STUDY ON ECONOMIC GROWTH ON GST

A PROJECT SUBMITTE TO PROF. DHANAPALAN COLLEGE OF SCIENCE AND

MANAGEMENT IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
DEGREE OF BACHELOR OF BUSINESS ADMINISTRATION

SUBMITTED BY

SUNRAJ.P

REG.NO:

412200427

UNDER THE GUIDANCE OF

V. Gokula Krishnan

TRAINER

PROF. DHANAPALAN COLLEGE

OF SCIENCE AND MANAGEMENT

AFFILIATED TO UNIVERSITY OF MADRAS

CHENGALPATTU
SEPTEMBER 2024
 INCOME TAX AND GST

Student Name SUNRAJ.P

Department Bachelor of Business Administration

Naan Mudhalvan ID ASSUNM11741200427

Register No 412200427

College Name & PROF. DHANAPALAN COLLEGE OF

College Code SCIENCE AND MANAGEMENT
0117

Project Title ECONOMIC GROWTH ON GST

SPOC Signature Head of the Department

Signature

Assessor Signature
 ACKNOWLEDGEMENT

I wish to express my sincere gratitude to the Principal Dr. S. Gurusamy , PROF. DHANAPALAN OF
SCIENCE AND MANAGEMENT

I sincerely acknowledge my heartfelt thanks to Dr. S. SAMPATH Associate professor andHead

for his continuous encouragement and guidance.

I wish to extend my sincere thanks to Mrs. A. KALAIMAGAL Assistant professor, for her support

throughout the course.

I also wish to extend my thanks to < V. Gokula Krishnan –Trainer, TNSADC for his valuable

guidance and support in completing this project.

S.NO Page No
Particulars

1 Introduction 1

2 Goods and Services Tax (GST): An Overview 3

3 Impact of GST on Business and Investments 5

4 Increased Government Revenue under GST 7

5 Conclusion 8
 Introduction: Economic Growth and the Impact of GST

The Goods and Services Tax (GST):introduced as one of the most significant tax reforms
in many countries, including India, has had a profound impact on the overall economy.
GST is a unified tax structure that replaces a variety of indirect taxes such as excise duty,
VAT, and service tax. Its main objective is to simplify the tax system, reduce inefficiencies,
and eliminate the cascading effect of taxes, thereby lowering the cost of goods and services
for both businesses and consumers.
From an economic growth perspective, GST plays a critical role by promoting ease of
doing business, fostering market integration, and encouraging formalization of the
economy. It streamlines interstate trade, allowing for a single, unified market, which
reduces logistical costs and enhances efficiency. This has made it easier for businesses to
expand across states without facing complex tax regimes, driving higher production and
investment.

Additionally, the GST system’s input tax credit mechanism ensures that businesses are
taxed only on the value added at each stage of production, not on the total value, which
reduces the overall tax burden. This has improved profitability for businesses, especially in
the manufacturing and services sectors, spurring investments and generating economic
growth. Moreover, GST has led to increased tax compliance through its digital tax filing
system, broadening the tax base and increasing government revenues, which can be used
for public investment in infrastructure, education, and healthcare.
For consumers, GST has led to lower prices in many sectors, boosting consumption and
demand, which are essential drivers of economic growth. With reduced tax inefficiencies,
consumers have more disposable income, which further stimulates the economy.

In summary, GST has a multifaceted impact on economic growth by improving business

conditions, promoting transparency, increasing tax revenues, and stimulating demand.
Though initial challenges such as compliance burdens for small businesses and sector-
specific issues exist, the long-term benefits of GST are crucial for sustainable and inclusive
economic growth.

