Opportunities and Challenges of Goods and Service Tax (GST) in India

Dr. Shahid Husain

Assistant Professor

College of Administrative and Financial Sciences

Saudi Electronic University, Jeddah, KSA

Email: s.husain@seu.edu.sa

Dr. Mohd. Arshad Khan

Assistant Professor

College of Administrative and Financial Sciences

Saudi Electronic University, Madina, KSA

Email: m.akhan@seu.edu.sa

Abstract

A few year ago a VAT system was introduced whereby every next stage dealer used to get credit of the
tax paid at earlier stage against his tax liability. This reduced an overall liability of many traders and also
helped to reduce inflationary impact. Similar concept came in the duty on manufacture- The Central
Excise Duty, much before it came for sales tax. The CENVAT credit scheme (earlier known as MODVAT)
also allowed setting-off credit of excise duty paid at input against the liability of excise on removal of
goods. To a great extent the cascading effect of taxes was resolved by these measure. However, there
are still problems with these systems as the credit of VAT is not available against excise and vice versa.
The GST is introduces to combat this problem among many others in India. There was a huge hue and
cry against it implementation. Even now the concepts, structure and the rationale of implementation
GST is not very obvious. This would, therefore, be interesting to understand the various pros and cons of
its implementation. This paper is an attempt to find out the opportunities and challenges if any, after the
implementation of GST in India.
 Opportunities and Challenges of Goods and Service Tax (GST) in India

1. Introduction

The Department of Revenue under the Government of India’s Ministry of Finance is solely responsible
for the computation of Tax. This department levy taxes on individuals or organizations for income,
customs duties, service tax and central excise. However, the agriculture based income taxes are levied
by the respective State governments. Local bodies have got the power to compute and levy taxes on
properties and other utility services like drainage, water supply and many others. Presently we pay two
types of taxes i.e. Direct and Indirect in various sectors. Direct Tax is paid directly to the government by
the taxpayer i.e. Income Tax, Wealth Tax, and Corporation Tax. Indirect Tax is a tax levied on goods and
services rather than on income or profits. It is not directly paid to government but collected from
intermediaries (such as retail stores) from the person who bears the ultimate economic burden of the
tax (such as consumers). The intermediary later files a tax return and forwards the tax proceeds to
government with the return for example Sales Tax, VAT, Excise Duty and Custom Duty and so on. The
past fifteen years have witnessed tremendous reformations of the taxation system in India. Besides the
rationalization of the tax rates, simplification of the different laws of taxation has even been done during
this period. However, the process of tax rationalization is still in progress in this country.

GST is a blanket of Indirect Tax that subsume several indirect state and federal taxes such as Value
Added Tax (VAT), Excise Duty, and Entertainment Tax etc. GST was firstly introduced in France in 1954,
with introduction of GST France became the first country ever to introduce GST. After France it was
adopted by 165 nations. Now India has implemented it from July 1, 2017 and became 166 th nation to
adopt it. GST Tax Bill also referred to as the Constitutions (One Hundred and Twenty Second
Amendment) Bill, 2014, initiated a Value Added Tax to be implement on a national level in India. The bill
was passed by Lok Sabha on August 2016. GST is imposed at all the stages of production to bring about
uniformity by amalgamation of Central and State Taxes into a single tax payment. GST implementation
in India is Dual in nature, i.e. it consists of two components: one levied by Centre (CGST) and another
levied by States and Union Territories (SGST). Under this system, the consumer pays the final tax but an
efficient input tax credit system ensures that there is no cascading of taxes – tax on tax paid on inputs
that go into manufacture of goods. The GST is expected to change the whole scenario of current Indirect
Tax. GST will merge all Indirect Taxes under an umbrella and will help in creation of smooth market.
According to experts GST is regarded to increase economic growth by between 0.9% and 1.7%. Exports
are expected to increase economic growth by between 3.2% and 6.3% whereas imports are likely to
raise by 2.4% to 4.7%. It is estimated that GST will help in creation of single, uniform market that will
benefit both corporate sector and the Indian economy. Government has promised that GST will reduce
the compliance burdens at present.

