and derive at a conclusion on
the effectiveness of this historic reform.

Sources of data collection:

This is a Secondary Research study based on information gathered from

secondary sources across researches and studies, and information available on
official government websites.

Area of Study:

Area of study is National analysing overall impact of GST in India.

3
 Goods and Services Tax – An Explanation
What are Taxes?
Taxes are involuntary fees levied on individuals or corporations and enforced
by a government entity—whether local, regional or national—in order to
finance government activities. There are mainly two types of taxes: Direct Tax
and Indirect Tax.

1. Direct Tax: A direct tax is a tax that you directly pay to the authority
imposing the tax. In India, CBDT (Central Board of Direct Taxes) which
is governed by the Department of Revenue is responsible for the
administration of direct taxes.

2. Indirect Tax: Indirect taxes are levied on goods and services. Indirect
taxes do not depend on the income of an individual. The tax rate is the
same for everyone. The CBIC (Central Board of Indirect Taxes and
Customs) is mostly responsible for handling indirect taxes in India.

Context Direct Tax Indirect Tax

Imposed on Income and profits All the goods
and services
Who pays Individuals and businesses End-consumers
How much Depends on income and profits Same for
everyone
Transferability Not transferable Transferable
Tax Evasion Possible Not possible
Nature Progressive Regressive
Collections Complex Convenient
Common Income tax and securities transaction tax GST, excise
examples duty, and VAT

What is Goods and Services Tax?

4
GST is known as the Goods and Services Tax. It is an indirect tax which has
replaced many indirect taxes in India such as the excise duty, VAT, services tax,
etc. The Goods and Service Tax Act was passed in the Parliament on 29th
March 2017 and came into effect on 1st July 2017.

In other words, Goods and Service Tax (GST) is levied on the supply of goods
and services. Goods and Services Tax Law in India is a comprehensive, multi-
stage, destination-based tax that is levied on every value addition. GST is a
single domestic indirect tax law for the entire country.

Goods and Service Tax is applied on services and goods at a national level with
a purpose of achieving overall economic growth. Under this system, the
consumer pays the final tax.

What are the different components of GST?

GST would be levied on a common base by both the central and the state
government simultaneously. The dual GST can be categorized into the
following:

 Central GST (CGST) - GST to be levied by the central government.

 State GST (SGST)/Union Territory GST (UTGST) - GST to be levied
by states/Union Territories with legislature.
 Integrated GST (IGST)- GST levied by central government on inter-
state supply of goods and services to ensure that the credit chain is not
disrupted. Apart from the applicable custom duties, import of goods and
services would be treated as inter-state supplies and would therefore be
subject to IGST.

Taxes subsumed under GST

Central Taxes

5
 1. Countervailing Duty (CVD) of Customs
2. Central Excise Duty
3. Special Additional Duty of Customs
4. Service tax
5. Duties of Excise Under Medicinal and Toilet Preparations Act
6. Additional Duties of Excise
7. Cesses and Surcharges

State Taxes

1. Central Sales Tax

2. State VAT
3. Purchase Tax
4. Luxury Tax
5. Entry Tax
6. Taxes on Lotteries, Betting, and Gambling
7. Entertainment Tax
8. Taxes on Advertisement
9. State Cesses and Surcharges

Advantages of GST

1. Removing Cascading Effect

2. Higher threshold for registration
3. Composition scheme for Small and Medium business
4. Simple and easy online access
5. Logistics efficiency improved
6. Managed the Unregulated Sectors

Disadvantages of GST

6
 1. Introduction of GST Software
2. Increased operational expenses
3. The higher tax burden on Small and Medium Enterprises

Impact of GST
1. Manufacturers, Distributor, and Retailers
GST is a boost in competitiveness and performance in India’s manufacturing
sector. Declining exports and high infrastructure spending are just some of the
concerns of this sector. Multiple indirect taxes had also increased the
administrative costs for manufacturers and distributors and with GST in place,
the compliance burden has eased and this sector will grow more strongly.

But due to GST business which was not under the tax bracket previously will
now have to register. This will lead to lesser tax evasion.

