Compliance and Competitiveness with GST

The Goods & Services Tax or GST can be touted as the biggest fiscal reform being embarked upon post-independence, which restated the Centre-State relationship. GST changed the way of conduct of business and operations of the Government. It is a destination based tax levied on the value being added. It is charged on purchases to be set off against output tax, thus resulting in it being imposed on value addition.

Impact of GST

– Moving towards an efficient supply chain to suit market needs. It means reduction in stocking points and resulting in economies of scale.
– Eliminating the cascading effect of taxation on the economy.
– It has also resulted in removal of check points and the abolition of state entry taxes and octroi duties to improve certainty of logistics.

Redesigning incentives

GST is a destination tax having a direct correlation between tax revenue and consumption. Given direct impact of revenues, the competition for investment in services like logistics, IT and tourism between the states is on the rise.

Digitisation

The compliance under GST has radically changed with business to business transactions, input tax credits being digitally reported and monitored. It has had an impact on tax administration’s liability to reduce evasion while pushing tax compliance. It has also enabled tax payers to automate process related to finance and taxation. With digital , comes the potential for usage of analytics on the wealth of data.

Federal cooperation

The implementation of GST, required amendment to the Constitution where central & state government ceded their exclusive powers of taxation. Currently with shared powers of taxation, a supply is taxed by both the governments. There was also the establishment of the GST council to dealt with legislative administration. With involvement of different stakeholders and the cooperation working well, it has led to a new wave of coordination between the governments.

Way ahead

With taxpayers being exposed to multiple assessments, inquires and audits, it will result in increased uncertainty and impact the investment climate. There is a need to simplify the tax administration framework. GST has made a decent beginning but the future depends on improving and simplifying the system.