Apart from the key direct benefits of GST such as furthering cooperative federalism, reducing corruption and leakage, simplifying complex tax structure and unifying tax rates across the country, and creating a common market, there are some “hidden benefits” of GST also . Some of them are as follows-
1. Textile sector inclusion
The textile and clothing sector is now fully part of the tax net, thanks to GST. Previously, some parts of the value chain, especially fabrics, were outside the tax net, leading to informalisation and evasion. Some anomalies favoring imports of fabrics over domestic production will need to be rectified but overall the tax base has expanded.
2. Work contracts
Next hidden benefit of GST is the inclusion of an important part of real estate sector—“work contracts”, housing that is being built.
This, in turn, would allow for greater transparency and formalization of cement, steel, and other sales, which tended to be outside the tax net. The formalization will occur because builders will need documentation of these input purchases to claim tax credit.
3. Effective taxation of imports
Earlier, the countervailing duty to offset the excise tax and the special additional duty (SAD) to offset the state VAT was not adequate. Under the GST, the full taxes on domestic sales levied by the Centre and the states (the IGST) will be levied when imported goods first arrive into the country with full tax credits available down the chain to a greater extent than previously. The new tax will remove the earlier inadequacies and will lead to more transparent and more effective taxation of imports.
Since businesses have to keep detailed records under GST, these can be beneficial for them in the long run. Small businesses can build up a real-time track record of tax payments digitally, and this can be used by lending institutions for credit rating and lending purposes. Currently, small businesses are credit-constrained because they cannot credibly demonstrate their financial capability.
7. Smoother transport
GST has already made transport a lot smoother. The inter-state check-posts were removed within days of GST coming into force. So far, many states have abolished these check-posts while others are in the process of eliminating them. If this trend continues, the reduction in transport costs, fuel use, and corruption could be significant. GST will also reduce logistics costs and boost inter-state trade.