2. Service Providers

As of March 2014, there were 12,76,861 service tax assesses in the country out
of which only the top 50 paid more than 50% of the tax collected nationwide.
Most of the tax burden is borne by domains such as IT services,
telecommunication services, the Insurance industry, business support services,
Banking and Financial services, etc. These pan-India businesses already work in
a unified market and will see compliance burden becoming lesser. But they will
have to separately register every place of business in each state.

7
 Comparison of GST System of India with that of
New Zealand
VAT was in existence before GST. GST was launched in an effort to regularize
and make the indirect tax regime uniform throughout India. It was done keeping
in mind economic and accounting benefits. However, as we already are aware,
GST is a borrowed concept.

Let us now compare it with the systems in New Zealand and understand its
operation in India.

 INDIA
GST was enforced in India by the way of a Constitutional amendment made in
the year 2017. The present GST regime suggest that there are multiple slabs of
GST rates. Each commodity finds a place in either of the slabs and tax is
charged accordingly. The slabs are divided into 4, on the basis of the tax rate:
5%, 12%, 18% and 28%. Some commodities, which are tax free, are charged at
a rate of 0% GST.

The commodities and services are allocated specific HSN (Harmonized System
Nomenclature) codes which help the seller/service provider identify the slab in
which the commodity or service falls.

There are three returns that need to be filed: GSTR-1 for sales, GSTR-2 for
purchase (auto-populated) and GSTR-3 for final return and re-conciliation. All
returns are to be filed quarterly and monthly, subject to the turnover of the
registered enterprise. However, GSTR-3 is not in force. Instead of it,
provisional GSTR-3B is applicable. Though tax is filed accordingly, but in the
provisional GSTR-3B, detailed return is not filed.

GSTR-9 and GSTR-9C are annual returns. GSTR-9 is for those who are not
covered under GST audit while GSTR-9 and GSTR-9C both are applicable for
those registered enterprises who are covered under the GST audit.
8
These are the basic returns that need to be filed apart from the other returns
which are required to be filed by the various enterprises.

 NEW ZEALAND
GST is an indirect tax charged on purchase of goods and services in New
Zealand. It came into existence in 1989 and since then, GST has been applicable
on all the purchases.

The unique feature in the New Zealand’s tax system which attracts our attention
is the uniformity in the tax rate. The GST rate has been single and consistent
since the start of the system. The rate before October 2010 was 10% which was
later raised to 15%.

The exceptions from GST are-

1. Bank services, including interest

2. Residential rent
3. Wages, which are subject to other taxes.

Various activities in New Zealand are subject to zero-percent GST. These

activities include export, certain supplies of fine metals, supplies of land where
both the vendor and purchaser are registered for GST.

GST in New Zealand is applicable on all registered entities. To be registered in

GST, the current or projected turnover in New Zealand is NZD 60,000 or more.
For non-resident suppliers of low-value goods (below NZD 1,000) or remote
services of more than NZD 60,000 in a 12-month period to consumers are also
required to register for GST.

The frequency of returns filed under New Zealand’s GST regime varies,
depending on the turnover. If Inland Revenue Department’s approval has been
acquired and the value of total taxable supplies is less than NZD 5,00,000 in a
12-month period have to file the return every 6 months. If the taxable supplies

9
amount to NZD 24 million or less, the return has to be filed once every 2
months. If annual turnover (including group turnover) is above NZD 24 million,
the return has to be filed monthly. Non-resident suppliers of low-value goods
are required to file return quarterly.

Conclusion of the comparison:

Though the system of New Zealand may look very lucrative, however, this
cannot be used in the Indian set-up because Indian economy is very diversified.
Due to the plethora of goods and services offered in the Indian market, along
with the various classes of people which live together in the country, differential
tax rates on different items are a necessity.

10
 Overall Impact of GST
Positive impact of GST
1. Number of taxpayers registered under GST stood at 1.08 crore as early as
April 2018, and rose to 1.23 crore by June 2019, where it has more or less
stayed since.
2. There has been a consistent and steep rise in the cumulative number of
returns filed, which stood at over 47 crores in June 2020.
3. In the period up to March 2020, while public and private limited
companies and public sector undertakings accounted for 6.5 per cent of
taxpayers and 72 per cent of total collections, proprietorships and
partnerships accounted for 91 per cent of taxpayers and 21 per cent of
collections. The presence of “informal” units among taxpayers is quite
significant, suggesting that coverage is reasonably good.

