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GST – Opening new gates of Indian Economy

Harshita Makwana 0
The content of the Constitutional Reform Bill on GST has covered the way for introducing GST in India.
The need for GST is felt because under the current indirect tax structure
  •  Tax barriers have fragmented the Indian market,
  •  Sequential effects of taxes on cost have made local manufacture less attractive,
  •  Complex multiple taxes have raised cost of compliance.
GST is expected to have a favorable outcome on the economy:
1. Removal of tax barriers with seamless credit will make India a common market
2 .It leads to economies of scale in production and efficiency in supply chain.
3. Removal of cascading effect of taxes embedded in cost of production of goods and services, significantly reducing cost of indigenous goods and indirectly promoting ‘Make in India’.
4. While Facilitating transactions of doing business smoothly – Collection of existing multiple taxes into single GST will notably reduce cost of tax performance and cost of transaction.
5. Stable, transparent and predictable tax regime to encourage local and foreign investment in India creating significant job opportunities.
As part of GST implementation,service tax is expecting to go up from the current levels of 14.5 %.
Which is negative for service companies in airlines, telecom, insurance, etc.,in terms of demand impact.
An important fallout of GST could be shift from unorganized to organised segment.
  • The unorganized  sector will come into the tax net and will lose the benefits arising from non-payment of taxes and levies.
  • Thus, companies which are operating in sectors will high unorganized component will benefit in terms of increased demand.
  • Companies in sectors like plywood, ceramic tiles, batteries, etc. will stand to benefit.
  • When the GST would come into practice ,a large number of auto mobile companies could make more profit.
  • If the GST rate on their products is 18 % and they are able to retain the benefits of lower rates.
  • However, the higher rate of 28% would affect negatively over expectations.
  • Services sector, like telecom could face marginally negative impact from the higher service tax rate of 18   % versus 15 % currently.

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