123ArticleOnline Logo
Welcome to 123ArticleOnline.com!
ALL >> Hardware-Software >> View Article

Impact Of Gst On The Economy: 5 Things To Watch Out For

Profile Picture
By Author: Rahul Sutraj
Total Articles: 16
Comment this article
Facebook ShareTwitter ShareGoogle+ ShareTwitter Share

The Goods and Services Tax (GST) came into effect on 1st July 2017. This happened after much anticipation and opposition. Now, one month has passed. Many are debating whether GST is delivering what it promised for the economy. It may be too early to measure its positive impacts. Those will kick in over the long run. But there are a few things to watch out for in the short run.

Compulsory invoicing
The small and medium enterprise (SME) sector in India is still unorganised to a large extent.
Transactions often happen with partial or no invoicing. GST forces companies to ask their suppliers for invoices. They also need to raise invoices on their sales. GST also tries to do away with fake invoicing. It does so by introducing bilateral validation of credit or invoice matching. These steps can increase the compliance costs of small companies. It can also make their prices less competitive compared to the larger players. Large companies have better-established supply networks. So, they can offset the taxes they pay on supplies.

Supply chain reorganisation
Many SMEs are suppliers or service providers to a few large companies. This is especially true in the manufacturing sector. They come up around production hubs. Or you see them around the manufacturing facilities and warehouses of their customers. They have limited ability to diversify. What was the case before the GST implementation? Companies for the most part decided the location of their facilities. They based this on tax considerations. In focus were state taxes, along with location-based tax exemptions and benefits.

GST has made location-based tax neutral. It has changed the decision criteria for operational factors. These factors include logistical costs, storage costs, and proximity to key markets. So, large businesses are changing their locations based on these criteria. As a result, small businesses could lose their customers. Some have only a few customers. For this reason, they are unable to diversify. These small businesses could suffer the most. But new businesses could also come up where factories and warehouses relocate.

Anti-profiteering measures
The GST law includes anti-profiteering measures. Businesses now need to pass on all benefits of the new taxation system to consumers. This may happen through price reductions. The benefits include tax savings, as well as savings in operational and input costs. The GST Council will keep an eye on whether companies are passing on these benefits to consumers. Implementing these steps could be difficult. That is because indirect savings are hard to calculate. It could bring back an era of price controls. This will not be healthy for businesses, especially small ones.

Possible impact on household budgets
Essential goods and services are either exempted from GST or taxed at lower rates. These include food grains, consumer goods, healthcare, education, and transportation. So, inflation could remain low. This is good news for consumers. Companies are to pass on tax and operational cost savings to consumers. This will help consumers. The savings could lead to more household spending. This is positive for businesses. But there is more to it.

Non-essential services are taxed at higher rates under GST. This could hurt household budgets. Remember that services account for almost 50% of household consumption. This effect will not completely reflect in the headline inflation number. Services carry only 20% weight in inflation calculations using the consumer price index. Also, companies will in due course pass on tax compliance costs to consumers. This could further neutralise their savings.

Growth could stagnate in the short run
GST is a landmark move. It could bring the economy closer to the 10% growth mark. But this may not happen immediately. In the short term, economic growth could stagnate. Three major segments of the economy are being affected. These include consumers, big businesses, and SMEs. Analysts predict the economy to grow close to 7.4% in the financial year (FY) 2018. This is a bit higher than 7.1% in FY 2017. But it is much lower than 7.9% in FY 2016.

The road may be unstable in the short term. But GST could be beneficial over the long run. It could stimulate growth. What happens when more businesses enter the tax net? Tax policy becomes predictable and doing business becomes easier. Business sentiment could improve too. So, more foreign investors and companies could enter the country.

To know more visit : http://www.goodsservices.tax/

Total Views: 210Word Count: 710See All articles From Author

Add Comment

Hardware/Software Articles

1. How To Use Linkedin Automation Tools To Generate Leads Without Getting Blocked
Author: Marya Lizabeth

2. Why Is Kyc Important For Banks?
Author: Eldon Broady

3. What Are The Benefits Of Using Linkedin Automation Tools In 2021?
Author: Marya Lizabeth

4. Boost Productivity With A Free Password Manager For Windows
Author: Benjamin Jones

5. Global Fluid Handling Systems Market
Author: aarti

6. About Icd-10 Coding Changes In 2021
Author: Nora

7. 6 Huge Affiliate Marketing Mistakes That You Must Avoid To Be Successful
Author: Marya Lizabeth

8. Key Features Of Inventory Management System For Your Business
Author: Bhrungaraj Sahoo

9. Wordpress Is A Supreme Web Development Platform
Author: Swayam Infotech

10. Americommerce Sale 2021
Author: marshal mathers

11. Education Erp Software
Author: Ankit chauhan

12. What Are The Biggest Pain Points Of Using Graphql?
Author: Eldon Broady

13. How To Create Invoice/estimate
Author: Ronny Jones

14. Global Industrial Salt Market
Author: aarti

15. Microsoft 365 Business Basic Promo Code For One Month Free Trial With Lots Of Discounts
Author: Christine Bleakley

Login To Account
Login Email:
Password:
Forgot Password?
New User?
Sign Up Newsletter
Email Address: