GST to increase tax Revenues: Here's why we think so!

With GST becoming the topic of conversation among the people and who are coming up with their own logic for the success of the plan, here’s a proper insight into what GST actually is and will it be beneficial in terms of tax revenues and GDP boost.

What is GST?

Goods and services tax is envisaged as a system where the economy of the country will take a leap, by further simplifying trade and industry running parallel to the indirect tax regime of the country.

With the introduction of GST, only one indirect tax will be paid by trade and industry, incorporating all indirect taxes in it.The GST comprises of:

  1. Central GST which will be imposed by the centre
  2. State GST which will be imposed by the state
  3. Integrated GST which will be imposed by the central government on interstate supply of goods and services.

Usually this is against the common norm of GST formulation.

Related: Goods and Services Tax: Its Impact on Businesses and Startups

How will GST increase tax revenues?

People having the notion that lower taxes will lead to lesser revenues for the government is entirely vague.

With the roll out of GST, a quality change can be expected in the tax system by switching the burden of taxation justly between manufacturing and services by a wider compliance.

GST is supposed to be a trade facilitator by removing internal trade barriers which lead to high logistics cost.

Let’s take an example. Suppose there is only one good being produced worth 20 INR, then:

Before GST

Only 2 people are capable of buying. Tax imposed by the government is 30% that makes the price of the good 26 INR. Hence tax collection for the government will be 12 INR.

After GST

Tax imposed by the government is 20%, hence the price of the good will be 24 INR. As the good has now become cheaper, 4 people can buy it and so the tax collected by the government will be 16 INR.

The economy also works in a similar fashion. Thus GST will become a win-win situation for both the government and the common people.

How GST will lead to GDP boost?

In simple language, this is how the GDP will get a boost:

“Lesser taxes lead to a decrease in the price of goods and services; lower prices leads to increase in the purchasing power of the people, which In turn makes the demand for goods and services rise.”

As we all know that more demand leads to more production, which leads to increase in the GDP of a country.

Therefore, for GST to be successful, it is important that all the states and the centre should implement it in a similar fashion.

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