Introduction
The 101st Constitutional Amendment Act introduced the Goods and Services Tax (GST) regime, which aimed to reform the country’s indirect taxation system. The Act replaced the complex web of state and central taxes with a unified GST system.
Body:
Significance of the 101st Constitutional Amendment Act; –
- Streamlining Tax Compliance: There is now a seamless flow of availability of a common set of data to both the Centre and the States making Direct and Indirect Tax collections more effective.
- Reduced Tax Evasion: GST has a self-policing mechanism with a robust digital infrastructure, making it more difficult for businesses to evade taxes. This has encouraged previously informal businesses to register and comply with tax regulations.
- Formalization of the economy: Further, a segment of land and real estate transactions has also been brought into the tax net. This in turn would allow for greater transparency and formalization of cement, steel and other sales which earlier tended to be outside the tax net.
- Efficiency in indirect tax compliance: The introduction of GST in India has brought inefficiencies in indirect tax compliance, and incidence and reduced the number of indirect tax authorities that a taxpayer needs to interact with
- Reduced cascading effect of taxation: Based on the one nation one tax ideology, GST has helped in reducing the cascading effect of tax considerably.
- Removing the cascading effect of taxes resulted in the reduction of manufacturing costs.
- Automation of tax compliance: GST streamlined tax compliance for manufacturers, reducing the need for multiple returns and simplifying assessments due to automated processes, leading to smoother operations.
- Input tax credit: The introduction of GST allowed manufacturers and dealers to claim input tax credit, eliminating non-creditable taxes on procurements and services. This move boosted revenue collection, as these costs were previously included in sale prices.
- Enhanced operations throughout India: There has been a boost in operation throughout India because of the single unified tax system making it easier for goods transportation across India.
Accommodative spirit of federalism reflected in the 101st Amendment:
- GST Council (A. 279A): The establishment of the GST Council exemplifies the accommodative spirit of federalism. This council includes representatives from both the central and state governments, fostering cooperation and collective decision-making in the GST regime.
- E.g. GST Council plays a crucial role in deciding GST rates, with input from all stakeholders.
- Revenue sharing: The GST Council, plays a pivotal role in determining tax rates, exemptions, and revenue-sharing mechanisms, effectively addressing the fiscal requirements of states.
- Compensation: To address concerns about potential revenue losses during the GST transition, a compensation mechanism was established, providing states with compensation for five years.
- This decision reflected a cooperative and accommodative approach.
- Dual structure: The dual structure of GST, consisting of Central GST (CGST) and State GST (SGST), reflects federalism in action.
- This division of tax revenue collection between the central and state governments allows each level of government to independently levy and collect taxes on the same transaction.
However, this accommodative nature was not reflected in many instances:
The GST in India centralized tax powers, leaving states with limited autonomy. Only liquor and fuel remain as significant revenue sources outside the GST. The GST system relies on a “compensation guarantee,” but during the pandemic, the Union government repeatedly violated it, worsening economic impacts.
Conclusion
The six-year journey of GST has been a roller-coaster for all stakeholders with an equitable share of hits, misses and expectations. A work-in-progress in its transformational journey, GST suffers from several shortcomings which need to be resolved quickly, but its journey to ‘Good & Simple Tax’ is still quite long.