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Goods and Services Tax (GST): An Overview
The Goods and Services Tax (GST) is a comprehensive, multi-stage, destination-based
tax levied on the supply of goods and services. It was introduced to create a unified and
simplified tax structure, eliminating the complexity of multiple indirect taxes that existed
before its implementation. By merging various central and state taxes like VAT, service tax,
excise duty, and others, GST seeks to streamline the tax system, reduce the cascading
effect of taxes, and promote efficiency in tax administration.
GST is designed to be a value-added tax (VAT), meaning it is imposed at each stage of
the supply chain, from manufacturing to final consumption, with the tax paid at previous
stages being deducted through input tax credits. This mechanism ensures that the final
consumer pays the tax, while businesses are taxed only on the value they add during
production or distribution.
GST can vary slightly depending on the country, but its general structure remains similar
worldwide. For example, India implemented GST in 2017, whereas countries like Canada,
Australia, and New Zealand adopted GST earlier in different forms. The design and rate
structures of GST differ, but its fundamental goal is to eliminate inefficiencies caused by a
fragmented tax system.
Key Features of GST
1. Comprehensive Tax Structure: GST subsumes various indirect taxes, creating a
unified tax regime. This helps to avoid multiple tax levies at different points of
production and distribution, thus streamlining the tax structure.
2. Multi-Stage Tax: GST is levied at each stage of the supply chain (production,
wholesale, and retail), but the tax burden is only on the value added at each stage.
3. Destination-Based Tax: GST is collected at the point of consumption, meaning the
tax revenue goes to the state or region where the goods and services are consumed
rather than where they are produced.
4. Input Tax Credit (ITC): One of the most critical features of GST is the
availability of input tax credit. This means businesses can deduct the taxes paid on
inputs (raw materials, services) from their final tax liability on the sale of finished
goods. This eliminates the problem of "tax on tax," also known as the cascading
effect.
5. Uniform Tax Rates: GST provides for uniform tax rates across different states and
regions. It creates a level playing field for businesses, especially in countries with
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 6. federal structures like India, where pre-GST, tax rates varied from state to state,
causing market distortions.

Types of GST Components

Depending on the country’s federal or unitary structure, GST is classified into different
components. For example, in India, GST is divided into the following:
1. Central Goods and Services Tax (CGST): Levied by the central government on
intra-state supplies of goods and services.
2. State Goods and Services Tax (SGST): Levied by state governments on intra-
state supplies. This is equivalent to CGST, but the revenue goes to the respective
state.
3. Integrated Goods and Services Tax (IGST): Applicable on inter-state supplies of
goods and services. The revenue collected from IGST is shared between the central
and state governments.
In contrast, countries like Canada operate on a harmonized system known as the
Harmonized Sales Tax (HST), which blends federal and provincial taxes into one.

Advantages of GST
1. Simplification of the Tax Structure: One of the primary advantages of GST is its
ability to simplify the tax structure by merging multiple indirect taxes into one. This
leads to greater efficiency and transparency in tax administration.
2. Reduction of the Cascading Effect: Before GST, the tax was levied at each stage
of the production process without any credit for taxes paid at earlier stages. This
caused a cascading effect, leading to higher costs for businesses and consumers.
GST solves this problem by allowing businesses to claim input tax credits, leading
to lower tax liabilities and reduced costs for consumers.
3. Boost to Economic Efficiency: GST encourages businesses to become more
efficient by reducing compliance costs and making tax credits easier to obtain. As a
result, businesses can focus on expanding operations, leading to higher production,
investment, and growth.

