The tax system, which is now known as GST has been devised on the foundation of VAT – value-added tax. There is a reason to use the term in this nation. This reason, though does not concern the consumers, yet, even when the tax is known as VAT, it gets implemented not only goods but on the services too.
Some benefits of GST has already been stated in an economic development paper released in 2010. VAT gives rise to revenue in a transparent manner. Some have gone to the extend to say that VAT is considered to be the most important instrument for government revenue. VAT is also a secured from fraud in the domestic market. Some independent study suggests that VAT can reduce business compliances. However, the benefits can be acquired only when the tax implemented in a simplified manner.
The complexity occurs due to two different factors. The first one is accomplishing the social objective and the second one is the distrust that the government displays on the citizens. Lack of trust can be considered to be a legacy of the system.
To justify the multi faces of the taxation, the finance department has stated that they failed to understand how can Hawai chappal and automobile be taxed similarly. While the automobile falls in the category of luxury item, the Hawai chappal is considered to be an item for poor people.
While there is reasonability in the statement, people are not unfamiliar with the stories where people become rags to riches. An individual who can only afford to buy a Hawai chappal today might become rich enough to buy an automobile tomorrow. However, the high tax rate may discourage such people from working hard.
The wage goods model of the nation proposes that effort must be made to offer goods that are required on a daily basis. This is not just a production issue, but this is a supply chain matter as well.
This model also motivated the wage earners to earn more wages. However, with the new taxation, the wage earner might feel discouraged and wish to stay at the same level earning.
Lower tax rate on Hawai chappal might refer to the high rate on other products that the people who are using chappal would require. In such a case the benefit of the low rate would be denied.
The tax on a wheelchair has drawn many controversies. Taxing wheelchair is like taxing walking. However, wheelchairs are bought once in every three or four years. Having said that, it cannot be denied that the benefit of taxation would be lost to the disabled persons as their family members would have to shoulder the additional tax rate for them.
It has been said by many that in the future GST would be a uniformed tax. Uniform rate though is a necessity in a country as diverse as India, the distance cannot be crossed in a couple of steps and this everyone needs to remember. If truth to be told, the new taxation might push people back to adhere to the older version of the tax system. This would not take place because it is a better version. The event, if it at all occurs, would happen because it is a simpler one than GST.