6 years of GST

GS Paper 3

 Syllabus: Indian Economy and issues relating to Planning, Mobilization of Resources

 

Source: HT

 Context: With the implementation of a Goods and Services Tax (GST) on July 1 2017, India took a huge step towards modifying its indirect taxation system.

About Goods and Services Tax (GST): 

• It is an indirect tax (not directly paid by customers to the government) that came into effect on July 1, 2017, as a result of the 101st Amendment to the Indian Constitution.
• It is imposed on both manufacturers and sellers of goods, as well as suppliers of services.
• For tax collection, it is divided into five tax slabs – 0%, 5%, 12%, 18%, and 28%.

 

About GST Council:

• It is an apex committee to modify, reconciles or make recommendations to the Union and the States on GST, like the goods and services that may be subjected or exempted from GST, model GST laws, etc.
• Article 279A of the Indian Constitution empowers the President of India to constitute a joint forum of the Centre and States called the GST Council.

 

Need for GST:

• The inclusion of several indirect taxes at various levels of the supply chain hampered the Indian tax system.
• This resulted in a complicated and fragmented tax framework that included excise duty, service tax, VAT, central sales tax (CST), and other taxes.
• These led to tax cascading (tax on tax), raising the entire tax burden on goods and services.
• Hence, the primary goal of GST is –
  • To simplify the tax system by substituting a single indirect tax for several indirect levies
  • Eliminating tax cascading by establishing a uniform tax structure

 

Achievements of GST:

• Revenue collection:
  • The average growth rate of Gross GST revenue from 2018-19 to 2022-23 stands at 3%, surpassing the nominal GDP growth rate of 9.8%.
  • The (June 2023) collection has crossed the 1.6 lakh crore mark for the 4th time since the inception of GST.
  • This is noteworthy as indirect taxes typically exhibit lower buoyancy – an increase in its revenue rate without increasing the tax rate.
• A seamless market and digitised compliance:
  • GST laid the foundation for a seamless national market, reshaping India’s tax landscape and driving economic growth.
  • By digitising processes from registration to return filing, the GST portal ensured smoother compliance for businesses, fostering a tech-enabled environment.
  • It paved the way for other significant indirect tax reforms, including e-way bills and e-invoicing, promoting transparent data sharing between businesses and the government.
• Empowering the manufacturing sector: GST’s impact on the manufacturing sector was remarkable, as it eliminated the cascading effect of taxes and reduced manufacturing costs.

 

Challenges still persisting:

• Complexities in return forms and the ambiguity surrounding tax rates and classifications of certain goods and services lead to disputes and uncertainty.
• Combating tax fraud remained a priority, with measures in place to ensure compliance and weed out fraudulent businesses.

 

Some areas that deserve attention are:

• Commence taxation of petroleum crude, high-speed diesel, petrol, natural gas and aviation turbine fuel and similarly, alcohol meant for human consumption;
• Inclusion of other levies such as electricity duty, stamp duty, etc;
• Clarifying taxation of online gaming activities, transactions involving cryptocurrency, etc.
• The officials should also look into rationalisation of the tax rates (slabs); upgrading the law to deal with a digital world and keep up with the various technological developments.

 

Conclusion:

• The implementation of GST has definitely been a success but is still a new reform with the potential to witness phenomenal growth and harmonisation in the coming years.
• GST has shown immense promise, reshaping the economy and driving digitization while also confronting challenges and fraud.

 

Insta Links: 

Five years stronger

 

Mains Links:

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)

 

Prelims Links: (UPSC 2017)