What is GST?

GST is levied on every stage of manufacturing and sales of goods and services across India.
This tax is levied when the goods or services are consumed. There are three subcategories to
GST-
CGST (Central Goods and Services Tax) is collected by the Central Government on interstate
sale of goods and services.
SGST (State Goods and Services Tax) is collected by the State Government on intrastate
sales.
IGST (Integrated Goods and Services Tax) is collected when a supply of products and
services is supplied from one state to another. The taxes collected are shared both by the
Central and State Government.

Indian Economy Before GST

 It has been found that the cascading effect of taxes was one of the major drawbacks of
indirect taxation system followed by the country before GST. This is mainly due to
the taxation structure that both the Central and State Government to levy taxes
separately on goods and services at different stages of production to consumption.
The cascading effect of this tax was hindrance to GDP Growth rate in India
 It is critical to revive domestic investments and further ease of doing business in the
country to attract foreign investors. The low growth of FDI in the consumer and retail
sectors can be due to uncertainty and complexity of the FDI policy. While the
government has taken substantial efforts in relaxing the regulations as well as
removing ambiguities, global consumer and retail companies were still
hesitant to take decisions to invest in India.
 The Retail inflation has declined to a six-year low of 3.3 per cent in 2017-
18, with the economy moving towards a more stable tax regime.
Consumer Price Index (CPI) averaged 3.3 per cent during the period,
which was the lowest in the last six financial years.
The export industry faced tough times till GST was implemented, due to non-
availability of refunds under the VAT tax system. India’s exports rose 9.8%
during 2017-18, the highest growth rate in six years, while imports went up
nearly 20% after the GST implication

Impact of GST on our economy

1. Simpler tax structure
With GST, the taxation system of our country has become simpler. It is a
single tax, ensuring easier calculation. With this tax, the buyer gets a clear
idea of the amount paid as tax when purchasing certain products. This is
crucial when considering GST and its impact on the GDP.
2. More funds for production
Another effect of GST on the Indian economy has been the reduction in the
total taxable amount. This saved fund can again be invested back into the
production cycle to foster production.
3. Support for small and medium enterprises
Based on the size of your organization, the amount of GST depends on
your firm's annual turnover, provided you have been registered under the
Composition Scheme introduced by GST. Enterprises with a yearly
turnover of 50 lakhs have to pay 6% GST whereas enterprises with 1.5
crores worth of turnover have to pay 1% GST.
4. Increased volume of export
When considering GST and its impact on the Indian economy, customs
duty on exporting goods has reduced. So now production units save money
while producing goods and also while shipping them. This two-way savings
has lured many production units to export their goods, increasing the export
quantity.
5. Enhanced operations throughout India
With a unified taxation system, transporting goods around India has now
become easy, boosting operations throughout the country.
6. No more cascading effect
With GST, taxes of the State and Central Government have been merged.
This has removed the cascading effect of taxes, reducing the burden on the
buyer and the seller. So even if it may look like one big chunk of tax to be
paid, you pay lesser hidden taxes.

The impact of GST on the common man’s pocket

If you see the short-term impacts, customers now shall need to pay more
taxes on goods and services they purchase. A majority of essential
consumables will input either the same or a higher amount of tax. The
benefits of GST to the common man are plentiful.
Small-scale trades also have to bear the cost of compliance, which may
raise the prices of their produce, affecting the consumer.
Nevertheless, in the long term, GST also promises several benefits. With
the decrease of payable taxes for producers of consumer goods like
FMCG, the automotive sector will have to reduce the prices of their
commodities. This will allow the consumer to pay less while trying to avail
of these services.
A drop in prices will show an immediate surge in demands, boosting the
production cycle bringing in more profits. With this, both the buyer and the
seller get to save a fair share of money eventually, and the economy, too,
shall be boosted.
A boost in production shall also pave the way for expansion, leading to
more employment and increased income. This not only creates a better
scope for the common man but also strengthens the economy.
The implementation of GST also implies raising an invoice for the purchase
of any goods and services. With a proper billing system, the prospect of
black money and corruption shall also go down. These have been troubling
aspects for the common man in India.
How does GST affect the other sectors?
Till now, we discussed the small, medium, and large scale manufacturers
and the real estate sector; let’s now take a look at the impact of GST on
businesses other than real estate-
Logistics
In a country as big as ours, logistics plays a key contribution to the
economy. A well-organized and structured logistics industry can grow
exponentially, especially under the Make in India banner.
E-commerce
E-commerce has high growth potential. However, e-commerce companies
shall have to bear with tax collected at source factor for GST.
Pharma
The pharma and healthcare sector shall have a positive impact on GST
with its simplified tax structure. It will also be availing a tax respite in lieu of
making healthcare cheaper and accessible to people of all income groups.
Telecom
A drop in prices can be expected in the telecom sector, as costs like
warehousing, logistics, etc., will reduce.
Textile
Indian textile is one of the largest employers of skilled and unskilled labour.
With the textile industry also making 10% of total exports in India, the
numbers are likely to increase with the removal of customs duties. GST
shall also affect the value of cotton, a material on which most small-scale
textile industries depend. These are some of the impacts of GST on small
traders.
Agriculture and farming
Agriculture is the biggest contributor to India's GDP, covering more than
16%. With the ease of logistics, transportation costs of agricultural produce
will also go down. Thus, the impact of GST on wholesalers has been
greatly positive.
FMCG
With GST eliminating the need for multiple sales depots, FMCG shall save
a lot on logistics and distribution costs.
Automobile
Under the previous taxation system, several taxes like excise, VAT, sales
tax, road tax, motor vehicle tax, registration duty were applicable, which
has now been replaced by GST. Automobile prices are likely to drop as the
producers are saving more in the form of taxes now.
Startups
GST has tremendously benefitted Indian startups with perks like a DIY
compliance model, increased limits for registration, a free flow of goods and
services and tax credit on purchases. It has also become easier for
companies with a pan India presence to calculate taxes, especially if
belonging to the e-commerce sector. Understand the impact of GST on
small-scale industries if you are a part of this sector.
Self-employed individuals
Self-employment or freelancing is a young industry in our country, but filing
for taxes has become easier as they fall under service providers with GST
implementation. Understanding the impact of GST on micro small and
medium enterprises is important for such individuals.
Entrepreneurs engaged in the hospitality sector should also check out the
impacts of GST on the hospitality industry.
GST comes with its set of pros and cons, affecting both buyers and sellers.
One must be aware of GST’s negative impact on the GDP as well. So one
side, when taxes have become simplified, they have also led to a rise in
compliance costs.