HowGSTWillChangetheFaceofIndianEconomyNDTV

WrittenbyVarunSinha|LastUpdated:November22,201412:02(IST)
EMAIL

Indiantruckdriversclockanaverageof280kmperday,muchbelowtheworldaverageof400kmperday
andfarbelowthe700kmtheaveragetruckdriverintheUSdoeseveryday.Theunderperformanceof
Indiantruckershaslesstodowithbadroadsandlessfancytrucksandmoreaboutprevailingarchaiclaws.
TruckdriversinIndiaspend60percentoftheirtimeoffroadsnegotiatingcheckpostsandtollplazas,says
UBSSecurities,whichhasalsofoundthatthereare650oddcheckpostsinthecountryand11categories
oftaxesontheroadtransportsector.
Sinceroadtrafficaccountsfor60percentoffreighttrafficinIndia,theslowmovementoftrucksacross
statesleadstoproductivityloss.AccordingtoUBS,ifthedistancecoveredgoesupby20percentperday,
Indiantruckproductivitywouldimproveby12percent.
Higherproductivitywouldcuttheneedforbufferstocksreducethelossofperishablegoods,cutdownthe
needformanywarehouses,etc.
Analystssaytheimplementationofthegoodsandservicestax(GST)couldprovidethekindofproductivity
boostillustratedabove.GautamChhaochharia,headofIndiaResearchofUBSSecurities,explainsthe
benefitsofGST,
1)Unifiedmarket:TheGSTwillcutdownthelargenumberoftaxesimposedbythecentralgovernment
(eg.centralVATorexciseduty,servicestax,centralsalestaxoninterstatesales,etc.)andstates(VATon
sales,entertainmenttax,luxurytaxandoctroiandentrytaxesleviedbymunicipalities).Thiswillleadtothe
creationofaunifiedmarket,whichwouldfacilitateseamlessmovementofgoodsacrossstatesandreduce
thetransactioncostofbusinesses.
2)Lowerincentivetoevadetax:Currently,companieshavetopaytaxesonentireunderlyingvalueofthe
product/service,butunderGST,companiesinachainwillhavetopaytaxonlyonthevalueaddition.So,the

actualtaxpaidwilllikelybesmallandreducetheincentiveforevasion.
3)Widentaxbase:GSTwillgivecreditsforalltaxespaidearlierinthegoods/serviceschainincentivising
taxpayingfirmstosourceinputsfromotherregistereddealers.Thiswillbringinadditionalrevenuestothe
governmentastheunorganisedsector,whichisnotpartofthevaluechain,wouldbedrawnintothetaxnet.
Besides,stateswillbeallowedtotaxservices(asopposedtoonlythecentralgovernment)undertheGST.
AccordingtotheNationalCouncilofAppliedEconomicResearch,government'staxrevenuewill
increasebyabout0.2percentbecauseofGSTimplementation,whileGDPgrowthcouldgoupby0.91.7
percent.Exportswillalsogetaboostastheyarezeroratedfortaxesandalsobecausethefallincostof
manufacturedgoodsandservicesunderGSTwillincreasethecompetitivenessofIndiangoodsandservices
intheinternationalmarket,UBSsays.
FinanceMinisterArunJaitleyonFridaysaidthatensuringthepassageoftheconstitutionalamendmentBill
inParliamentarywillbeapriorityforthegovernment.Thegovernmentwillalsoneedtheconsentof50per
centofstatestoimplementGSTbyApril2016.
However,aconsensusisstillmissingonthefinalGSTtaxratesandrecommendationsvaryfrom16percent
to27percent.
(Withinputsfromagencies)