The implementation of GST is believed will reduce the cascading effect of taxation(taxation at every stage in supply chain without any deduction for the tax paid at earlier stages). The GST is believed to bring inflation under control at a time when the Government is facing serious challenge of high retail inflation of around 8% in May. GST has been implemented in Europe and many other parts of the world and if implemented in India will help to revive the economy.
What is GST?
The Goods and Services Tax (GST) is a Value Added Tax (VAT) which is an improvement over sales tax and excise duty levied by State and central Government aimed at reducing the cascading effect of taxation. Under GST, exports are suppose to be zero rated and taxes on imports are same as on domestic goods and services. Experts believe that implementation of GST will contribute as much as 1.5 per cent to the GDP and Current Account Deficit(CAD) can also be narrowed. GST rates are typically between 16 per cent and 20 per cent world over and in India it is also likely to be the same.
Why GST is hanging in fire since 2010?
GST was scheduled to come into force in April 2010 but since than its hanging in fire due to opposition by States. Several States apart from compensation from the revenue loss suffered due to reduction of CST or Central Sales Tax has also demanded for the fiscal autonomy. The States claim that they stand to loose Rs.19,000 crore every year because of reduction in CST rate.
Prime Minister Narendra Modi had reiterated in his campaign for the Lok Sabha election that his party was in favour of bringing Goods and services Tax(GST)."As far as BJP is concerned, we are in favour of the GST. Nobody should have any doubts regarding it," Modi had said earlier. But now with NDA Government in power will it be implemented?
Ahead of Union Budget to be announced on July 10, Finance Minister Arun Jaitley is looking for a broad consensus on implementing the GST regime and ensured compensation to the States for the loss of revenue.
GST is expected to add as much as 1.5 per cent to GDP
"Discussions are intensive and We are definitely progressing on the issue of GST. We are moving towards greater consensus. That gives me a hope that GST would be sorted out sooner. Of course, we are in better position from where we have started," Union Minister of State for Finance Nirmala Sitharaman said with reference to GST.
Impact of GST in economy
Implementation of proposed goods and services tax (GST) is expected to be a game changer for Indian economy as it would simplify complex array of taxes and levies and boost its growth trajectory. It is estimated that the GST would add about 1.5 percent to the GDP and significantly help in curbing inflation. The GST which will be a simple method for the collection and administration of taxes will unify India as a market and will encourage a business-friendly environment and will boost FII. Indian economy who is currently facing challenge of poor monsoon and high oil prices due to the on going Iraq crisis, at this time implementation of GST will help the Indian economy come out of the floundering State.