Q. What is/are the most likely advantages of implementing ‘Goods and Services Tax (GST)’?

  1. It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.
  2. It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves.
  3. It will enormously increase the growth and size of economy of India and will enable it to overtake China in the near future.

Select the correct answer using the code given below:

  • 1 only
  • 2 and 3 only
  • 1 and 3 only
  • 1, 2 and 3

Answer: (a) 1 only

Goods and Services Tax (GST):
  • Goods and Services Tax (GST) was introduced by the Government of India to boost the economic growth of India. GST is considered to be the biggest taxation reform in the history of Indian economy.
  • It was introduced to save time, cost and effort. Goods and Services Tax (GST) Act came into effect in 2017.
  • In order to address the complex system in India, the Government introduced 3 types of GST which are given below.
    • CGST (Central Goods and Service Tax)
    • SGST( State Goods and Service Tax)
    • IGST(Integrated Goods and Services Tax)
  • As per 2016 GST regime, Union Territory Goods and Service Tax (UTGST) was also introduced to account for all the taxations in the Union Territories of India.
  • The power to make any changes in the GST law is in the hands of GST Council. GST Council is headed by the Finance Minister.
Legislative Basis Of GST
  • In India, GST Bill was first introduced in 2014 as The Constitution (122nd Amendment) Bill.
  • This got an approval in 2016 and was renumbered in the statute by Rajya Sabha as The Constitution (101st Amendment) Act, 2016. Its provisions:
    • Central GST to cover Excise duty, Service tax etc, State GST to cover VAT, luxury tax etc.
    • Integrated GST to cover inter-state trade. IGST per se is not a tax but a system to coordinate state and union taxes.
    • Article 246A – States have power to tax goods and services.
  • GST Council
    • Article 279A – GST Council to be formed by the President to administer & govern GST. It’s Chairman is Union Finance Minister of India with ministers nominated by the state governments as its members.
    • The council is devised in such a way that the centre will have 1/3rd voting power and the states have 2/3rd.
    • The decisions are taken by 3/4th majority.
  • Reforms Brought About by GST
    • Creation of common national market: By amalgamating a large number of Central and State taxes into a single tax.
    • Mitigation of cascading effect: GST mitigated ill effects of cascading or double taxation in a major way and paved the way for a common national market.
    • Reduction in Tax burden: From the consumers’ point of view, the biggest advantage would be in terms of reduction in the overall tax burden on goods.
    • Making Indian products more competitive: Introduction of GST is making Indian products more competitive in the domestic and international markets owing to the full neutralization of input taxes across the value chain of production.
    • Easier to administer: Because of the transparent and self-policing character of GST, it would be easier to administer.
Main Features of GST
  • Applicable On supply side: GST is applicable on ‘supply’ of goods or services as against the old concept on the manufacture of goods or on sale of goods or on provision of services.
  • Destination based Taxation: GST is based on the principle of destination-based consumption taxation as against the present principle of origin-based taxation.
  • Dual GST: It is a dual GST with the Centre and the States simultaneously levying tax on a common base. GST to be levied by the Centre is called Central GST (CGST) and that to be levied by the States is called State GST (SGST).
    • Import of goods or services would be treated as inter-state supplies and would be subject to Integrated Goods & Services Tax (IGST) in addition to the applicable customs duties.
  • GST rates to be mutually decided: CGST, SGST & IGST are levied at rates to be mutually agreed upon by the Centre and the States. The rates are notified on the recommendation of the GST Council.
  • Multiple Rates: Initially GST was levied at four rates viz. 5%, 12%, 16% and 28%. The schedule or list of items that would fall under these multiple slabs are worked out by the GST council.