1.1 Objectives of Goods and Service Tax- GST is proposed to fulfill the following objectives:

 GST would help eliminate the cascading effects of production and distribution cost of goods and
services. This would in turn, increase GDP and then to economic condition of the country.
 GST would eliminate the multiplicity of indirect taxation and streamline all the indirect taxes
which would be beneficial for manufacture and ultimate consumer.
 GST would be able to cover all the shortcomings of existing VAT system and hopefully serve the
economy health.

1.2 Models of GST:

National GST: In this system Central Government collects the taxes and distributes it among the states
with certain provisions. It is followed by China and Australia.

State GST: In this model tax is charged by respective states of the nation, it is application in USA.

Concurrent Dual GST: Tax in this model is levied by central and state government on both goods and
services. Concurrent Dual GST model consists of three terms as CGST (Central Goods and Service Tax);
SGST (State Goods and Service Tax) and IGST (Integrated Goods and Service Tax). CGST is charged by
Central Government for the transaction related to intra state which is paid to the account of central
government. SGST is collected by state government, IGST is collected by Central Government on
interstate transactions which is an additional tax to be levied.

Non Concurrent Dual GST: In this model states collect GST on goods whereas GST on the services would
be charged by Central Government.

Quebec Model: In this system different provisions prevail for states and central government for
collecting tax.

1.3 GST Rates of Some countries:

Country GST Rates

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

GST Rates in India: GST Council has declared four tier tax structures: 5%, 12%, 18% and 28%. Lower rates
are desired for essential items and higher ones for luxury goods. For controlling inflation, food items are
taxed at zero rates.

2.Review of Literature

Vasanthagopal (2011) in the article “GST in India: A Big Leap in the Indirect Taxation System” discussed
the impact of GST on various sectors of the economy. The article stated that GST is a big leap and a new
impetus to India’s economic change.

Kumar, Nitin (2014) studied, “Goods and Service Tax in India– A way forward” and concluded that after
implementation of GST in India many indirect tax system will be finished and there will be only one tax
i.e. GST which is expected to encourage unbiased tax structure.

Indirect Taxes Committee of Institute of Chartered Accountants of India (ICAI) (2015) submitted a PPT
named Goods and Service Tax (GST) which stated details of GST and its positive impact on economy and
various stakeholders.

Kaur, Milandeep and et al. (2016) in his research paper titled “A Study on Impact of GST after its
implementation” concluded that a well-designed GST is an attractive method to get rid of deformation
of the existing process of multiple taxation.

Khorana, Akansha and Sharma, Aastha (2016) in their research paper “Goods and Services Tax in India –
A Positive Reform for Indirect Tax System” stated that GST would provide relief to producers and
consumers by providing wide and comprehensive coverage of input tax credit set-off, service tax set off
and subsuming the several taxes.

3. Objectives of the Study

The objectives of the paper are:
 To explore the opportunities of Goods and Service Tax in India
 To examine the threats of Goods and Service Tax in India

4. Research Methodology
The paper uses an exploratory research technique based on past literature from respective journal,
reports, newspapers and magazines covering wide collection of academic literature on Goods and
Service Tax.
4.1 Opportunities of GST
The Goods and Services Tax may have many benefits and will create various opportunities on various
stakeholders like business, industry, government and consumers which have been discussed as under:
 For Business And Industry:
 Ease of doing business due to uniform taxes and collection body- A business operating in
different states of the country needs value added tax registration under the state laws.
Different indirect tax rules in various states only add to the complications and high fees
of procedural requirements. Under GST, a centralized registration will make doing
business easier, simpler and the consequent expansion will be an advantage for
business.
 Eradication of the dependent taxation that will reduce expenses of business.
 Advanced and improved logistics with speedy delivery of services- Under the Goods and
Services Tax, there is no entry tax anymore. Consequently, the movement of goods at
check posts and interstate borders will be expedited. As per an estimation by the CRISIL,
the cost of logistics for the manufacturers of bulk goods will significantly reduce by 20%.
The will boost commerce all across the country.
 Single PAN based application for new dealers
 Advantages to manufactures due to price competitiveness
 Eliminating the vague distinction between goods and services- GST will make sure that
there is not existence of ambiguity between goods and services. This will ease and
simplify several legal proceedings in relation to the packaged products. Reducing the
distinction between the service and the material component, will reduce opportunities
for evasion of tax.
  Removal of Cascading- With the implementation of GST, it is expected that the burden
of tax will be reduced for both the manufacture and the end user, as the manufacturer
will get the benefit of input tax credits and the end user will have to pay only the tax
charged by the last dealer or the retailer in the supply chain.

