Goods and Services Tax or GST is a proposed system of indirect taxation in India which will merge most of the existing taxes into a single tax system. This method would allow businesses to claim a tax credit to the value of GST. It would prove to be a right step in the direction of taxation reform in India. It will merge several Central and State taxes into a single tax facilitating the national market. However, we must admit that we are still miles away from the implementation of the GST system. The four tax rates that the GST Council has adopted would proof an obstacle in the path to - one nation, one rate motto.
Key Factors
1. Tax rates fixed at 5%, 12%, 18% and 28%.
2. Food grains will be zero-rated.
3. Most goods, like washing machines, ACs, refrigerators, soap, etc. will be rated at 28%.
4. Goods like luxury cars, pan masala, aerated drinks and tobacco products will be taxed at 28% plus cess.
Views of Market Analysts Over the Impact of GST
According to the proposed GST, tax rates on goods will decline. A significant proportion of goods is not even included in the tax system. At present, services-oriented components with 25-30% share in the CPI basket, includes housing, transport, and communication. However, these services are expected to remain exempt under GST. These proposals have forced the market analysts to worry about the impact of GST on inflation.
Reactions of Industry
Though many welcome the GST system but the introduction of the four-tier tax system is clouding their thoughts. Many worries that most of the consumer goods would fall in 18 percent tax rate. They also worry that the system would make the regime more complex.
Effect on GDP
When asked from Mr. Naushad Forbes about the effect of GST on GDP, he replied that according to him the new system is expected to increase the GDP by 1.5 to 2 percent but the new four rate system will surely reduce the benefits of GST and naturally the benefit will be less than 1.5-2 percent.
Experts View
Though many tax experts are willing to welcome the new GST system with open hands yet, they have varying perceptions regarding the new system. According to Prashant Deshpande, the increase in marginal rates to 28% will attract items which are in low tax rates currently.
Though the GST, as predicted, is expected to remove the complexity in the tax system of the country yet with the four-tier rate system is hard to digest by the people as it would, in turn, will bring complexity in the industrial regime. Also, it would hinder in the way to increase the GDP of the country. Exception of certain goods from taxation would certainly affect the economy. Yet, we will have to wait and watch to see the actual effects of the new version of GST and its implementation.
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