7 ‘ hidden benefits ‘ of GST, according to Economic Survey II

By | August 16, 2017
(Last Updated On: August 16, 2017)

The second part of Economic Survey, which was tabled in Parliament today, has observed a rekindled optimism on structural reforms in the Indian economy. Drafted by Chief Economic Advisor Arvind Subramanian, the survey says optimism about the medium-term prospects for the Indian economy has been engendered by a number of structural reform actions and developments. Launch of the Goods and Services Tax (GST) contributes majorly to this optimism, it says.

After narrating key benefits of GST such as furthering cooperative federalism, reducing corruption and leakage, simplifying complex tax structure and unifying tax rates across the country, and creating a common market, the survey goes on to list “hidden benefits” of GST.

1. Textile sector inclusion

The survey says that the textile and clothing sector is now fully part of the tax net, thanks to GST. “Previously, some parts of the value chain, especially fabrics, were outside the tax net, leading to informalisation and evasion. Some anomalies favoring imports of fabrics over domestic production will need to be rectified but overall the tax base has expanded,” it says.

2. Work contracts

Next hidden benefit of GST is the inclusion of an important part of real estate sector—”work contracts”, housing that is being built.

“This, in turn, would allow for greater transparency and formalization of cement, steel, and other sales, which tended to be outside the tax net. The formalization will occur because builders will need documentation of these input purchases to claim tax credit,” the survey says.

3. Effective taxation of imports

Earlier, the countervailing duty to offset the excise tax and the special additional duty (SAD) to offset the state VAT was not adequate. “Under the GST, the full taxes on domestic sales levied by the Centre and the states (the IGST) will be levied when imported goods first arrive into the country with full tax credits available down the chain to a greater extent than previously,” says the survey. The new tax will remove the earlier inadequacies and will lead to more transparent and more effective taxation of imports.

4. Expanding tax base

The survey finds early signs of expansion of tax base, all due to GST. Between June and July 2017, 6.6 lakh new agents previously outside the tax net have sought GST registration. The survey says the number is expected to rise consistently as more people would find the benefits of GST. “Preliminary estimates point to potentially large increases in the tax base as a consequence,” it says.

5. More data

GST will generate a lot of vital information on direct tax collections, says the survey. Earlier, as the excise was imposed at the manufacturing stage, the Centre had little data on small manufacturers and consumption. The states had little data on the activities of local firms outside their borders. “Under the GST, there will be seamless flow and availability of a common set of data to both the Centre and states, making direct tax collections more effective,” it says.

6. Financial inclusion

Since businesses have to keep detailed records under GST, these can be beneficial for them in the long run. “Small businesses can build up a real-time track record of tax payments digitally, and this can be used by lending institutions for credit rating and lending purposes. Currently, small businesses are credit-constrained because they cannot credibly demonstrate their financial capability,” says the survey.

7. Smoother transport

The survey says GST has already made transport a lot smoother. The inter-state check-posts were removed within days of GST coming into force. “So far, 24 states have abolished these check-posts while others are in the process of eliminating them. If this trend continues, the reduction in transport costs, fuel use, and corruption could be significant, “it says. GST will also reduce logistics costs and boost inter-state trade. Source – http://economictimes.indiatimes.com [11-08-2017]

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