 For consumers
 Single and Transparent tax proportionate to the value of goods and services
 Higher efficiency and reduced seepage can lower costs after sometime
 Reduced price of the product and services due to elimination of cascading effect
 For Centre and State Governments
 Streamlined Administration
 Better controls on leakage
 Consolidation of tax base
 Higher revenue efficiency


4.2 Threats of GST

 GST will have impact on cash flow and working capital. Cash flow and working capital of business
organizations which maintain high inventory of goods in different states will be adversely
affected as they will have to pay GST at full rate on stock transfer from one state to another.
Currently CST/VAT is payable on sale and not stock transfers.
 The mechanism of GST is still complicated, it cannot completely eliminate black money and tax
evasion.
 GSTC (Goods and Service Tax Council) will set the benchmark for resolving the dispute on
recommendations of GSTC. It means GSTC will lay down the criteria for GSTC itself. It is against
the principle of natural justice.
 GST is not a guarantee in itself that it would not be influence by political parties and politicians
will not use it as a win-loss gain.
 Implementation of GST in unorganized sectors i.e. unregistered firm will be unfavorable to
government.

5. Conclusion
It can be concluded that efficient implication of GST in India will lead to resource and revenue gain for
both the Centre and States Governments. It is also expected to bring about efficiency and transparency
in the indirect tax mechanism in India. Electronic processing of tax returns, refunds and tax payments
through GSTNET without human intervention is also supposed to reduce corruption and tax evasion. But
at the same time this has also generated a responsibility of our Government to provide proper guidance
over the application of GST by conduction training programmes, seminars and workshop. Moreover, the
GST structure is likely to succeed only if the country has strong IT network. It is a well-known fact that
India is still in the budding state as far as internet connectivity is concerned.

6. References:
1. Kumar, Nitin (2014). Goods and Services Tax in India: A Way Forward. Global Journal of
Multidisciplinary Studies, 3(6), 216-225
2. Indirect Tax Committee, Institute of Chartered Accountants of India (ICAI) (2015). Goods and Service
Tax (GST). Retrieved from : http://idtc.icai.org/download/Final-PPT-on-GST-ICAI.pdf
3. Vasanthagopal, Dr. R. (2011). GST in India: A Big Leap in the Indirect Taxation System. International
Journal of Trade, Economics and Finance, 2(2), 144-146
4. Garg, Garish (2014). Basic Concepts and Features of Goods and Services Tax in India. International
Journal of Scientific Research and Management, 2(2); 542-549
5. Sahrawat, Monika and Upasana, Dhanda, (2015). GST in India: A Key Tax Reform. International
Journal of Research, 3 (12); 133-141
6. Khurana, Akansha and Sharma, Aastha (2016). Goods and Services Tax in India- A Positive Reform For
Indirect Tax System. International Journal of Advanced Research, 4 (3); 500-505
7. Lourdunathan F and Xavier P (2016). A Study on Implementation of Goods and Services Tax (GST) in
India: Prospects and Challenges. International Journal of Applied Research, 3(1); 626-629
8. Kaur Milandeep et al (2016). A Study on Impact of GST after Its Implementation. International
Journal of Innovative Studies in Sociology and Humanities, 1(2); 17-24.
9. Abda Sachin (2017). Research Paper on Effects of Goods and Services Tax on Indian Economy.
International Education and Research Journal. 3 (5).