AbstractThis research has been undertaken to study the recently implemented Goods andServices tax and its impact on the traders in India. It particularly focuses on thetraders, since no such research undertaken so far, exclusively studies the impactof this move on this sector that has been impacted the most.The Chandni Chowk locality was chosen to collect the primary data for thisresearch. An elaborate questionnaire was used for the same. The researchespersonally visited Chandni Chowk to collect the data.It may be noted that this paper is qualitative in nature, since the primaryobjective of this research was to understand how the trading community in Indiais reacting to this disruptive tax regime. This research is completely unbiased, andall the conclusions are based on the data received.5IntroductionThis project has been undertaken as per the requirements of the curriculumset by the University of Delhi and our College (Shaheed Sukhdev College ofBusiness Studies). We thank the University for providing us with thisopportunity of carrying out this project. We would also like to thank ourEconomics Teacher, Mr. Raj Kumar for assisting us throughout the projectand for helping us make it a great success.The basic objective of this project was to understand the concept of the newGoods and Service Tax that was implemented by the current governmentand its impact on the traders in India. The project helped us to clear ourconcepts and have a better understanding of the new tax regime. The samehas been depicted through our project in the entire document.6About GSTWhat is GST?Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-basedtax that will be levied on every value addition. In simple words, GST is an indirect taxlevied on the supply of goods and services. GST has replaced multiple cascading taxeslevied by the central and state governments.GST Around the World? France- There are 4 rates of VAT in France: 2.1 per cent, 5.5 per cent, 10 per centand 20 per cent since its first implementation in 1954.? United Kingdom- Since 2011, UK's VAT is set at 20 per cent.? Ukraine- There are two VAT slabs in Ukraine, which are 20 per cent for most goodsand services and 7 per cent mostly for medicines.? New Zealand- GST was introduced in New Zealand in 1986 at a rate of 10 per centwhich was later increased to 15 per cent in 2010.? Australia- Introduced in 2000, the rate has been set at 10 per cent.? Vietnam- Three VAT rates of 0 per cent, 5 per cent and 10 per cent are applied tomost goods and services in Vietnam unless stated otherwise.? Singapore- Implemented at 3 per cent in 1994, GST was increased to 7 per cent in2007.? Malaysia- Introduced in 2015, Malaysia's GST is set at 6 per cent.? Canada- GST is set at 5 per cent on supplies of goods or services and includes mostproducts. In some provinces of Canada, a Harmonised Sales Tax of 15 per cent is alsocharged7History of GST89The Need for A Tax ReformTo understand the need of a complete reform of the taxation system in the country, we need tounderstand the problem posed by the existing system.Problems of Existing Taxation System? High Rate and Low Yield of Direct Taxes- The rate of direct taxes is very high in India but incontrast, the total revenue from the tax is quite low. This is due to the existing disparities inthe income earned by different groups in the country. Another reason is that the high taxrates in the country encourage people to evade tax and avoid tax liabilities. Tax avoidance,here, refers to minimizing tax liabilities by, e.g., not declaring real profits or income,whereas, tax evasion is failing to meet real tax liabilities.? Double Taxation of Dividends- Due to double taxation on dividends the rate of domesticsavings and capital formation has failed to increase in an upward trend. The companies firstpay taxes like corporation tax, excess profit tax (surtax)to the Government of India. Then, aproportion of the profit after tax is given to the shareholders as dividends, which is againtaxed by the government as a part of personal income tax. Consequently, this is adiscouragement to those who pay taxes on dividends and thus, it becomes an arduous taskto raise financial resources at a large scale. This is also argued as one of the reason forstagnation in industrial sector.? Absence of Agricultural Income Tax- One of the drawback of old taxation system was thereis no taxation on agricultural system. Agriculture is the most dominant sector of Indianeconomy and has the employs largest number of people. Planned investment onagriculture has also increased over the