GST – A new beginning for Indian economy

India has taken a giant leap in economic reforms with the passage of goods and services tax (GST) legislation. This will create one of the world’s biggest single consolidated market, making movement of goods and services seamless and cheaper across the country that holds over 1.25 billion consumers.
 
The upper house of the Indian parliament unanimously voted to approve a constitutional amendment to enable the goods-and-services tax on Wednesday evening. Once fully implemented, the tax reform will a go long way toward fulfilling the government’s pledge of doing business easier in the world’s fastest growing economy. 
 
According to the finance minister, goods and services tax can boost economic growth by as much as 2 percent, and increase revenue generation for the government allowing more fund allocation for social welfare sector and building infrastructure.    
 
However, consumers may have to brace some short-term inflation post implementation of GST from April 1, 2017, — though much depends on the tax rate — higher it’s pegged, more are the chances of prices increasing. Countries like Australia, Canada, New Zealand and others saw an increase in a one-time consumer inflation, which got normalised after a year.
 
The tax rate has not been finalised yet, however some of the top economic advisors to the government and the opposition, Congress party wants GST rate to be capped around 18 percent. The finance minister has said that the government will do everything to keep the tax rate on a lower side.     
 
Some of the revenue generating products for state governments such as alcohol, petroleum and real estate are expected to remain out of national sales tax ambit, while the GST council may also decide to tax certain luxury products like a high-end television sets higher than food staples.
 
GST would give a major boost to tax governance, as currently the system is plagued with a plethora of ad-hoc and discretionary taxes. This would make the tax system transparent and stable by ensuring ‘neutrality’ across businesses, products and services, a move which India Inc. and global investors would like to welcome. 
 
Companies operating in sectors such as automobile, fast moving consumer goods, media and entertainment, construction materials are expected to benefit from the implementation of goods and services tax, as currently the burden of paying taxes is on the higher side. However, companies working in electronics, telecom, airline sector and manufacturing aerated beverages and tobacco products are likely to witness higher burden of taxes. 

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