Has GST Made Tax Collection Easier?

The GST was introduced with a few objectives. One of them was to eliminate the tax-on-tax effect by providing a smooth flow of input tax credit in a supply chain. Another objective was to reduce the cost of compliance by merging 17 indirect taxes into one. Some of those indirect taxes were central excise, service tax, Value Added Tax (VAT), entry tax, sales tax and so on.

The Goods and Services Tax has successfully completed two years since its implementation. It is considered as the biggest tax reform our country has witnessed since Independence. However, GST may not be the perfect tax system in India but it has been working well so far.

Pre-GST Era

The Indian tax structure can be traced back to prehistoric texts such as Manusmriti, Arthrashastra. These manuscripts had proposed that the taxes paid by artisans and farmers back in that era were done in the form of gold and silver. Based on these ancient manuscripts, Sir James Wilson conceptualised the foundation of the tax system of India back in the year of British rule in 1860.

However, after the Independence, the Indian Tax framework has been through a host of changes. It has been a complex system, especially if we take into consideration the length and breadth of our country. The presence of multiple indirect taxes in the pre-GST era, the tax collection and management process in India was quite a difficult task.

The GST Amendment Act 2018 was introduced in the Lok Sabha by Mr. Piyush Goyal, the Minister of Finance. Since then the entire tax collection process much smoother. GST is an all-inclusive indirect tax which has not only removed the cascading effect but has made the entire tax structure simpler in nature and easier to handle.

Two Major Tax Types in India

The Indian Tax system has two types of taxes. They are-

1. Direct Tax 

Direct Tax is a tax levied on all individuals or corporate entities. It is a type of tax, the impact of which falls on the same entity.  The burden of Direct Tax cannot be transferred on to someone else. This type of tax is imposed on income or wealth. Taxes such as income tax, corporate tax, property tax, inheritance tax, etc. are some examples of Direct Tax.

2. Indirect Tax 

In contrast to Direct Tax, one entity collects the Indirect Tax in the supply chain. It can either be a producer or a retailer. The burden of tax collection and deposit is directly on the seller. After collection, the tax is paid to the government and finally passed on to the consumer as the price of goods. The consumer, therefore, pays the tax by paying more for the commodity. Some of the Indirect Taxes are VAT, octroi tax, service tax, customs duty.

Over the past few years, the Central and State Governments have undertaken reforms and process simplifications towards better predictability and automation.

Tax Collection Bodies in India

There are three major tax collection bodies in India. They have defined the types of taxes and rules of tax collection in India. The bodies are:

  1. Central Government– Customs duty, central excise duty and income tax

  2. State Government– Stamp duty, VAT,  state excise duty, professional tax and tax on income from agriculture.

  3. Local Body– Water tax, property tax, tax on small services and drainage.

Post-GST Hits on the Indian Economy

In the post-GST tax structure, tax compliance is easier which was previously difficult as the traders had to comply with multiple rules and restrictions from various tax departments and laws. This has expanded the revenue base exponentially and has argued well for the government. The revenue collection of the government has increased by about 12%.

It was also widely feared that the GST would lead to inflation as it has done to other countries that launched GST. However, what prevented this feared inflation is the multi-slab structure. It ensured that the tax levied was as close as the existing rate. This made sure that the incidence of tax did not rise up.

Several check posts were dismantled from state borders as a result of which India is now a single national market. The barriers had previously prevented the movement of goods across the country and that led to huge delays and increased the cost of transportation. The rise in costs for the logistics sectors also led to inflationary prices of those goods. But GST had fortunately eliminated this problem.

Another expected benefit of GST is the formalisation of the economy. More businesses are now signing up for GST and that is due to the transparency in digital processing and invoice matching. The revised returns and the invoice matching mechanism has been prioritised as it has reduced tax evasion. The previous tax collection was sluggish in nature but with the improvement in procedural matters, it is now more efficient.

There has also been equitable growth of industry all across India. Some states such as Gujrat, Karnataka and Maharashtra were already highly industrialised but there were states such as Bihar, West Bengal, Kerala, Uttar Pradesh, lagging far behind with respect to industrial growth.

Under GST, these states have earned extra revenue from Integrated GST. This extra revenue will be spent in due time on power generation and infrastructure development which are the fundamental requirements for industrial growth.

Other benefits that the post-GST era has brought to the Indian economy is that it has encouraged the free flow of the tax credits, given a boost to company financials and reduced overall prices for consumers among others.

Conclusion

In the last two years since the GST was introduced, it has taken care of various concerns in the Indian economy. GST is still evolving every day. It has received both positive as well as negative responses so far in its true quest of becoming a “One Nation, One Tax” structure. It has also made tax collection procedures much easier and simpler as compared to the pre-GST tax structure.