years. But agriculture has failed to make anycontribution to the introduction of the Government’s tax revenue. Since agriculture is aState subject, the introduction of the agricultural income tax system at the Central level hasnot been possible. This is another reason for undue reliance on indirect taxes.? Importance of Indirect Taxes- In India, importance of indirect taxes has increased over theyears which implies that the importance of direct taxes has diminished. In absolute terms(i.e., in terms of rupee) the contribution of direct taxes has increased but the percentagecontribution of such taxes in total tax revenue has declined.? Widening of the Indirect Tax Net- Over the past years, the indirect tax net has been spreadwide. All the commodities that public buy have many various types of taxes levied on them.Some of these are- excise tax, cess, import duty, customs duty, sales tax, VAT, octroi etc.10Moreover, the rate of these taxes is also very high. At present, Central Government revenuefrom two main taxes, viz., union excise duties and customs accounts for about 80% of thetotal revenue. The major defect of the present system of indirect taxes is the cascadingeffect (i.e., the cumulative burden) of all these taxes. In India we find a multiplicity oflevies. The same good (or factor of production) like the raw material or purchased good istaxed more than once as it goes from different stages of production. For example- when aautomobile like car is manufactured sales tax on it has to be paid. But on that car unionexcise duty has already been paid. Moreover, all of these taxes were already paid on all theitems that are used to manufacture that particular car. The cascading effect of cannot beavoided due to multiplicity of levies. Thus, the indirect taxes have caused cost-push inflationin India.? Regressive Nature- Another limitation in the older Indian taxation system is that, over aperiod of time it has become more regressive in nature. And such taxes are usually imposedon consumption goods. In general, poor people have a high propensity to consume than therich people. In fact, the marginal propensity to consume gradually decreases as the incomeincreases. Thus, poor people, who spend the major portion of their small income onconsumption goods, pay the maximum amount of indirect taxes. Hence, over the years, thedirect tax system has become more and more progressive because as the income increasesthe tax rate levied on it also increases whereas indirect taxes have become more and moreregressive due to the inclusion of more and more items in the excise net. They fall moreheavily on people who have a strong propensity to consume, i.e., people with low incomeand less heavily on the rich people who have a strong propensity to save.? Ambiguous definitions- Some of the things stated in the previous system are veryambiguous, like it is quite unclear that whether the taxation at manufacturing level is leviedon goods manufactured or produced in India. Such things give rise to definitional issues asto what constitutes manufacturing.? Complexity- In the older system various Central and State statutes were not subsumed intoone comprehensive enactment, which is not a sign of a strong taxation system. Process ofjudicial decisions would be speedy too with one statute covering all aspects of indirecttaxes, which was not possible with older taxation system. Moreover, a consolidated systemattract FDI in the country as the taxation system is not very difficult to understand.? Exclusion of Services from state taxation- Services doesn’t come under the scope of StateLegislature which makes its taxation problematic.11? Inflationary impact- Another weakness of the older indirect taxes was that they feedinflationary forces. The cascading effect of the taxes on a commodity increase its price. Thismay lead to rise in the cost of production as a result of which the workers union demandsmore of wages that further increases the price of the commodity and this spiral go on.? High collection and processing cost- The administrative cost of collecting and thenprocessing indirect taxes is generally heavy as they have to be collected from a largenumber of people/businesses.12Features of GST? Dual Goods and Service Tax- There are two parts of GST.a) CGST: Central Goods and Services Tax (which is to be paid to the center directly)b) SGST: State Goods and Services tax (which is to be paid to the state).? Inter-State Transactions and the IGST Mechanism- The Centre would levy and collect theIntegrated Goods and Services Tax (IGST) on all