Some Sectors Becoming more Informal with GST

Goods and Services Tax (GST) was seen to change the economy from a very unorganized informal economy to a formal economy. However, GST was only seen to create confusion.

Some Sectors Becoming more Informal with GST

GST was implemented in 2017 and made the whole confusing tax structure lower and less complicated. It was also implemented in the hopes of higher tax collections. The informal economy is the part of an economy that is neither taxed nor monitored by any form of government.

The formal economy is included in a country’s gross national product (GNP) or gross domestic product (GDP) and is taxed by the government.

Many unorganized businesses such as ceramic and plywood have become even more unorganized. GST might have created an e way bill noted to create efficiency but without manual check posts, many goods are left unchecked.

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Organized businesses tend to have low values and thus with GST invoicing and sometimes even no invoicing is far easier to implement.

Tax evasion, however, has been reduced in sectors such as plastics and batteries as the source of raw material is tracked better.

As for apparels and electrical equipment no major changes in that department. GST collect has declined to 94,016 crores in May from a record 1.03 trillion in April. This was, however, higher than the monthly average of 89,885 crores through 2017-18.

The monthly target for GST collection is 1 trillion as of now, and with the waybill in place, collections are bound to improve further.

“Our interactions with dealers and distributors, industry bodies, transporters and unorganised manufacturers indicate that unorganised trade activity has reduced post e-way bill implementation. A few indicated that there was a visible change in the attitude of trade channels towards compliance, as incentives to trade via informal channels have reduced considerably,” the report said.

Vice-President M Venkaiah Naidu said in February 2018, that demonetization and GST have improved India’s fiscal prudence and expanded the formal economy and the tax base.

“The economy is now back on track and is on course to achieve higher growth in the coming years,” he said.

Overall the economy shifting from a formal to an informal economy will take some time but with the tax evasion measures being implemented it will help speeden it up.