The Evolution and Impact of Goods and Services Tax

(GST)

ASSIGNMENT

NAME :ASTHA DAS(24/844), DIVYA(24/850) ,GARIMA

PURI(24/853), AANANYA SRIVASTAVA (24/821).

SUBMITTED TO: MAMTA BHUSHAN MAM

The Evolution and Impact of Goods and Services Tax (GST)

Introduction
The Goods and Services Tax (GST) represents one of the most significant reforms in India's
indirect taxation system. It replaced a complex web of central and state taxes with a single,
unified tax regime. GST aims to create a seamless national market, boost compliance, and
eliminate the cascading effect of taxes.

The objectives of this assignment are:

✓ To understand the historical evolution of GST in India

✓ To analyze its framework and implementation

✓ To evaluate its advantages, challenges, and economic impact

1. Overview of GST
GST is a multi-stage, destination-based tax levied on the supply of goods and services. Its
introduction marked a shift from origin-based taxation to consumption-based taxation. The
uniformity in taxation has simplified the tax system while ensuring better transparency.

2. Evolution of GST in India

The idea of GST was first proposed in 2000, with the establishment of a committee to design
its structure. After years of deliberation, the Constitution (101st Amendment) Act was
passed in 2016, and GST was implemented on July 1, 2017. This reform consolidated taxes
like VAT, excise duty, and service tax into a single tax system.

3. Structure and Mechanism of GST

GST operates at three levels:

Central GST (CGST): Levied by the central government

State GST (SGST): Levied by state governments

Integrated GST (IGST): Levied on inter-state transaction

It is categorized into five tax slabs: 0%, 5%, 12%, 18%, and 28%, depending on the type of
goods and services. Essential items are taxed minimally, while luxury goods attract higher
rates. The GST Council, comprising members from the central and state governments, plays a
critical role in decision-making and policy formulation.

4. Advantages of GST
o Simplification of Tax System: GST has replaced multiple indirect taxes with a single tax
structure.

o Reduction in Cascading Effect: Earlier, taxes were levied on already taxed goods/services,
leading to inflation. GST eliminates this cascading effect.

o Encouragement to the Formal Economy: By incentivizing invoice generation, GST promotes

transparency and reduces tax evasion.

o Boost to Economic Growth: The creation of a unified market has facilitated trade,
investment, and GDP growth.

5. Challenges of GST

➢ Initial Implementation Issues: Businesses faced challenges adapting to the new system,
such as filing returns on the GST portal.

➢ Compliance Burden: While large businesses adapted quickly, small enterprises found it
difficult to meet compliance requirements.
➢ Revenue Concerns: State governments initially experienced shortfalls in tax revenue,
leading to dependence on central compensation.

➢ Complexity in Tax Rates: Multiple tax slabs have led to confusion and disputes among
stakeholders.

6. Impact of GST
• On Businesses: GST has reduced logistical inefficiencies and streamlined supply chain
management. However, compliance costs have increased for small enterprises.

• On Consumers: GST has brought down the overall tax burden on many goods and services,
benefiting consumers. However, certain essential items experienced a temporary price hike.

• On the Economy: The unified tax structure has widened the tax base, formalized the
economy, and strengthened India's position in global trade

7. Benefits of GST

 Simplification of Taxation

Replaces multiple indirect taxes like VAT, service tax, and excise duty with a single tax.

Reduces complexity in compliance and tax calculation.

 Reduction in Cascading Effect

Eliminates the "tax on tax" phenomenon by offering input tax credit (ITC) at every
stage of the supply chain.
Lowers the overall tax burden on businesses and consumers.

 . Ease of Doing Business

Creates a unified national market by standardizing taxes across states.

Simplifies inter-state trade with the introduction of the Integrated GST (IGST).
  Enhanced Transparency

GST is technology-driven, requiring businesses to upload invoices and returns online.

Ensures proper tracking of taxes and reduces evasion.

 Boost to the Economy

Encourages formalization of businesses, widening the tax base.

Promotes economic growth by making the tax system more efficient.

 . Consumer Benefits

Reduces the overall cost of goods and services by minimizing hidden taxes.

Brings uniformity in pricing across states.

 . Support for Small Businesses

Composition scheme allows small businesses to pay taxes at a reduced rate.

