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5 Benefits Of Gst Tax You Need To Know
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India moved to GST, an indirect tax regime from 1st of July 2017. The new regime subsumed almost a dozen state and central taxes, like service tax, VAT, etc. and is the largest fiscal reform since independence. But while the business owners and opposition are targeting the government for this change, we bring you a list of 5 important benefits that this new tax regime is expected to provide:
1. No multiple taxes
The most important advantage of GST is that it eliminates multiple indirect taxes which businesses and consumers used to pay.Taxes like service tax, octroi, sales tax, excise, VAT, turnover tax have been replaced by GST. Moreover, it also effectively eliminates the ‘tax on tax’ or the cascading effect of taxes of the previous indirect tax regime to bring down the cost of goods and services.
2. Input tax credit
Another major benefit of GST is the input tax credit. It means that when the service provider or a manufacturer pays the tax, they can deduct the amount which they have already paid as input tax. For instance, if a manufacturer has to pay Rs 10,000 as output tax and has already paid an input tax of Rs 5,000, he will only be required to pay the remaining Rs 5,000. This will help in reducing the overall tax burden on the manufacturers and will ultimately reduce the prices of the goods and services.
3. Reduction in operational costs
Businesses in which transportation of goods or raw materials plays an integral role can experience a significant decrease in their operational costs. The new tax regime will considerably reduce the long queues at the border checkpoints as well as other state entry points. As per a report from World Bank, businesses can save up to 40% on their logistics costs incurred from toll plazas and check-posts.
4. More employment
The reduction in the cost of goods and services by GST will increase the demand. For meeting this requirement/demand, the supply needs to be increased. And the only way to increase supply would be to increase employment. Moreover, the tax will also make manufacturing industry competitive benefitting both consumers as well as business owners.
5. Better GDP
Arun Jaitley, the Finance Minister of India, stated that this new tax regime would boost the GDP of our country by 1.5-2% on long-term basis. With improved tax efficiency and improving the ease of doing business, GST will transform India into a common market.
While you cannot see almost all of the benefits of GST, it is a step in the right direction. While the commotion due to the tax regime is yet to settle, over time, things will surely improve when consumers, as well as the businesses, will start experiencing these benefits.
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