GST conundrum: Are taxes a boon or a bane for the economy?
Delhi Delhi. Goods and Services Tax (GST) is the common indirect tax applicable on most of the products and services used in everyday life. GST was first implemented in 2017. To understand the impact of GST and determine whether the policy change is good or bad, it is necessary to understand how things worked before and after its implementation. Earlier, we had VAT or ‘value added tax’, service tax and excise tax, etc. VAT was implemented by the Government of India in 2005 with the same intention of unifying the Indian tax system. VAT is also a form of indirect tax.
However, it was not uniform and varied from state to state, which defeated its very purpose. Every state had its own municipality, which made calculating taxes even more cumbersome and led to higher tax rates. There was also no reliable source to claim tax credit on services. One had to face many hassles even to get a simple task done. Hence GST was introduced in 2017 as part of tax reform. It was implemented to achieve the ‘one nation, one tax’ goal; eliminate a plethora of taxes and procedures, promote online payment processes and streamline the functioning of municipal bodies; reduce tax evasion, competitive prices and boost consumption.
The GST mode of tax payment and collection had a significant impact on products, as well as reduce the amount of resources spent on previous tax collection, make the process more user-friendly and also bring some degree of uniformity in the indirect tax department. The government failed to set up proper portals and infrastructure to handle GST implementation, which led to several issues. The biggest problem was that it created confusion among businesses as most business models were as per the existing VAT regime. As a result, the business confidence index has dropped significantly. Another disadvantage of GST is that it has had a slowing effect on GDP. This has happened due to the change in existing business practices and GST-related confusion in the minds of entrepreneurs.
After almost five years of implementation, several major issues still remain and the GST system has undergone almost 700 minor changes since its implementation. It promised to boost GDP and provide much-needed funds to state governments. However, GDP has declined since GST was implemented. The central government released only partial funds to the state governments after the COVID-19 pandemic and the states were in dire need of funds, creating a huge debt of the funds to be given to the state governments for the year 2020-21. It is important to note that implementing any major policy reform is tedious and time-consuming. The government needs to have the right intentions by charging a percentage that benefits the public instead of focusing only on increasing its revenue. Given the slow results, the GST system needs to be completely changed by experts so that the country can benefit in the long run and the citizens can benefit in the long run.