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Impact of Goods and Services Tax (GST) on Business and Investments
The Goods and Services Tax (GST) has emerged as a transformative reform in the
taxation landscape across various countries, notably in India since its implementation in
July 2017. By integrating multiple indirect taxes into a single tax system, GST aims to
simplify the tax structure, enhance compliance, and promote transparency. Its impact on
businesses and investments is significant, influencing operational efficiencies, cost
structures, and market dynamics.
1. Simplification of Tax Compliance
One of the primary impacts of GST on businesses is the simplification of the tax
compliance process. Before GST, businesses had to navigate a complex web of indirect
taxes, including Value Added Tax (VAT), service tax, excise duty, and others, often
resulting in confusion and increased compliance costs. With GST, the tax structure has
been unified, enabling businesses to file a single tax return that covers all goods and
services.
This simplification significantly reduces the administrative burden on businesses,
especially small and medium-sized enterprises (SMEs) that may have struggled with
compliance in the previous system. As a result, companies can allocate more resources to
core business activities rather than tax compliance, ultimately enhancing productivity and
operational efficiency.
2. Reduction of Cascading Effect of Taxes
GST effectively eliminates the cascading effect of taxes—where taxes are levied on top of
taxes—by allowing businesses to claim input tax credits for taxes paid on purchases. This
mechanism ensures that businesses are only taxed on the value added at each stage of
production and distribution, rather than on the total value of the product.
For businesses, this translates into lower effective tax rates, resulting in reduced costs of
production. Consequently, businesses can offer competitive prices, which can lead to
increased sales and market share. The lower tax burden also enables companies to invest
more in research, development, and expansion efforts, driving overall economic growth.
3. Enhanced Cash Flow Management
GST also enhances cash flow management for businesses. Before GST, companies often
faced significant delays in getting tax refunds for excess input tax paid. This could lead to
cash flow issues, particularly for SMEs. With the implementation of GST, the process for
claiming input tax credits has been streamlined, allowing businesses to recover taxes paid
more efficiently. 4
Improved cash flow enables businesses to reinvest in operations, hire additional staff, or
expand into new markets. Enhanced liquidity also allows companies to respond swiftly to
market demands and capitalize on new opportunities.
4. Promoting Formalization of the Economy
The introduction of GST has encouraged many businesses to enter the formal economy.
Under the previous tax regime, many small and informal businesses operated outside the
tax net to avoid compliance costs. However, GST requires businesses to maintain proper
records and file regular returns to claim input tax credits.
This push towards formalization not only broadens the tax base but also fosters a more
transparent business environment. Formal businesses can access better financing options,
improve creditworthiness, and build a reputation in the marketplace, all of which contribute
to economic growth.
5. Encouragement of Investment
The streamlined tax structure and improved ease of doing business under GST make the
investment climate more attractive. With lower production costs and greater operational
efficiencies, domestic and foreign investors are more likely to invest in businesses
operating in a GST-compliant framework.
Furthermore, GST's ability to create a unified market eliminates inter-state tax barriers,
enhancing the movement of goods and services across regions. This increased market
accessibility encourages businesses to expand their operations and invest in new
infrastructure, technology, and talent.
6. Sector-Specific Impacts
While GST has broadly positive impacts on business and investments, its effects can vary
across sectors. For instance:
 Manufacturing: The manufacturing sector has experienced a boost due to lower
tax burdens and the availability of input tax credits. This has led to increased
production and competitiveness, making manufacturing firms more attractive to
investors.
 Retail: Retailers have benefited from lower costs and increased efficiency, enabling
them to offer better prices to consumers. The formalization of retail operations has
also attracted investment in the sector

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Increased Government Revenue under Goods and Services Tax (GST)
The Goods and Services Tax (GST) has emerged as a significant reform in the taxation
landscape across various countries, especially in India, where it was implemented on July 1,
2017. One of the key objectives of GST is to enhance government revenue by creating a
unified tax structure that broadens the tax base, improves compliance, and reduces tax
evasion. This increase in government revenue plays a crucial role in funding public
services and infrastructure development, thus contributing to overall economic growth and
development.
1. Broadening the Tax Base
Before GST, many small and medium-sized enterprises (SMEs) operated in the informal
sector, often avoiding tax compliance due to the complexity and burden of the previous tax
system. GST has introduced a framework that encourages these informal businesses to
register and comply with tax regulations.
By simplifying the tax structure and offering input tax credits, GST incentivizes businesses
to enter the formal economy. As more businesses register for GST, the tax base expands,
leading to an increase in overall tax revenue for the government. This is particularly
important in developing economies where a large proportion of economic activity occurs in
the informal sector.
2. Reducing Tax Evasion and Improving Compliance
GST’s design minimizes the cascading effect of taxes, which often led to significant tax
evasion in the previous indirect tax system. Under GST, businesses are required to
maintain detailed records of their transactions to claim input tax credits. This emphasis on
documentation and compliance creates a more transparent system, making it harder for
businesses to evade taxes.
3. Increased Efficiency in Tax Administration
The implementation of GST has resulted in a more efficient tax administration system. The
use of technology in tax collection and compliance has streamlined processes, reducing
administrative costs for both businesses and the government. This efficiency allows tax
authorities to focus resources on enforcement and compliance rather than on paperwork
and manual processing.

