The biggest tax reform, the Goods and Services Tax which has replaced more than a dozen federal and state levies. However, many are finding that doing business is quite complicated now. The tax was aimed to unify the country into a single market and to increase the transparency in the process of filing returns. For an individual, the impact can be seen in the form of slightly higher fees for banking transactions like fund transfer and ATM transactions, since these have been placed under 18% tax bracket from the earlier 15% bracket. Nevertheless, it is expected that GST will have a positive impact on the growth of the economy and could reduce the prices in the long term.
Almost a month after implementation, the unified tax system across the country has a built in management information system which allows the monthly returns to be filed and also enables to know the movement of goods and services from one hand to another. It is aimed at increasing the government revenue by creating resources for development. In the short term, this might affect the businessmen, public and others who are not yet aware about the importance of record keeping. However, it is important to know that the input credit system is extremely important and its benefits should be passed on by every business to its customers.
Until now, the financial companies could not claim an input credit for VAT, Octroi, and CST or entry tax paid on the procurements. Under GST, the financial institutions can claim input tax credit for all these taxes. It could take some time to become aware of how the input credit system works and how it will dilute the increase in cost due to GST. These financial institutions file centralized service tax returns currently; these are filed twice a year irrespective of the number of branches. But now they have to file a minimum of three returns per month per state. Also, in GST, the bill of supply is to be compulsorily issued in the case of exempt supplies, that is, interest income in case of banks.
In the older tax system, production of goods was taxed and the rates were high. Further, tax on tax adds to the cost buildup and with the implementation of GST, the overall taxes on goods are likely to come down in the future. Essential items such as raw food articles are not taxed at present and this is expected to continue. One of the major concerns about GST is that of different rates as compared to the other countries in the world. It needs to be noted that each and every country has different environmental situation and they differ culturally too. Hence, the rate is going to be different due to the various circumstances prevailing in the country.
However, one can only conclude that GST is here to stay in the long run and a good tax regime will help address the issues of multiplicity of taxes as well as higher compliance costs.