Businesses, because they contribute to employment, and pay taxes to the government, have a major role to play in the economy. However, complex taxation laws can make it difficult for entrepreneurs to set up businesses. That's why GST, a unified taxation system, is India's step towards a better economy.
GST aims to resolve the issues with multi-layered taxation system that levies heavy taxes on inter-state businesses. This will make it easier for MSMEs (micro, small and medium enterprises) to offer products and services smoothly across the country.
Why A Uniform Taxation Was Necessary?
India, with numerous states had a multi-layered taxation system. This form of a complex multi-layered system brought about significant restrictions for micro, small and medium businesses (MSMEs) mostly. This is because small enterprises were unable to sell products at reasonable prices outside their domicile state due to heavy tax imposition.
Indirect taxes included custom duty, excise duty, central sales tax, service tax and others.
Indirect taxes were also added at each stage of product development. In comparison GST is only a value-addition at the end of the entire sales process.
What Is The Significance Of SGST And CGST If GST Is A Uniform Tax?
The need for implementing GST was becoming more profound with each passing day. A faulty taxation system was observed as the weakling in the Indian economy. However state governments were not very keen on implementation of GST. State governments believed that it would have a major dent in the state revenue system, and the states will not be able to function properly.
To resolve this issue the central government has implemented the SGST (state goods and services taxes) and CGST (central goods and services taxes) classification. This shows what percentage of the tax of Integrated goods and services tax is going to the state government and central government.
Why Are There Different Slabs For GST If It is A Single Tax System?
Different types of goods and services are taxed differently. This is why there are multiple slabs for GST. Among multiple types of GST rates, the luxury items are taxed higher than necessary goods and services. This move ensures that the entire population has easy access to everyday items. This slab was also present in the old taxation system. Read here to know more about GST amendment act 2018
How GST Helps The Trade Sector
Reducing Complexity Of Multiple Tax System-
A multi-layered taxation system consisting of entry fees into another region, different welfare cess, et cetera, increased the price of goods.
This meant that either the business had to pay these individual taxes and lower the profit or they would have to increase product prices to make consumers pay for it. Although this wasn’t a major crisis for large scale companies MSMEs suffered a lot. As they have a limitation in investment, letting go of their profits to pay such taxes or increasing the price for an item both had severe impacts on business.
Building A Nationwide Single Market-
Businesses not only pay taxes but also generate employment. For an entrepreneurial company it is next to impossible to pay huge taxes and employ people where there are no manufacturing units. generally such businesses are either based in a single state or two. To have their products sold in other states it would have to be a higher priced product.
Also employing people in a state where there are no manufacturing units to sell products would be a far stretch with heavy taxes to pay for. The cascading taxation system had to be brought down to ensure that start-ups and MSMEs could function with ease in multiple regions through a nationwide market that has less tax imposition.
Lowering Incentive In Case Of Tax Evasion-
The motive of tax evasion originates in an incapability to pay multi-layered taxes. Small, medium as well as large businesses have been evading taxes to ensure their smooth operation. With the older policy of taxing a product through every stage of development to sales, this tendency was encouraged. With GST in place and the taxation only fixed on value-addition at the end, this tendency is expected to be lowered.
Benefits Of GST In India For Consumers
Reduction In Prices Of Goods In The Long Term-
When taxes are added at each stage of the product development and sales, these taxes are added up in the final price of the product. This price is what the consumer pay for. When more taxes are levied for a product sale in different states, these extra taxes are also added partly in the selling price. So the consumer is the real victim here. With GST taxes are only added as value-addition at the end. This means the consumer only has to now pay for a single tax with a comparatively lower price.
How GST Will Benefit the Government
Although the main aim for GST is to make business simpler and products easily accessible throughout the country, there is a third reason. Cascading taxes resulted in multiple tax evasion cases. MSMEs had lower chances of expansion and the government hoped to resolve this issue. With GST, the essential expectation that the government has is to boost the country’s economy through encouraging businesses of all sizes. Here you can know more about how to file a gst amendment.
Dual Monitoring Structure-
GST is not only going to be tracked by the central government but also by the state government. This shows that there are two very major steps against fraud cases and evasion. This will not only save time for the government to detect anomalies in the taxation system and its loopholes, if any, but also promote a simplified and healthy taxation system.
More Revenue For The State-
The tax base expansion with more businesses now venturing into multiple states will help bring in more revenue both at the state and central levels.
GST will not only expand the tax base but hopes to encourage MSMEs to bloom. This means such businesses will also profit more and expand their bases in other states besides large scale companies and generate more employment than before.
