International Journal of Management and Applied Science, ISSN: 2394-7926 Volume-3, Issue-5, May-2017

http://iraj.in
POSITIVE AND NEGATIVE IMPACT OF GST ON INDIAN ECONOMY
A DASH

Biju Pattanaik University of Technology, India

Member IEEE
E-mail: adash.research@gmail.com, adash@ieee.org

Abstract - Goods and Services Tax popularly known as GST a single tax on the supply of goods and services, right from
the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value
addition, which makes GST essentially a tax only on value addition at each stage. This research paper highlights the positive
and negative impact of the GST in the Indian Tax System.

Keywords - GST in India, Impact of GST, Tax system in India, India, Mechanism of GST, feature, impact, prices, Indian
Economy

I. INTRODUCTION III. EXISTING INDIRECT TAX STRUCTURE

IN INDIA
Goods & Services Tax is a comprehensive, multi-
stage, destination-based tax that will be levied on A. Central Taxes
every value addition. Goods and Service Tax  Central Excise duty
(GST) implemented in India to bring in the ‘one  Additional duties of excise
nation one tax’ system, but its effect on various  Excise duty levied under Medicinal &
industries will be slightly different. The first level of Toiletries Preparation Act
differentiation will come in depending on whether the  Additional duties of customs (CVD & SAD)
industry deals with manufacturing, distributing and  Service Tax • Surcharges & Cesses
retailing or is providing a service. B. State Taxes
 State VAT / Sales Tax
II. OBJECTIVE OF STUDY  Central Sales Tax
 Purchase Tax
The study has following objectives:
 Entertainment Tax (other than those levied
 To cognize the concept of GST
by local bodies)
 To study the features of GST
 Luxury Tax
 To evaluate the advantages and challenges
 Entry Tax (All forms)
of GST
 Taxes on lottery, betting & gambling
 To furnish information for further research
 Surcharges & Cesses
work on GST

It is a single indirect tax for the whole nation, one The Journey so far
which will make India a unified common market. It is
a single tax on the supply of goods and services, right
from the manufacturer to the consumer. The GST Bill
was introduced in Lok Saba in 2009 by UPA
government but they failed to get it passed. The NDA
government introduced a ‘slightly modified’ version
of the GST Bill in the Parliament and both the Houses
passed it. Through GST, the government aims to
create a single comprehensive tax structure that will
subsume all the other smaller indirect taxes on
consumption like service tax, etc. Touted to be a Fig-1
major game changer, in the words of Union Finance
Minister Arun Jaitley ‘it will lead to the financial IV. BENEFITS OF GST
integration of India’. Currently, tax rates differ from
state to state. GST will ensure a comprehensive tax  Overall reduction in Prices for Consumers
base with minimum exemptions, will help industry,  Reduction in Multiplicity of Taxes,
which will be able to reap benefits of common Cascading and Double Taxation
procedures and claim credit for taxes paid.  Uniform Rate of Tax and Common National
Market

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 International Journal of Management and Applied Science, ISSN: 2394-7926 Volume-3, Issue-5, May-2017
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 Broader Tax Base and decrease in “Black” V. GOODS AND SERVICES TAX NETWORK
transactions
 Free Flow of Goods and Services – No Goods and Services Tax Network (GSTN) has been
Checkpoints 6 set up by the Government as a private company under
 Non-Intrusive Electronic Tax Compliance erstwhile Section 25 of the Companies Act, 1956.
System GSTN would provide three front end services,
namely registration, payment and return to taxpayers.
It will boost export and manufacturing activity, Besides providing these services to the taxpayers,
generate more employment and thus increase GDP GSTN would be developing back-end IT modules for
with gainful employment leading to substantive 25 States who have opted for the same. The migration
economic growth. Ultimately it will help in poverty of existing taxpayers has already started from
eradication by generating more employment and November, 2016. The Revenue departments of both
more financial resources. GST Will prevent Centre and States are pursuing the presently
cascading of taxes as Input Tax Credit will be registered taxpayers to complete the necessary
available across goods and services at every stage of formalities on the IT system operated by Goods and
supply; Services Tax Network (GSTN) for successful
migration. About 60 percent of existing registrants
have already migrated to the GST systems. GSTN has
already appointed M/s Infosys as Managed Service
Provider (MSP) at a total project cost of around Rs
1380 crores for a period of five years.

Example of GST Calculation

Let us assume that the GST is set at 5% Suppose that
the manufacturing cost of a Product A is 100 and
assuming a GST of 5% the total amount is Rs. 105
The next step of taxation would be when the Product
is sold to consumers, let’s say at a price of 150. So
the GST will charge another 5% on just the difference
of Rs. 150 and Rs. 105 i.e. only 5% on Rs. 45 which
is equal to Rs. 2.25. So the final price is Rs. 150 + Rs.
2.25. Unlike the case of petrol pricing there is no tax
on a tax now. This eliminates the cascading effect of
taxes which is very prevalent in our economy and has
been simplified to an elemental level in the example.
Since the GST will be applied at every step of value
creation it will be very difficult for black money
owners to participate anywhere in the value chain
with the GST without accounting for all other
transactions.

Positive Impact of GST

All most every industry body are "fully prepared" for
Fig-2 : Source: Times of India implementation of the new indirect tax regime, while
commending the government's efforts towards its
rollout. The nationwide GST will overhaul India's
convoluted indirect taxation system and unify the
over $2 trillion economy with 1.3 billion people into
a single market.
The medium-term impact of GST on macroeconomic
indicators is expected to be extremely positive.
Inflation will be reduced as cascading of taxes will be
eliminated. Assocham president Sandeep Jajodia said
India would move many notches up the global ease of
doing ladder by this single, but the most important tax
reform in the country.

Negative Impact of GST

India has adopted dual GST instead of national GST.
Fig-3 It has made the entire structure of GST fairly

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 International Journal of Management and Applied Science, ISSN: 2394-7926 Volume-3, Issue-5, May-2017
http://iraj.in
complicated in India. The centre will have to But the government has proposed to compensate for
coordinate with 29 states and 7 union territories to those losses for a period of 5 years.
implement such tax regime. Such regime is likely to
create economic as well as political issues. The states CONCLUSION
are likely to lose the say in determining rates once
GST is implemented. The sharing There are approx. 140 countries where GST has
of revenues between the states and the centre is still a already been implemented. Some of the popular
matter of contention with no consensus arrived countries being Australia, Canada, Germany, Japan,
regarding revenue neutral rate. Pre GST service tax of and Pakistan, to name a few. Implementation of GST
15%, which would increase to 18-20% in post GST. impacts a nation both ways, positively and
Hence, although prices of goods and products can negatively. Ignoring negative aspects, positive
come down, service industry will bear the brunt of aspects can be taken into consideration, in order to
higher taxes. Air travel, hotels would become more improve the economy of the country. In order to
expensive. Currently, economy class tickets are taxed measure the Impact the GST we need to wait for the
6% and non-economy class tickets are charged 9%. time and the Government needs to communicate
Once GST is implemented, it would increase to 18%, more and more about the systems. It could be a good
thereby leading to direct increase of 9-12% tax on the way to reduce the black money and good effort by the
tickets. Unless the airlines absorb this increase, the Government of India after the Demonetization of the
additional tax has to be paid by the consumer. money in 2016.

1. Proposed GST Rate Is Higher Than VAT REFERENCES

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