The second part of Economic Survey, which was tabled in Parliament on 12th August 2017, has observed a rekindled optimism on structural reforms in the Indian economy. Drafted by Chief Economic Advisor Arvind Subramanian, the survey says optimism about the medium-term prospects for the Indian economy has been engendered by a number of structural reform actions and developments.
After narrating key benefits of GST such as furthering cooperative federalism, reducing corruption and leakage, simplifying complex tax structure and unifying tax rates across the country, and creating a common market, there are some hidden benefits of GST. They are as follow:-
1.Textile sector inclusion
The textile and clothing sector is now fully part of GST. Previously, some parts of the value chain, especially fabrics, were outside the tax net, leading to informalisation and evasion. Some anomalies favoring imports of fabrics over domestic production will need to be rectified but overall the tax base has expanded.GST would streamline the process of claiming input tax credit thus allowing the textile industry to be more competitive in the export market.
Export promotion capital goods scheme is available for all the cotton-based textile exporters. Under this scheme, exporters can claim the exemption for duty paid if they export six times the value of duty within a period of next six years. It is expected that this scheme would lose its significance under GST.
2. Work contracts
Next hidden benefit of GST is the inclusion of an important part of real estate sector—“work contracts”, housing that is being built. This, in turn, would allow for greater transparency and formalization of cement, steel, and other sales, which tended to be outside the tax. The formalization will occur because builders will need documentation of these input purchases to claim tax credit.
3. Effective taxation of imports
Earlier, the countervailing duty to offset the excise tax and the special additional duty (SAD) to offset the state VAT was not adequate. "Under the GST, the full taxes on domestic sales levied by the Centre and the states (the IGST) will be levied when imported goods. The new tax will remove the earlier inadequacies and will lead to more transparent and more effective taxation of imports.
4. Expanding tax base
The survey finds early signs of expansion of tax base, all due to GST. On top of the over 71 lakh excise, service tax and VAT payers, who have migrated to the GST regime, there are over 15 lakh entities who have taken fresh registrations under the new indirect tax regime.The survey says the number is expected to rise consistently as more people would find the benefits of GST. GST has unified over 17 different taxes.
5. More data
GST will generate a lot of vital information on direct tax collections. Earlier, as the excise was imposed at the manufacturing stage, the Centre had little data on small manufacturers and consumption. The states had little data on the activities of local firms outside their borders. Under the GST, there will be seamless flow and availability of a common set of data to both the Centre and states, making direct tax collections more effective.
6. Financial inclusion
Since businesses have to keep detailed records under GST, these can be beneficial for them in the long run. Small businesses can build up a real-time track record of tax payments digitally, and this can be used by lending institutions for credit rating and lending purposes. Currently, small businesses are credit-constrained because they cannot credibly demonstrate their financial capability.
7. Smoother transport
The transport sector stands to benefit from the recently rolled out GST in several ways. Pre- GST, the complex tax structure and paper work forced the transport industry to spend a lot of resources on tax compliance and deposit of interstate sales tax. Monitoring and collection of sales tax at interstate check posts led to major traffic congestion at these points, resulting in slower movement of freight and passenger, and consequently higher costs and pollution. An average Indian truck covers only about 50,000-60,000 km a year as against 3 lakh km done by a truck in US.
GST has result in reducing the travel time of long-haul trucks and other cargo vehicles by at least one-fifth. This, coupled with the proposed E-way bill that requires online registration for movement of goods worth more than Rs 50,000, brought more transparency in the whole process. Efficient freight movement boosted the demand for high tonnage trucks and reduced the cost of transportation of freight.
GST has made transport a lot smoother. The inter-state check-posts were removed within days of GST coming into force. So far, 24 states have abolished these check-posts while others are in the process of eliminating them. If this trend continues, the reduction in transport costs, fuel use, and corruption could be significant. GST will also reduce logistics costs and boost inter-state trade.