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Furthermore, GST’s revenue-sharing model between the central and state governments
provides an incentive for both levels of government to enhance compliance and maximize
revenue collection. This cooperative approach fosters a sense of shared responsibility for
tax administration, leading to increased overall revenue.
4. Higher Tax Collections
GST has shown positive results in terms of tax collections since its implementation. In
India, for example, GST collections have consistently exceeded expectations, reaching
record highs in several months. The increased revenue can be attributed to several factors:
 Wider Tax Base: With more businesses registering under GST, the tax base has
significantly expanded.
 Improved Compliance: Enhanced compliance due to stricter regulations and better
technology has led to higher collections.
 Higher Consumption: As GST leads to lower prices for consumers, consumption
may increase, resulting in higher tax collections from goods and services sold.
As a result, government revenue from GST can be reinvested in crucial sectors such as
infrastructure, healthcare, and education, thereby fostering economic development.
5. Increased Revenue for States
Under the previous tax regime, states had limited sources of revenue, primarily relying on
sales tax and excise duties. With the introduction of GST, states now receive a share of the
revenue generated from the integrated GST (IGST) on inter-state sales. This sharing of
revenue ensures that states benefit directly from economic activity, encouraging them to
promote business-friendly environments.
Additionally, the compensation mechanism established for states affected by the transition
to GST helps stabilize state revenues during the initial implementation phase. The central
government compensates states for any loss of revenue for a specified period, ensuring that
they can continue to fund essential services while adapting to the new system.
6. Fiscal Discipline and Accountability
GST fosters fiscal discipline among governments by requiring them to maintain better
records and adhere to stricter compliance norms. The automatic reconciliation of tax data
between suppliers and recipients reduces discrepancies and enhances accountability. This
transparency helps governments monitor tax collections more effectively and reduces the
risk of corruption.

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Conclusion: Economic Growth and the Goods and Services Tax (GST)
The Goods and Services Tax (GST) represents a transformative shift in the taxation
landscape, aiming to streamline the complex array of indirect taxes that burdened
businesses and consumers alike. Its implementation has significant implications for
economic growth, offering numerous benefits that contribute to a more robust and dynamic
economy.
First and foremost, GST simplifies the tax structure, creating a unified system that
minimizes compliance costs and reduces the administrative burden on businesses. This
simplification encourages entrepreneurship and fosters an environment conducive to
business expansion. As businesses navigate a more straightforward tax regime, they can
allocate resources towards innovation, research, and development rather than grappling
with a complex tax system.
Moreover, the elimination of the cascading effect of taxes—where taxes are levied on top
of other taxes—promotes lower effective tax rates for businesses. This reduction in the tax
burden enhances competitiveness, allowing companies to offer goods and services at more
affordable prices. Increased affordability drives consumption, leading to higher demand
and stimulating economic growth. As consumers enjoy lower prices, their disposable
income increases, further contributing to economic activity.
GST also promotes the formalization of the economy by encouraging small and medium-
sized enterprises (SMEs) to register and comply with tax regulations. This formalization
broadens the tax base, increasing government revenue that can be reinvested in public
services, infrastructure, and social welfare programs. A wider tax base not only enhances
government revenue but also creates a more equitable economic environment, as more
businesses contribute to the national coffers.
Additionally, GST's emphasis on transparency and accountability strengthens fiscal
discipline within governments. The use of technology for tax compliance and monitoring
improves efficiency and reduces opportunities for tax evasion. As businesses comply with
GST regulations, they become part of a more transparent economic framework, fostering
trust between the government and the private sector.
While the benefits of GST are clear, its successful implementation is not without
challenges. Transitioning to a new tax system can initially disrupt businesses, particularly
small enterprises that may struggle with compliance. Ongoing support, training, and
simplification of processes are vital to ensure that all businesses can adapt to the new
system effectively. 8