inter-State supply of goods and services. TheIGST mechanism has been designed to ensure seamless flow of input tax credit from oneState to another. The inter-State seller would pay IGST on the sale of his goods to theCentral Government after adjusting credit of IGST, CGST and SGST on his purchases (in thatorder). The exporting State will transfer to the Centre the credit of SGST used in payment ofIGST. The importing dealer will claim credit of IGST while discharging his output tax liability(both CGST and SGST) in his own State. The Centre will transfer to the importing State thecredit of IGST used in payment of SGST.? Destination-Based Consumption Tax- GST is a destination-based tax. It means that all theSGST (State Goods and Services tax) will be paid by the seller to the state in which his goodsor services are consumed not to the state where it was manufactured or produced.? Computation of GST on the basis of invoice credit method- The liability under the GST willbe invoice credit method i.e. credit will be allowed on the basis of invoices issued by themanufactures/traders.? GST Payment- The central GST is to be paid to center directly and state GST is to be paid tostate directly.? Goods and Services Tax Network (GSTN)- A not-for- profit, Non-Government Companycalled Goods and Services Tax Network (GSTN) is set up in collaboration by Governments ofCentre and State. It will provide infrastructure and IT services and assistance to both theGovernments in collection and other GST related activities.? GST on Imports-Centre will levy IGST on inter-State supply of goods and services. Import ofgoods will be subject to basic customs duty and IGST.? Maintenance of Records- A taxpayer or exporter would have to maintain separate details inbooks of account for availing, utilization or refund of Input Tax Credit of CGST, SGST andIGST.13? Administration of GST- Administration of GST will be done by the GST Council. The GSTcouncil is the apex body established to make policies for GST. Members of GST Councilcomprised of the Central and State ministers in charge of the finance portfolio.? Goods and Service Tax Council- The GST Council is formed jointly by the Centre and theStates. It will make recommendations to the Union and the States on important issues liketax rates, exemption list, threshold limits, etc. One-half of the total number of Members ofthe Council will constitute the quorum of GST council.14Tax Slabs Under GSTGoods and Services are divided into the following tax slabs:? 0%? 0.25%? 3%? 5%? 12%? 18%? 28%The list of various goods and services listed under different tax slabs can be seenby clicking the following link:http://www.cbec.gov.in/resources//htdocs-cbec/gst/goods- rates-booklet-03July2017.pdf;jsessionid=DDD821D4D589FB64B5736BEF48C881E115Benefits of GST? Seamless Flow of Credit- GST will facilitate seamless credit across the entiresupply chain and across all States as the tax base is same throughout thecountry.? Elimination of Cascading effect- Goods & Service Tax would eliminate thecascading effects of taxes on production and distribution cost of goods andservices. The removal of tax on tax (i.e., the cascading effect of tax) willincrease competitiveness and do beneficial impact on GDP in long run, whilekeeping the tax rates low and consolidated. It is felt that GST would serve asuperior reason to achieve the objective of streamlining indirect tax regime inIndia which can remove cascading effects in supply chain till the level of finalconsumers.? Revenue Gain- Revenue will increase under GST regime as the dealer baseincreases by capturing value addition in the distributive trade and increasedcompliance.? Enhanced Transparency- GST regime is designed to increase transparency inthe indirect tax framework and is expected to bring down the rate of inflation.? Zero rated Exports- Unlike the older system where refund of some taxes is notallowed due to fragmented nature of indirect taxes between the Centre andthe States, under the GST regime, exports will be zero rated in entirety. Alltaxes paid on the goods or services exported or on the inputs or input servicesused in the supply of such export goods or services shall be refunded.Exporters will be facilitated by grant of provisional refund of 90% of theirclaims within seven days of issue of acknowledgement of their application,thereby resulting in the easing of position with respect to cash flows. This willboost exports tremendously and hence improve the BOP condition.? Increased Uniformity- Uniform GST rates will reduce the incentive for evasionby eliminating