Goods & services tax: Tax reform’s just one bit of it

Goods & services tax: Tax reform’s just one bit of it



India has finally introduced the goods and services tax (GST) that is going to facilitate the creation of ‘one nation, one tax, one market’. This will not only positively affect key sectors of the economy, but it will also result in a host of benefits for end consumers by way of lower prices on a wide range of goods and services, greater transparency and formalisation of the economy.




GST will transform the way India Inc conducts its business. This is due to the efficiencies created by a ‘single market’, the reduction of transaction costs in interstate movement of goods and services. While it is way too early to quantify the impact of GST on various sectors till its full implementation, this transformative reform should be extremely good for all sectors, including Indian retail.



An efficient transportation system is a prerequisite for driving higher GDP growth. Any transportation system has two critical elements: one, efficient infrastructure; two, free and smooth movement of goods across the country. While the former is being addressed by GoI with significant investments and allocation of resources for physical and digital infrastructure, GST will remove the barriers for free movement of goods.


This will also enable manufacturers and retailers to work with 4-5 large efficient warehouses or distribution centres, instead of almost 29 warehouses or cost and freight (C&F) agents. This enables manufacturers and retailers to disintermediate the supply chain and reap the benefits of economies of scale.

Savings in costs thus generated will eventually be passed on to consumers. The enormous positive multiplier effect of GST will unfold in the medium- to long-term, leading to higher GDP growth.


GST will also help in bringing down the prices of essential commodities. Businesses will be allowed to set off the output tax liability with taxes paid on procurement and, hence, lower the impact of indirect taxes in the value chain. Further, the incorporation of anti-profiteering provisions means that the benefit from GST will have to get passed to the end customer.

Also, the rate structure in GST is finalised in such a manner that on a net basis, household budgets are expected to get a relief. A lot of people are talking about multiple rates in the GST Act. GoI and the GST Council’s approach is calibrated and much needed.



The current system mandates a multi-rate structure so that different sectors have time to move to a more unified rate structure in the future. Asingle-rate GST regime would have created huge turbulence in the economy and would have impacted certain sectors, such as food, adversely. GST’s implementation will improve accessibility of goods and services by changing the way logistics and warehousing operations are organised.

Supply chain and retail operationsin India will become more efficient. Finally, GST imposes a tax obligation on firms dealing with unregistered suppliers. This may bring a large swathe of the informal economy into the tax bracket, thereby boosting revenue collections. These will eventually accrue to taxpayers through various government schemes and programmes. Along with demonetisation, GST is the key reform to formalise the Indian economy.

India is a large country. Minor operational issues are, of course, expected during the transition phase. Once GST is implemented, customers will have a better understanding of tax levied on products and services they are buying or consuming.


The fact that it took almost 17 years to be brought about, shows how complex the whole process has been. With GST now a reality, it is important to appreciate that it is not just tax reform but a completely new way of conducting business intended to benefit consumers, manufacturers and the whole economy.




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