After being in the pipeline for 17 long years, the Goods and Services Tax (GST) has finally been launched effective July 1, 2017. While the government claims that GST will result in decline in inflation and economic growth (up to 2% of GDP every year), the corporate sector is apprehensive of a compliance nightmare and increase in compliance cost.
Let us see some of the probable outcomes.
1. A large number of Indian corporate and entrepreneurs will have to reorganise their businesses – the move is likely to bring more small businesses into tax net and increase compliance.
2. At present, the grudge of increasing salaried middle class is that most of the businessmen are disorganised and out of tax net, increasing the inequalities in the society. GST should bring more parity into the social system by bringing more businesses into formal, legal and tax system.
3. The existing system of selling without bills should reduce. Companies will now insist vendors and suppliers to furnish invoices as GST will make it impossible for firms to
evade taxes.
4. There would be a considerable jump in transaction trails and logistical efficiencies.
5. Big entities will benefit by offseting taxes paid on inputs.
6. Smaller entities will rue spending more on compliance costs.
7. Corporates may pass on part of the benefit of lower taxes to consumers, so inflation may come down. The remaining benefit will improve the profit margins of corporates.
8. Low GST rates on essential goods such as foodgrain, household consumer items and essential services may result in easing of inflation.
9. Huge amount of workflow for professionals and firms advising on GST for the first couple of years at least!
All said and done, GST may not give a kickstart or quantum leap to the economy immediately. However, the long-term impacts should be positive. It should improve the ease of doing business in India, boost investment sentiment and attract more foreign investment.
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