rate arbitrage between neighboring States and that betweenintra and inter-State sales. Coordination of laws, procedures and rates of taxwill make compliance easier and simpler. There would be common definitions,common formats, common interface through GST portal, resulting inefficiencies and synergies across the board. This will also remove multipletaxation of same transactions and inter-State disputes like the ones on entrytax and e-commerce taxation existing today.16? Increased Certainty- Common procedures for refund of taxes, uniform formatsof tax return, common tax base, registration of taxpayers, common system ofclassification of goods or services along with timelines for every activity willlend greater certainty to taxation system.? Digitalization of the GST Process- GST is largely technology driven. Theinterface of the taxpayer with the tax authorities will be through the commonportal, GST Network (GSTN) setup by the government. There will be simplifiedand automated procedures for various processes such as registration, returns,refunds, tax payments, etc. All the processes would be done online throughGSTN. The input tax credit will also be verified online. Electronic matching ofinput tax credit across India will make the process more transparent andaccountable. This will encourage a culture of compliance and reduce taxavoidance and tax evasion. This will also greatly reduce the human interfacebetween the taxpayer and the tax administration, leading to speedy decisionsand less expensive.17Literature ReviewOverview of GSTThe following papers provided an overview of GST.Prof. Kumar, Nitin – ‘GOODS AND SERVICES TAX IN INDIA: A WAY FORWARD'(http://gjms.co.in/index.php/gjms2016/article/view/213)Sehrawat, Monika & Dhanda, Upasana (University of Delhi) – ‘GST IN INDIA: A KEYTAX REFORM'(http://granthaalayah.com/Articles/Vol3Iss12/15_IJRG15_C12_76.pdf)Ravishu, Raj (IMS Unision University)- ‘Goods and Services Tax in India'(https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2946241)Khurana, Akanksha & Sharma, Aastha University of Rajasthan)- ‘GOODS ANDSERVICES TAX IN INDIA – A POSITIVE REFORM FOR INDIRECT TAX SYSTEM'(http://www.journalijar.com/uploads/649_IJAR-9112.pdf)Impact of GSTThe following papers provided a general analysis of the impact of GST.Panda, Aurobinda & Patel,Atul (KIIT School of Law)- ‘The Impact of GST (Goodsand Services Tax) on the Indian Tax Scene'(https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1868621)Goswami, Avinash & Aggarwal, Himanshu- ‘Impact of Goods and Services Tax(GST) On Various Sectors in India'(http://www.imperialjournals.com/index.php/IJIR/article/view/5589/5374)18Dani, Shefali (Director, GLS University)- ‘A Research Paper on an Impact of Goodsand Service Tax (GST) on Indian Economy'(https://www.omicsonline.org/open-access/a- research-paper- on-an- impact-of-goods-and- service-tax- gst-on- indianeconomy-2151- 6219-1000264.php?aid=82626)MiscellaneousThe following paper was reviewed for additional knowledge about the researchundertaken in terms of GSTLourdunathan F and Xavier P (Jindal College for women)- ‘A study onimplementation of goods and services tax (GST) in India: Prospectus andchallenges'(http://www.allresearchjournal.com/archives/2017/vol3issue1/PartI/3-1- 42-650.pdf)19Objective of the StudyThe primary objective behind this study was to analyze the impact of that GSThad on the life of traders and their daily course of business. No such researchhas been done till now. All the work is done on analyzing the system of GST.Furthermore, it is very important to understand the sentiments prevailingamongst the traders as they are the major driver of the country’s economiccondition. Moreover, with the help of this study we have tried to know thehardships faced by the traders and the short-term effect on their business dueto implementation of GST. Lastly, by the means of this study, we tried to notethe wave of sentiments and emotions of the traders as a result of GST.20Methodology ; Data(An Excel file (GST- Final Data.xlsx) has been attached along with this researchpaper, containing all the pertinent data. Kindly refer to the same.)The entire research is based on primary data, which was personally collected bythe researchers from the Chandni Chowk area, which is the prime trading hub inNew Delhi. A specific, well-tailored questionnaire was used for this purpose (givenin the next page). The questions were kept qualitative in nature, because thetraders are hesitant to reveal any numeric data. Thus, every question containedthree answer options viz. yes/no/neutral. A