How have GST reforms impacted different sections of society in India?
The BJP and Congress are debating over who should take credit for GST reforms. I want to understand how these reforms have affected various groups, such as small businesses, consumers, and state governments.
The Goods and Services Tax (GST), implemented in 2017, is one of India's biggest indirect tax reforms. It aimed to simplify the tax structure, promote ease of doing business, and create a unified national market. GST's impact has varied across different sections of society:
- Small Businesses:
- Initially faced challenges due to compliance requirements like frequent filing of returns and digital processes.
- The composition scheme was introduced to ease the tax burden for small businesses with turnover below a certain threshold.
- Many unregistered small traders and informal businesses found it difficult to adapt to the new system.
- Over time, GST has helped formalize many businesses, allowing them access to wider markets and input tax credit.
- Consumers:
- GST subsumed multiple indirect taxes, leading to more transparent pricing in many sectors.
- Prices of some goods and services fell due to lower tax rates, while others saw an increase.
- Consumers benefited from reduced tax cascading (tax on tax) and uniform rates across states.
- State Governments:
- States lost autonomy over many indirect taxes but were assured compensation for revenue loss for the first five years.
- GST Council provided a platform for cooperative federalism, but disputes over compensation and rate rationalization have emerged.
- States with higher consumption benefited more, while manufacturing states initially felt disadvantaged.
- Large Businesses and Corporates:
- Benefited from input tax credit across the supply chain, reducing overall tax liability.
- Facilitated easier movement of goods across state borders, reducing logistics costs.
- Faced initial compliance burden but gradually adapted to the new system.
- Informal Sector:
- Faced difficulties in transitioning to the formal tax system due to lack of digital literacy and resources.
- Some small players went out of business or merged with larger, formal enterprises.
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