GST APPLICATION IN REALITY

This article was written by Siddharth Bansal a student of Guru Gobind Singh Indraprastha University.

India being a democratic country is on the path of development from past sixty years of continuous struggle and hardship. Nobody can doubt the successfulness of the working and benchmark establishments of the constitutional framework. Number of milestones can be intrigued over a period of time. It would be unfair to only administer the work of government in this developmental phase, contribution of common man also cannot be ignored. This has been truly said that clap needs two hands to produce a sound and so is the case with the country and its success. Here, we need to understand that government makes plans, formulates policies and other dimensions but in order to accomplish them bomb amount of capital and masterminds are needed. Here comes the major role of common man. Capital formation is vested in the form of tax collection in India. It can be evaded from ancient times that tax reform was an important part of administration and is still in practice. Everything in this world carries its opposite, so is the matter with success. India, being a highly tax collecting reform based country is exploiting the common interests of public which in turn creates a conflict resolution situation. The prevailing drawback is that tax collection is being practiced on double and triple accounts. Excise duty, service tax, VAT and custom duty are the major tax heads accounting the double collection creating a draining hole in the pockets, leading to continuous combat of frisson for both the parties. In order to overcome this drawback and to encourage economic growth the 5th plan was formulated in 2000, by Vajpayee government, headed by Asim Dasgupta, the then finance minister of government of West Bengal to introduce a common tax covering the above stated taxes under the one domain as goods and service tax. The planning done in 2000 came to the realistic point in 2015. So, here it can be rightly said that this step included not only mental efforts but also accounted the significant usage of time and consideration of pros and cons. Finally, after the successful discussions and considerations Lok Sabha enacted the tax reform and passed it on 6th May 2015. The reform was enacted by Rajya Sabha as well but the passing date is still pending. The bill was introduced by Arun Jiatley within the territorial extent of India only. The bill coined the official name to be “The Constitution (one hundred twenty second Amendment) bill, 2014 which would be a VAT to be implemented in India from April 2016. GST catches the existence as indirect tax covering the manufacturers, sale and consumption of goods and services at national level. This excludes the over payment and repetition of tax collection by the public. 14% tax on goods as well as services satisfies the economic aspiration of all the parties involved. One problem also gets vanished by formulating a single slab of tax collection at central and state level. National market needs uniformity in order to compete internationally. Application of GST reform overlooks the prevailing clashes and provides a clear platform for economies progression making a clear and unambiguous exposure for successful operations worldwide. Earlier, consumer tended to smuggle the things due to differentiated tax slabs and ultimately got exploited in economic terms, after the application of GST this drawback also extinguishes, as now people are aware how much they have to pay and to whom. They are not in a dilemma to think and estimate that after all where their money is being flowing. General public being aware and enjoying transparency now takes part openly in economic concerns according to their will. Even it has been observed that now people are more willing to participate in economic matters of the country. If we come to the implication part, then the general euphoria around the bill is that GST will be a solution to the problems that we have and it will be a boom time for industries to expand. It has been proposed that GST will blow up the rate of industrial growth and GDP will increase per capita income. From the economic point of view GST is sounding well balancing reform with an intensity to spur the economic reform but the question arises: will this mean that the centre will pay from the taxes it collects or will it have to dip into its other incomes? This is crucial because the tax rate will determine how the money flows. The way to look at it is whether the final incidence will be higher or lower than what is being paid at present on an average. Unless this is virtually the same, only then can we have a situation where the same amount of tax is collected which will enable compensation or states losing out under the new dispensation without causing distortions. The GST already talks of an additional 1% for the producing states as the tax would be in consuming rate. If revenues on balance remain neutral for both the sets of entities, then we may assume that the status quo prevails and the tax on a producer service is the same. Industry gains, as administratively it becomes easier for them to pay a single tax rather than move papers through a series of windows. Time would be saved in tax payments, movement of goods and corruption, which will lower costs and improve profitability. However, this looks so idealistic to be true at the practical level and the final incidence could lead to an increase in prices as the collections will end up being higher. Service tax, for example, is at present around 14%. Bringing it on par with the general level will mean a higher tax rate pushing up prices. While costs will reduce substantially and profitability will improve especially at the ports and octroi posts as well as various tax departments, with the incidence of giving bribes also coming down, it may not lead to higher GDP except at the margin. On the positive side, an outcome could be in terms of compliance with the tax. It has been argued that once these transactions come into fold, overall revenue will also increase and the corresponding output which is reported would get included in the aggregate production and hence, GDP. An overall conclusion to be coined in this reform aspect is that economic spur is possible and is quite beneficial but only when the implementation of the reform will be as planned and corruption free. Proper administration is the key of attaining objectives in the long run. The fruit can be born off this reform only when it is practiced in real sense keeping the interests of all the involved groups on fair grounds.