Goods & Services Tax (GST) and its role in Economic Growth

Goods and Services Tax which might  come in effect from April 2016, is a Value Added Tax will replace all indirect taxes levied on goods and services in India by both Central and State governments. It will help government tackle the menace of double taxation in a significant way and the system will be more streamlined. Consumers will gain from the same as the tax-burden on goods and services will fall from the current level of 25-30%. In addition, the new tax regime will be easy to monitor and operate and will relatively increase the competitiveness of Indian products and services in domestic and international markets. This will give a boost to the economic growth.

Some of the highlights of the same are:

• The existing system of taxation in India involves taxation at various stages of supply chain like manufacturing, to sale of goods or services. This will be completely wiped out with the introduction of GST which will only apply to supply of goods or services.
• The current tax regime is based on origin-based taxation. GST will be destination-based tax regime.
• GST will levied by both Centre and states on a common base. The one imposed by Centre will be known as Central GST (CGST) and the one by states will be known as state GST (SGST).
• On all inter-state supply of goods and services, an Integrated GST (IGST) will be levied which will go to the Centre to avoid any disruptions in the credit chain.
• Imports of goods and services will be treated under the blanket of IGST. Customs duty will be added to the same.
• An additional non-VATable tax of 1% will be imposed on inter-state supply of goods. It will be retained by the state in which it originated for a period of 2 years.
• GST Council headed by Finance Minister and including FM of states will monitor and recommend the GST rates of CGST, SGST and IGST.
• GST will be applicable to products except alcohol. Tobacco and related products will also be subjected to GST. The central excise duty may continue.
• GST on petroleum products will be applicable from dates recommended by GST Council.
• The exempted goods will be minimum in number.
• All exports will be zero rated.
• Value Added Tax has been widely accepted by many countries in the past four decades and it has been an important indirect source. GST regime in India will lead to efficient allocation of factors of production and a substantial increase in GDP and exports. Many countries like Canada, New Zealand, Australia have successfully implemented GST.

Thus, when effectively implemented it will lend many benefits to the economic growth of the country.