India has been through many reforms which have caused different effects on the employment status in India. From LPG (Liberalisation Privatisation Globalisation) in 1991 which had a beneficial impact on employment in India to demonetization, which led to a decrease in the growth of the economy and hence led to unemployment and now GST (Good and Services Tax). Before going in on the effect that GST has on employment, let’s talk about the taxation system in India. The tax system has evolved from the pre-existing Central excise duty and the States sales tax systems to VAT (Value Added Tax), MODVAT and then converting to CENVAT (Central Value Added Tax). This has led to the harmonizing of the sales tax structure through the implementation of uniform floor rates of sales tax. The introduction of VAT has been successful in India but there have continued to be certain flaws in the VAT structure that were seen at Central level and State level. For example, CENVAT does not include many Central taxes such as additional customs duty, surcharges etc. Moreover, no necessary steps were implemented to abduct the value added chain in the distribution trade below the manufacturing level in the current scheme of CENVAT. Thus, in order to reduce these escape paths in the taxation system by waiving the cascading effects of CENVAT and service taxes; the rise of the revolutionary reform GST began.
When GST goes into action, the ‘Make in India’ program is expected to make a great deal of progress, because the GST will reduce taxations on such local businesses. GST will enhance the production possibilities frontier (PPF), creating lots of employment opportunities for the young population and pushing India’s growth trajectory by around two percent.Simplification of taxation and increased growth would attract more and more FDIs and increase employment opportunities in the economy. The further effects of GST are immense, an increase in Government revenue vis-a-vis better tax conformity and deceased tax evasion, permissive greater control and facilitating efficient and effective monitoring than the traditional taxation system. The increased tax revenues of Government would create scope for intensified public investments in different social and physical infrastructural projects creating a further chance for employment generation.
The implementation of GST will eradicate the blockade between states and make the country a common market. GST seeks to create a common base and common rates across goods and services across the country and thus reduce transaction costs. A more comprehensive and wider coverage will integrate several Central and State level taxes in GST and phase out of Central Sales Tax will be beneficial for manufacturers and consumers as this is expected to curtail the transaction costs of manufacturers and as a result, would reflect in the reduction of prices of goods. With the reduction in the compliance costs, our trade and industry will become more competitive and hence domestic companies can have good position while locking horns with its counterparts in another part of the world. GST provides lot more incentives to all sectors of the economy and compels the corporate houses to grow their business, which will create a balance of growth, expand the overall economic development and sound economic environment which is required for accommodating more jobs, like in India where the massive supply of cheap labour is waiting to be utilized efficiently
While the GST may have its good impact for the economy in creating a commonplace, consumers will have to pay more for services which account for 57 percent of the GDP. A report by Motilal Oswal Securities claims that as far as the impact of GST on inflation is concerned, a moderate GST rate will aid to decrease wholesale price index (WPI), while the impact on consumer price index (CPI) will be lower. However, as services constitute a much larger share in the consumption basket than in CPI, consumers may feel the burn of the higher prices of services as GST goes into effect.
Another major impact of the GST will be on the unorganised sector (which includes handloom workers, toddy tappers, fishermen and fisherwomen, leather workers, plantation labourers, weavers, tobacco workers etc.) because the trade will shift from unorganised sector to organised sector. While going by the Motilal Oswal Securities, GST would simplify the taxes. Ultimately these transformations will lead to efficiency in the system.
The report claims that India has the highest presence of the unorganised sector. National Commission for Enterprises in Unorganised Sector (NCEUS) estimates that in the year 2005, out of the 485 million persons employed in India including both organised and unorganised, 86 per cent and 395 million worked in the unorganised sector, generating 50.6 percent of the country’s GDP.
Analysts say that the fear of job losses in a GST regime will persist as it will affect the unorganised players the most, which have to now come under the tax compliance while it will benefit the mid-large sized companies which are already in the organised sector. Some estimates reveal that the unorganised sector accounts for about six times the jobs than the organised companies which are already under compliance.
Like demonetization that has affected each and every citizen of the country, now GST, when implemented, will affect everyone. Taking different parts of the world into consideration the GST regime is the same concept. One aspect accepted by almost every GST country is that GST is inflationary, for example, Singapore saw a hike in inflation when it implemented GST in 1994. Whereas in Malaysia, it included a widespread protest by small and medium businesses for some days before making right adjustments, the protest was because the small and big enterprises were put on the same footing by keeping the exemption threshold very competitive without any tax differences. Likewise in India, small and big enterprises were put in the same threshold. This will have a drastic effect on jobs in small and medium enterprises in the short run but the overall positive effect will neutralise the adverse effects and if everything goes according to the implementing committee, GST will provide opportunities for enhanced economic growth and thereby boost employment rate.
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