June 22, 2021

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GST- A great fiscal reform

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Uday Deb
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GST or Goods and Services Tax was introduced in July 2017 and is a gigantic tax reform in the Indian economy. It has brought transparency and simplicity in business.

Double taxation or cascading of taxes is also abolished totally by GST. The final tax paid by the consumer less the input tax paid by the producer is the net tax liability of the producer to the government.

Data shows that GST revenues were Rs 7.19 trillion in 2017-18 and Rs 11.77 trillion in 2018-19. Before GST the combined excise duty and VAT revenues increased from Rs 3.58 trillion in 2014-15 to Rs 6.36 trillion in 2016-17. Thus GST has put tax revenues on a higher trajectory.

This sharp rise in tax revenue was due to higher tax base as exemption to pay GST for manufacturing was reduced from Rs 1.5 crores to Rs 40 lakhs. So a wider tax net was in effect. But for small businesses and services the exemption limit was raised from Rs 10 lakh to Rs 20 lakhs and then again doubled later. But the loss due to this latter was done away by the former and also because of better compliance. The GST returns filers increased from 9.8 million in 2017 to 13 million in 2020.

Also GST on several items were reduced after 2018 because of politics. Lower rates could have led to tax elasticity.

Better compliance of GST was given importance to increase tax buoyancy. There are 21 rules that GST payers are to obey failing which businessmen would be punished with monetary fines and jail terms. Several people have been punished so far.

IT infrastructure is also getting upgraded each day which is scaling the tax revenues.

Macroeconomic impact of GST is lower inflation and higher economic growth in the country.

GST is a good thing as it brings honesty in the economy. Black money has been removed by about Rs 3 trillion as registration of businesses is mandatory and sales figures needs to be quoted to the tax authorities.

So GST will put India on the ranks of advanced economies of the world in terms of business culture and good leadership.

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Disclaimer

Views expressed above are the author’s own.

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Disclaimer

Views expressed above are the author’s own.

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