Community
Since the 2016 World Economic Forum, the Fourth Industrial Revolution has become one of the most talked about movements. India is at the forefront with rapid digitalisation across industries. Digitalisation coupled with adoption by a large untapped population is redefining businesses. The Indian economy is proving to be one of the most digitally progressive in the world, with a dynamic FinTech industry and a government that is encouraging its people to move towards a digital economy.
As more and more people and businesses adopt digitalisation, one of the most direct benefits is the increase in the tax base of the country, which is a great step and ensures future generations benefit from the much-needed infrastructure investments, industrial growth, and overall improvement in lifestyles.
The benefits of ‘One-country, One-tax’ are significant and are well documented. One of the key challenges to obtaining the perceived benefits of the Goods and Services Tax (GST) rollout is the implementation itself. Industry is severely underprepared and the ecosystem is gearing up slowly as the exact dates of the rollout are not yet defined. We are staring at a minimum of six months of preparation prior to rollout and a year of stabilisation post implementation. It is an interesting time for Information Technology companies, both in product and service organisations, as GST is a major digital initiative across a 1.34 billion population base with GDP growth at 7%.
One of the most important aspects of GST is the wider reach, thereby creating a level playing field for both smaller and larger states. Significant simplification of Inter-State goods movement and thus reduction in the cost of production and distribution is a major measurable output. India’s tax base will increase and the unorganised economy, which forms a major portion of the country’s GDP, will move into digital platforms without an option. This will result in an increase of Direct Taxes, as more people start declaring their income and pay taxes. Many quantifiable and unquantifiable benefits are awaiting the country. There will be challenges, but the future generation will reap the benefits of digitisation and simplification.
Technology will play a major role in delivering GST in the banking sector
GST implementation will be challenging for the banking industry. With respect to banks and financial services, the areas impacted will be debit tax management, credit tax management and compliance. Compliance will be affected at two levels – bank-level compliance and helping banks’ customers to comply. Banks in India offer a wide range of services to their customers. A large commercial bank could offer 200+ services to its customers across multiple lines of businesses and each of these services would attract a Service Charge and Service Tax. The taxation complexities associated with handling various lines of business will be dramatically reduced when GST is implemented on all products and/or services in a bank.
A centralised platform is the way forward to achieve compliance, tax segregation, accounting, invoicing and manage exemptions. Customising existing systems might prove to be rather too expensive for these organisations. Achieving complete automation from managing customer attributes to tax accounting and integration of tax information with Goods and Services Tax Network (GSTN) will be the key.
Long term impact - simplified taxation system and a centralized economy
In the past, implementation of GST has helped many countries operate as a single market, without barriers and tariffs, thus creating a more efficient system. With successful implementation of GST an additional 1 – 2% growth of the Gross Domestic Product (GDP) of India is likely to occur.
The general consensus is there may be short term decreases in revenues across individual states, due to the move away from source tax. Yet, in the long term, GST will prove to be positive for the Indian economy as the tax structure will be simplified and automated, compliance will improve and the tax base will expand.
Thanks to GST, India will be able to operate as ‘One country’ and will reduce tax evasion as people are brought into the formal economy, whilst at the same time reducing costs for government bodies and businesses. GST will result in increased investment in India and other countries who will implement this system. The next country tipped to implement the law is China, but the question is, will GST help improve the country's GDP too?
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Nick Green Director at Purple Patch Broking Ltd
22 August
Oleg Stefanet Chief Risk Officer at payabl.
20 August
Venkatesh P Co-Founder and Director at Maveric Systems
19 August
Welcome to Finextra. We use cookies to help us to deliver our services. You may change your preferences at our Cookie Centre.
Please read our Privacy Policy.