total of 83 responses were receivedby this method.The answers thus received were analyzed using multiple tools in MS Excel. Theresponses to every question was graphically analyzed using pie charts.Furthermore, a weighted average analysis was carried out to understand themagnitude and the sentiment among the traders. Thus, the research was able todraw out a qualitative conclusion, which is explained later in this paper.21QuestionnaireQ1. NameQ2. SectorQ3. Has there been a net increase or decrease in the amount of tax paid by you?? Increase? Neutral? DecreaseQ4. In contrast to the pre-GST era, do you prefer having a bill now?? Yes? Neutral? NoQ5. Compared to earlier, has there been an increase in the paperwork to be completed?? Yes? Neutral? NoQ6. Has there been a decrease in the import costs?? Yes? Neutral? NoQ7. Has there been an increase in the export costs?? Yes? Neutral? NoQ8. Do you expect an increase in sales, due to GST?? Yes? Neutral? NoQ9. Has there been an increase in your working capital requirements due to the tax levied on inter-statestock transfer?? Yes? Neutral? No22Graphical Analysis of Responses23242526Weighted Average AnalysisIn this part of the analysis, the four main questions, which we believed to be a correctrepresentation of the sentiments, were chosen. The options which portrayed a negative impactof GST were given a value of -1, the options with a neutral impact on GST were given a value of0 and the options which portrayed a positive impact of GST were given a value of +1. Thus, aweighted product-average approach was used to come to a conclusion. As seen, the overallimpact of GST, which could range between -1 to +1, came out to be -0.25602. This implies anegative reaction, but to a moderate magnitude.Has therebeen anetincreaseordecreasein theamount oftax paidby you?In contrastto the pre-GST era,do youpreferhaving abill now?Compared toearlier, hasthere been anincrease in thepaperwork tobe completed?Do you expectan increase insales, due toGST?-1 55 3 79 500 15 15 0 13+1 13 65 4 20WeightedProduct-55 -3 -79 -500 0 0 013 65 4 20Sum -42 62 -75 -30Total Weight 83 83 83 83WeightedAverage-0.50602 0.746988 -0.90361 -0.36145Min -1 -1 -1 -1Max 1 1 1 1OverallImpact-0.2560227Outcomes and Conclusion? Overall Impact- According to our research, GST has had a negative impact, from the point ofview of the traders. The primary reason for this negative sentiment is the idea of a drasticchange, which has hit the day to day operations of the traders. Most of the responses, asseen above in the graphical representation, show a negative attitude towards GST.? Taxes Paid- As seen in the graph of the question related to increase or decrease in tax, 66%of the traders said that there has been an increase in the taxes paid. This has furtherdampened the business. Only in a few cases (16%) do we see a decrease in taxes. Thisaspect will increase the overall tax collected, which would be beneficial to the economy, butit is problematic for the traders.? Usage of bills- A whopping 78% say that there has been a huge increase in billing, after theimplementation of GST. This is due to the fact that in order to take advantage of credit,under the GST system, the traders need to present the bill. This would have a positiveimpact on the economy, since many more transactions will now be accounted for, whichwould further reduce black money.? Fall in Sales- Across the market, there has been a fall in the sales after GST, since the netprice of various goods have increased. 60% of the respondents replied that there has been adecrease in the sales. This huge magnitude in drop of sales is also due to the fact that theeffects of the Demonetization move by the government hasn’t completely been washedout.? Small Traders vs Large Traders- While conducting the primary research, it was seen that theimpact on the small traders, specifically those serving the everyday customers, was muchmore profound compared to the impact on the large traders which serve commercialcustomers. This stark contrast is due to the fact that the demand by commercial customersis less elastic compared to the demand by the everyday customer, and thus, is less likely tobe impacted by the net change in price due to GST. This further exacerbates the problem ofchange.? Problems in Adaptability- Many of the traders have a problem adapting to the new system.The traders have to hire new accountants who are capable of handling the GST changes.These accountants charge a much higher fee. This is particularly problematic for smalltraders, who suffer a cash crunch.