An Analysis – Effect of GST in 2022

An Analysis – Effect of GST in 2022

An Analysis – Effect of GST in 2022

An Analysis – Effect of GST in 2022  will cover basic principles  why GST was implemented in India in 2017 what is effect of GST on different stakeholders.

Effect of GST is anomalous for every stakeholders. How ?

Central Government – Big Winner – High Tax Collection

States Government – Still in loss – Still demanding Compensation

Big Business- Taking advantages of ITC – Increase Revenue

Small Business – Much Burden than VAT (Monthly Return) – Getting Penalty and Interest every month

Consumers – Waiting like always – GST may in long run helps to reduce the inflation?

5 Shorts Points make you clear

  1. One more Step towards quasi federalism.
  2. Ease of Business
  3. Stopping The Cascading Effect of Taxes
  4. One Tax for One Nation
  5. Central Government and State Governments want more revenue

Now Discuss all these point in full manner

  1. One more Step towards quasi federalism.

India is not a federal country but a quasi federal country and the implementation of GST is more step towards the concept of non destructible Center with destructible States.

The adoption of the GST was made possible by the States ceding almost all their powers to impose local-level indirect taxes and agreeing to let the prevailing multiplicity of imposts be subsumed under the GST. While the States would receive the SGST (State GST) component of the GST, and a share of the IGST (Integrated GST), it was agreed that revenue shortfalls arising from the transition to the new indirect taxes regime would be made good from a pooled GST Compensation Fund for a period of five years that is set to end in 2022.

Everyone Wants More Power But with Power , Responsibility comes in a package now its on Central Government to pay compensation to states .

For the 2020-21 fiscal year, the revenue shortfall has been anticipated at ₹3 lakh crore, with the Compensation Fund expected to have only about ₹65,000 crore through cess accruals and balance to pay the compensation to the States.

Now Comes on 2nd Point of An Analysis – Effect of GST in 2022

  1. Ease of Business

Government wants to Simplify the Return Filling and Assessment of the registered Businesses

As per Government intention they want to reduce the workload of companies hence ensuring ease of business. Success of GST is depend upon the seamless supply of ITC , which is actually based upon self assessment of tax payers paired with advance technological reconciliation of GSTN.

3.Stopping The Cascading Effect of Taxes:-

What is Cascading Effect of Taxes ?

Cascading tax effect is also termed as “tax on tax”. This effect occurs when a good is taxed on every stage of production. Such a good is taxed till it is finally sold to the consumer. This means each succeeding transfer of good is taxed inclusive of the taxes charged on the preceding transfer. As a result, the final consumer bears the burden of the multiple taxes imposed on every stage of production. Such a situation leads to inflationary prices.

Example of Cascading Effect of Taxes:-

For example – A TV set manufactured in India had to pay excise duty when leaving the factory. If it had used some imported components then custom duties on those items had to be paid, in the next leg of its journey from the manufacturer to the wholesaler there were sales tax, and finally from the wholesaler to the retailer there could have been VAT. The situation was more complex when goods moved between the states as not only did they attract a Central sales tax, also the rate for it varied across the states, for example – before GST, value added tax (VAT) was 12.5 per cent in Maharashtra while the same tax in Gujarat was 15 per cent. Many a times, taxes were also levied to promote or dis-incentivise certain products/services, like Luxury taxes or Sin tax. This multiplicity of taxes and complex incidence on multiple stages created two problems – first, it made tax compliance harder for tax payers and also provided opportunities for tax evasion. Secondly, since each new tax was applied on the selling price that also includes tax paid in the previous stage, it basically meant a tax on the amount of tax paid at the previous stage, a phenomenon known as the cascading effect of taxes.

How GST Stop this Cascading Effect of Taxes ?

GST is basically a destination based consumption tax . Under the new GST regime, a particular good/service will attract only one tax rate, and it will be same in all the states. Also, each manufacturer/ seller/business entity will be able to avail the benefits of a scheme known as ‘Input Tax Credit’ (ITC)

4.One Tax for One Nation

The idea of “One Nation, One Tax” was first propounded by Atal Bihari Vajpayee during his presidential tenure in the year 2000. The ratio decidendi behind the idea was to bring reform in the taxation structure of the nation, after which the government formed a GST committee to draft in relation to GST laws.

In the words of Prime Minister Narendra Modi, the Goods and Services Tax (GST) is “a path-breaking legislation for New India”. GST is not merely a tax reform but a milestone in realizing Sardar Vallabhbhai Patel’s dream of building ‘Ek Bharat – Sreshtha Bharat’.

  1. Central Government and State Governments want more revenue

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