Positive Impact of GST

The Goods and Services Tax (GST) has been one of the most significant tax reforms in Indian history. Introduced in July 2017, GST was designed to simplify the country’s complex taxation system by consolidating multiple indirect taxes into a single, unified tax regime. The GST impact has been far-reaching, transforming businesses across various sectors with the goal of making trade more efficient, transparent, and streamlined.

In this article, we will explore the positive effects of GST on the Indian economy and how it has restructured the tax environment to be more conducive to growth.

Three Positive Impacts GST Is Expected To Have on the Indian Economy

The impact of GST on the Indian economy can be seen in its ability to promote greater transparency. With GST, more businesses are likely to register officially, which significantly reduces the chances of tax evasion. Let’s explore three ways in which GST benefits Indian businesses and positively impacts the economy.

1. Promotion of Organised Trade

Before GST: Trade in India was previously hampered by the cascading (tax-on-tax) effect of multiple taxes. For example, a furniture manufacturer in Delhi faced multiple taxes, such as excise duty and VAT, both in Delhi and at the point of sale in other states like Maharashtra. Overlapping taxes increased costs and discouraged interstate trade.

After GST: Under the unified GST system, the manufacturer now pays a single GST rate on the final product. This tax is uniform across all states, making it easier to conduct business across borders without worrying about additional state-level or cascading taxes.

The GST Impact on Business:

GST has reduced compliance challenges with a unified tax system. Further, it has also helped curb tax evasion, boost government revenue, and improve transparency by providing clear transaction records. This, in turn, has allowed the government to allocate more funds for infrastructure development and social welfare programs. These improvements highlight the positive effects of GST in India, benefiting both businesses and the economy.

2. Warehouse Re-Engineering and Supply Chain Restructuring

Before GST: Businesses had to maintain multiple warehouses across states to minimise inter-state taxes, leading to inefficiencies and higher logistics costs. For instance, a textile manufacturer in Kolkata might operate several warehouses to reduce tax liabilities when moving goods.

After GST: The removal of inter-state taxes allows businesses to limit warehouses to fewer, strategically located hubs, streamlining operations and reducing costs.

The GST Impact on Business:

With no inter-state tax barriers, the movement of goods is much smoother, and transportation costs have decreased. This is another positive effect of GST on the Indian market. Companies can now maintain smaller inventory levels due to more efficient movement of goods, which reduces warehousing costs. Additionally, businesses no longer need to operate multiple warehouses, leading to lower overhead expenses.

3. Improved Productivity and Efficiency

Before GST: We can see how GST affects the common man in India by increasing business efficiency, especially for small and medium enterprises (SMEs). A small restaurant in Bangalore, for example, had to manage multiple taxes, such as VAT, service tax, and local levies. The owner had to dedicate significant time and resources to tracking and paying these taxes, diverting attention from core business activities.

After GST: Now, the restaurant owner only needs to file a single GST return, which simplifies compliance and allows more focus on running the business efficiently.

The GST Impact on Business:

With reduced time and costs associated with tax compliance, businesses can allocate more resources to their core activities, ultimately boosting productivity and innovation.

Conclusion

GST has positively impacted the Indian economy by streamlining operations across states, lowering compliance costs, and boosting efficiency for businesses. To maximise these benefits and take part in the thriving economy, businesses must ensure they have sufficient funds to manage their operations effectively. Consider an business loan from SMFG India Credit to support your cash flow while staying compliant with your tax obligations. Apply online today for collateral-free funds of up to INR 75 lakhs* at competitive interest rates.