In order to predict the effects of GST (goods and services tax) it is necessary to understand the effects of indirect taxes on people's welfare. It is widely accepted that indirect taxes in any form is regressive. That too in a country like India where millions of people are living under poverty, any increase in indirect tax will hit the people's life severely. So the answer for the question of whom does the GST benefit is also depends on the same. As far as the GST is concerned it is not the ideal form but a modified form to fit Indian requirement. Though GST is claimed to be an historical achievement in indirect taxation, some fundamental issues like improper integration among the government departments, unawareness and unpreparedness among the people etc., may grow into serious concerns if not addressed properly. Let us discuss briefly about other concerns of traders and consumer which must be addressed to make the effort successful one.
Small cottage industries:
GST may serve as a channel to carry out the inclusion (by transforming unorganised sector into organised one). This may seem to be optimistic. But the ceiling for including into the tax ceiling that has been fixed as 20 - 70 lakhs will make most of the cottage industries taxable and, this sum may seem to be large sum but when it comes to overall turnover i.e. for 365 days and for 5 to 8 persons including transport and other charges the profit will be well below what is known as living wage. And at the same time there is a much administrative over reach i.e. awarding excessive power to bureaucracy under Customs Act 1962, to take punitive actions may seem to be a great hindrance for the traders and merchants (tax terrorism through government fixing targets in sales tax and exercise duty collection) i.e. bringing license raj again.
Cost of filing reimbursements (around 35 documents to be filed for tax returns) of these small scale industries reduce their competitiveness in the market and it is also favouring the corporate giants in the market. But creating a uniform tax structure with input credits will provide these industries with wide opportunity to establish their market cover.
Bringing goods like unbranded egg, milk, curd, vegetables etc. gave some relief to people. But at the same time most of the middle income class goods fall under the category of either 12% ( Frozen Meat Products, Butter, Cheese, Ghee, Dry Fruits In Packaged Form, Animal Fat etc,.) or 18%( Note Books, jams, sauces etc.,) which is higher than previous taxes taken along with its cascading effects but the cost of cars and two wheelers came down. This raised the agony of salaried class and people working under unorganized sectors which constitutes most of the middle income group. To be noted here that most of the countries like Japan, Malaysia, Canada etc, have fixed their tax rate less than 10% whereas most of the goods in India comes under 18% slab.
Economists' prediction of short term price rise and long term fall in price level will help in increase of consumption.
Benefits to government:
Increase in tax collection due to following reasons:
From the above discussion we may conclude that the GST structure is aimed at a Win - Win situation for both government and people. But, the success of the taxation structure significantly depends on the implementation and correcting the flaws associated with it, which is inevitable. This is enunciated through National council Applied Economic Research (NCAER) which has projected a 1%-2% increase in the GDP due to GST. But the above predictions are based on the reduction in inefficiencies in the production process while eliminating the current compounding effect of different central and state levies.
-- Bharath Prasath