The Goods and Services tax (GST) is a destination-based tax levied at a single point at the time of consumption of goods or services by the end consumer.
Taxes such as excise duty, service tax, central sales tax (CST), additional customs duties, octroi, state-level sale tax, service tax, value added tax (VAT), and so on will be replaced by a single tax creating a common market nationwide by subsuming a plethora of taxes under the Central and State governments under a single administration.
The GST shall subsume all the above taxes, except the Basic Customs Duty, which will continue to be charged even after the introduction of GST.
It will also reduce the transportation costs with the reduction in different categories of road taxes. Besides, it will also boost productivity levels across States, eventually bringing down the cost of manufactured goods and services.
This, in turn, will benefit consumers and make goods more competitive in foreign markets, resulting in increasing exports of commodities.
Impact on agri-commodities
The GST regime will have a bigger impact on agricultural commodities. Agri-commodities are perishable in nature; therefore, trade is influenced by the time required for transportation.
According to The Economist , long-distance trucks in India are stuck at toll gates for 60 per cent of the time during transportation. The simple uniform tax regime is expected to improve transportation time, and curtail wastage of precious food. The present system makes it difficult to implement tax support provided by the Centre for an agri-commodity due to heterogeneous policies adopted by the different states. GST will bring in additional revenues to the government as the unorganised sector, which today is not part of the value chain, would be drawn into the tax net.
The tentative rate of GST, which is now expected to be around 18 per cent, will be a major impetus to the economic growth of India. It will make India a common market, leading to economies of scale in production and efficiency in the supply chain.
It will also expand trade and commerce with a favourable impact on the logistics and warehousing industry.
A stable, transparent and predictable tax regime will encourage local and foreign investment in India, creating significant job opportunities that will, in turn, result in increased demand for Indian commodities, goods and services, bolstering the overall growth of the nation.
The writer is Associate Director — Commodities & Currencies Business, Equity Research & Advisory — Angel Broking. Views are personal.