Simplified return filing process for small taxpayers.

 . Increased Revenue Collection

Broad tax base and reduced evasion lead to higher tax revenue for the government.

Facilitates better allocation of resources for development projects.

8. The Goods and Services Tax (GST) has had significant impacts:

 . Economic Impact

Unified the national market, boosting inter-state trade and GDP.

Increased tax revenue and formalized the economy by widening the tax base.

 . Business Impact

Simplified compliance by replacing multiple taxes.

Input Tax Credit (ITC) reduced production costs.

Benefited exporters and SMEs, though smaller businesses faced adaptation challenges.

 . Consumer Impact

Reduced tax burden and standardized pricing.

Initially caused inflation for certain goods and services.

 . Sector-Specific Effects

Manufacturing and logistics saw cost savings, while sectors like real estate remain partially
outside GST.

 .Administrative Impact

Promoted transparency through digital filing but posed initial compliance challenges for
small businesses.

Overall, GST streamlined taxation, benefiting the economy, businesses, and consumers

9. GST and Economic Growth:

The Goods and Services Tax (GST) is a significant reform aimed at streamlining indirect
taxation by replacing multiple taxes with a single, unified tax structure. Its implementation
can have a substantial impact on economic growth, both in the short and long term. Here’s
how GST influences economic growth:
Positive Effects on Economic Growth:

1. Simplification of Tax System: GST replaces a complex tax structure with a

single, comprehensive framework. This reduces the administrative burden on businesses
and improves compliance, leading to greater efficiency and cost savings.

2. Boost to Business Efficiency: By eliminating

multiple layers of taxation, GST reduces the cascading effect
(tax on tax), resulting in lower production costs. This can help
businesses become more competitive, stimulate investment,
and increase productivity .

Negative effects on Economic Growth:

1. Initial Disruptions: The implementation of GST can
lead to short-term challenges, such as compliance costs,
technical difficulties, and disruptions in supply chains. Small
businesses, in particular, may face challenges adapting to
the new system.
2. Inflationary Pressures: In some cases, the
introduction of GST may lead to price increases for certain
goods and services, especially if they were previously taxed
at lower rates

Here is examples of how GST is applied in

various scenarios:

1. Sale of Goods

Scenario: A company sells a laptop for ₹50,000 with a GST

rate of 18%.

GST Amount: ₹50,000 × 18% = ₹9,000

Total Price Paid by Consumer: ₹50,000 + ₹9,000 = ₹59,000

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2. Service Sector

Scenario: A hotel charges ₹5,000 per night for a room with

12% GST.

GST Amount: ₹5,000 × 12% = ₹600

Total Cost to Customer: ₹5,000 + ₹600 = ₹5,600

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3. Inter-State Supply

Scenario: A trader in Maharashtra sells goods worth

₹1,00,000 to a buyer in Karnataka. GST rate is 18%.

GST Division:

Integrated GST (IGST): ₹1,00,000 × 18% = ₹18,000

The trader charges ₹1,18,000, and the IGST goes to the

central government.

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4. Input Tax Credit (ITC)

Scenario: A manufacturer purchases raw materials worth

₹1,00,000 with 18% GST (₹18,000). The final product is sold
for ₹1,50,000 with 18% GST (₹27,000).

GST Payable to Government: ₹27,000 (output GST) - ₹18,000

(input GST) = ₹9,000
---

5. Daily Life Example

Scenario: Buying a restaurant meal costing ₹1,000 with 5%

GST.

GST Amount: ₹1,000 × 5% = ₹50

Total Bill: ₹1,000 + ₹50 = ₹1,050

These examples illustrate how GST is applied to goods,

services, inter-state trade, and input tax credit.t in higher
consumer prices and reduce purchasing power in the short
run

Conclusion
GST has brought about a major reform in India’s taxation
system. By consolidating multiple taxes into a single
structure, it has created a more efficient and transparent
system. Despite the challenges faced during its
implementation, GST has the potential to boost economic
growth, improve compliance, and create a more unified
market. Continued reforms and awareness will ensure that
GST delivers its intended benefits in the long run.

Reference
Goods and Services Tax Act, 2017

GST Council Guidelines

Indian Ministry of Finance Website.

Thank you