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The government aims to create “One Country One Tax One Market” through the implementation of the goods and services tax (GST) by removing economic barriers between states. GST will eliminate the complex multi-layered indirect taxation system in India, making it possible for manufacturers to produce in one state and supply seamlessly across states without barriers. This new tax will replace central and state taxes.
Many people will benefit from this new tax, including consumers, manufacturers, and the government. Consumers will benefit from the exemption of 80 common consumption goods from this tax. Consumers across all states will be subject to the same indirect tax. The prices of a number of commodities are due to drop because of lower GST tax brackets. For manufacturers, this tax will provide a unified common national economic market of 1.3 billion consumers. They can now produce in one state while supple to other states without any tax barriers. This tax will allow for the faster transportation of goods because of the removal of entry tax and check posts. Lastly, the government will benefit from the new tax because of the creation of a common market, common procedures, and common taxes. It will also help reduce corruption because of the higher transparency in tax collection. The GST will also help widen the tax net by bringing in smaller players that do not pay taxes regularly. Overall, this tax will help boost the flagship programme “Make In India” and improve the “Ease of Doing Business” ranking.
While there are many benefits to the new GST, there are some challenges after implementation. GST implementation could have an inflationary impact on economy in near term and the actual effects on the economy will be visible only after 6-12 months. There is also the possibility of businesses and retailers adopting loopholes to avoid taxes. GST rates for items such as noodles, pickles, incense sticks, etc have already been altered by the government after receiving feedback from the industry. A number of other sectors such as textiles, branded rice, etc have also been demanding similar roll-backs and reductions in GST rates and demands may intensify in the near short term.
Overall, this tax will help many parts of India’s economy. If the Indian government keeps up with the facing challenges, this tax will lead to an easier way of doing business within the country.