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India is the second largest consumer market in the world. There are over a billion consumers, and companies from all over the world are making inroads into this developing nation to get a piece of the action.
The Indian growth story has been remarkable and resilient. It has been resilient because the growth has happened despite the unfavorable business atmosphere in the nation. Companies have always found it difficult to cope with the incredibly complex and harrowing taxation system that India had put into place.
However, on the midnight of 30th June 2017, India woke up to a new tax regime. From 1st July 2017, the various taxes that were levied by different state and local authorities were scrapped. A new system was created, the result of which was a unified tax system that would work all across the nation. The principle followed during the implementation was “One nation, One market, One tax”
This was no less than a historic moment. This is because various Indian governments have been involved in a massive parliamentary debate for over 15 years on this issue of GST. Finally, the system has seen the light of day.
Whether this system has been the game changer that it has always been touted to be is yet to be seen. Hence, for the moment, we will focus only on its widely debated pros and cons.
In a system where there are several taxes to be paid, several formats have to be followed. Companies had to hire experts in every kind of tax to ensure compliance. Also, the software systems and tax engines that they used for invoicing were based on extremely complex algorithms. This made the cost of compliance and reporting extremely high.
Indian companies were spending a lot of money to be tax complaint and this was apart from paying taxes! This was making companies less competitive in the foreign markets. Because of this extremely complex taxation system, it would sometimes make more sense for companies to import the products even though they could have been sourced indigenously.
The corrupt officials would needlessly delay the trucks from entering the city with their red-tapism. Tired of waiting at check points, the logistic companies would usually resort to bribing the officials in order to save time and therefore money.
Multiple taxes meant multiple officers had to be bribed. By implementing a one tax system, the Indian government has significantly reduced the corruption prevalent in the economy.
Finally Octroi had to paid to bring the goods in local area for sale. The weird part about this was that sellers could not claim input credit for the other taxes paid. Hence, the final consumer had to pay double or even triple tax on the products. GST has made this ambit of taxes redundant. As a result, the consumers now are no longer subject to dual taxation.
To sum it up, GST is also an imperfect policy. However, the degree of imperfection is much less as compared to that of the previous policies. As time passes by, the people of India should be able to adjust much better with this policy. It is likely that GST will be a game changer in the long run.
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