GS Paper 3
Syllabus: Economy: Taxation
Context: The article highlights the trend in tax collection in India post-Covid, specifically focusing on direct taxes and GST.
Direct Tax Vs GST
|Direct tax refers to the taxes imposed on individuals and entities (levied directly on the taxpayer) based on their income, profits, or assets. It includes taxes like income tax, corporate tax, and wealth tax.||GST (Goods and Services Tax) is an indirect tax levied on the supply of goods and services. GST is a consumption-based tax that is charged at each stage of the supply chain, from production to the final sale.
|During COVID, direct tax experienced a decline of nearly 10% but then saw a growth rate of 49% in 2021-22 and 18% in 2022-23.||The recovery in GST collection has been better compared to direct taxes.|
|While the growth of corporation tax has been high, personal income-tax collection has declined.||Better recovery in GST has been due to:
a) e-invoicing and procedural simplification, b) better compliance procedures, c) the rising inflation rate and d) the rise in import duties
GST (introduced on July 1, 2017) is a multi-stage collection mechanism and aims to be a unified indirect tax across the country on products and services. The objectives of GST include simplifying the tax system, preventing misclassifications and litigations, avoiding an inverted duty structure, and ensuring a destination-based consumption taxation approach.
GST is implemented through a dual GST model, with the Centre and States levying taxes on a common base. The rates for GST range from 5%, 12%, 16% and 28%, and it applies to most goods and services, excluding alcoholic liquor for human consumption and five petroleum products (petroleum crude, motor spirit (petrol), high-speed diesel, natural gas and aviation turbine fuel). The GST Council, headed by the Union Finance Minister, is the governing body responsible for making key decisions regarding GST.
Achievements of GST:
|High GST revenues||GST revenues have shown a high growth rate ( constantly reaching over 1.5 Lakh crore a month collection)|
|Technological achievements||The GSTN, the technology platform for GST, has been successfully stabilized, ensuring smooth operations and transactions.|
|E-invoicing implementation||Mandating e-invoicing for businesses above Rs 100 crore has improved invoice matching and detection of fake invoices, enhancing tax compliance.|
|Improved tax compliance and enforcement||E-invoicing, e-waybill and online processes have improved tax compliance and enabled better enforcement, reducing instances of fraud and disputes.|
|Reduction in transaction costs||GST has significantly reduced transaction costs, making business operations more efficient and cost-effective.|
|Removal of hidden and embedded taxes||By removing hidden and embedded taxes, GST has improved the competitiveness of domestic industries in the global market.|
|Seamless tax credits||The system of seamless tax credits throughout the value chain and across state boundaries has minimized the cascading effect of taxes.|
Challenges/Limitations of GST:
|Refund delay issues||There are concerns regarding delays in export refunds, impacting businesses reliant on timely refunds under the GST regime.|
|Rate differentiation||The presence of multiple tax rates is seen as inefficient for targeting benefits to the poor, leading to complexities and potential disparities in the tax system.|
|Lack of dispute redressal mechanism||The absence of a statutory mechanism for uniform rulings by authorities has resulted in a lack of clarity and consistency in resolving disputes under the GST regime.|
|Constant amendments||The frequent amendments made to the GST law have caused confusion among taxpayers and tax administrators, leading to misunderstandings and misconceptions.|
|Adaption and technical issues||Small and medium businesses face challenges in adapting to the tech-enabled GST regime, with IT glitches affecting the seamless flow of input credits and ease of compliance.|
|Complex penalties||Businesses often face difficulties in monitoring vendor behaviour and believe they should not be penalized for compliance deficiencies of their vendors after paying GST amounts.|
|15th Finance Commission concerns||The 15th Finance Commission has highlighted additional concerns, including the multiplicity of tax rates, shortfalls in GST collections, volatility in collections, and inconsistencies in return filing. The dependency of states on compensation from the centre is also a concern.|
Anti-profiteering measures and compliance procedures in GST need to be streamlined to ensure cost efficiency and price reduction benefits reach the common man. A group of ministers has proposed the removal of exemptions on various services, aiming to bring uniformity and broaden the tax base under GST.
Explain the rationale behind the Goods and Services Tax (Compensation to States) Act of 2017. How has COVID-19 impacted the GST compensation fund and created new federal tensions? (UPSC 2020)
Enumerate the indirect taxes which have been subsumed in the Goods and Services Tax (GST) in India. Also, comment on the revenue implications of the GST introduced in India in July 2017. (UPSC 2019)