Problems with GST

1. Stagnation in Growth - The value of total collections. As Chart 1 shows,
the total monthly collections from State (SGST), Central (CGST), and
integrated (IGST) goods and services taxes and the compensation cess
first crossed ₹1 lakh crore in April 2018. Yet there have been only nine
months out of the 33 months till March 2020 in which that mark has been
exceeded in nominal terms. Further, there have been only four months in
which the figure has topped ₹1.05 lakh crore. In sum, the picture is one
of stagnation in GST revenue growth.

11
 

2. All round Sluggishness - As Chart 2 shows, this sluggishness in revenue

growth is true of all components of GST collections, with the peak value
achieved being recorded in April 2019. In sum, even the Pre-Covid
deceleration of growth recorded in 2019-20 was enough to keep
collections below the ₹1-lakh crore mark in subsequent months. The pro-
cyclicality of GST collections, starting even from relatively disappointing
levels, is marked. Needless to say, once the lockdown in response to the
pandemic was announced, revenues collapsed.

12
 

3. Marginal Rise - The net result is that average monthly collections in

each of the three financial years (Chart 3) when the GST regime has been
operative, having risen sharply from ₹82,294 crore in the nine months of
2017-18 starting July to ₹98,114 crore in 2018-19, rose only marginally
to ₹1,01,843 crore in 2019-20. So, the average monthly collections,
which were 19.2 per cent higher in 2018-19 relative to the previous year,
grew in nominal value by just 3.8 per cent in 2019-20. GST collections
rose from 5.8 per cent of the GDP in July 2017-18 to 6.2 per cent in
2018-19 and then fell to 6 per cent in 2019-20, even though GDP growth
slowed in the last of these years.

13
14
 Suggestions
The central government and the GST council should revisit the GST Act and
GST slabs to ensure that the loopholes which are existing in the system, which
are further stopping the newly established system from achieving its goals are
done away effectively and swiftly. The shift from GST and VAT was a big
challenge not only for the government but for the business operators as well.

The need of the hour to ensure that the business enterprises are educated about
the updated system so that they are able to overcome any difficulties that may
arise before them while adapting to the new system. Also, their grievances and
requests should be kept in mind by the GST council to ensure that maximum
benefit can be supplied to the business owners, which will in-turn boost the
Indian economy and ease of doing business in India.

15
 Conclusion
The introduction of GST in India is a historic reform. Comparing the design of
India’s GST system to similar taxes on value added across other countries, the
note highlights that India’s GST system is relatively more complex, with its
high tax rates and a larger number of tax rates, than in comparable systems in
other countries. However, while teething problems on the administrative and
design side persist, the introduction of the GST should be considered as the start
of a process, not the end. With the economy adapting to the new system, the
GST council has been evaluating and evolving the tax structure and its
implementation. While international experience suggests that the adjustment
process can affect economic activity for multiple months, the benefits of the
GST are likely to outweigh its costs in the long run. Key to success is a policy
design that minimizes compliance burden, with a single rate, limited
exemptions, simple laws and procedures, an appropriately structured and
resourced administration, compliance strategies based on a balanced mix of
education and assistance programs and risk-based audit programs. A nuanced
communications campaign is crucial to convey the various aspects of the new
system of GST amongst businesses, consumers and key intermediaries, such as
tax practitioners, as well as amongst the tax administration itself and the
political class.

16
 Bibliography
http://gstcouncil.gov.in/
https://data.gov.in/keywords/gst
https://cleartax.in/s/gst-law-goods-and-services-tax
https://www.thehindubusinessline.com/opinion/columns/c-p-
chandrasekhar/three-years-on-gst-hasnt-lived-up-to-its-
billing/article32204975.ece
https://taxguru.in/goods-and-service-tax/gst-comparison-indian-regime-
countries.html

17