Goods and Services Tax (GST) was introduced via the 101st Constitution Amendment Act in 2016. GST aims to unify the country’s tax structure under the slogan “One Nation, One Tax”. It subsumed multiple indirect taxes, such as excise duty, service tax, and Value Added Tax (VAT).
Objectives of GST
The primary objectives of GST include –
- Eliminating the cascading effect of taxes
- Creating a unified national market
- Streamlining tax compliance
- Reducing the tax burden on consumers
- Increasing tax revenue for the government
Structure of GST
GST comprises three main components –
- Central GST (CGST): Collected by the central government.
- State GST (SGST): Collected by state governments.
- Integrated GST (IGST): Applied on inter-state transactions.
The tax rates under GST are categorised into four slabs – 5%, 12%, 18%, and 28%. Certain goods and services are exempt from GST.
GST Council Formation
The GST Council was established under Article 279A of the Constitution of India. It is a constitutional body responsible for recommending GST rates and policies. The Council was formed within 60 days of the enactment of GST.
Composition of GST Council
The GST Council comprises –
- Chairperson: Union Finance Minister.
- Members: Union Minister of State in charge of Revenue and a minister from each state nominated by their respective governments.
- Vice-Chairperson: Elected from among the members.
Functions of GST Council
The GST Council has several key functions –
- Recommending tax rates for goods and services.
- Determining exemptions and thresholds for GST.
- Advising on model GST laws and principles of levy.
- Addressing disputes arising from GST implementation.
Meeting Procedures
The Council meets regularly to discuss GST-related matters. A quorum requires half the members. Decisions are made based on a weighted voting system, where the Central Government’s vote holds one-third weight and the states’ votes hold two-thirds.
Significance of GST
GST has transformed the Indian taxation landscape. Its significance includes –
- Creating a unified market, boosting trade and investment.
- Improving tax compliance through online systems.
- Reducing tax evasion by standardising rates across states.
- Enhancing revenue collection for the government.
Impact on Businesses
GST has impacted businesses in India. Key effects include –
- Simplified tax compliance processes.
- Input tax credit for taxes paid on purchases.
- Reduction in the overall tax burden for many sectors.
Challenges of GST Implementation
Despite its advantages, GST faces several challenges –
- Multiple Tax Rates: India maintains various tax rates, complicating compliance.
- Complex Filing: The GST filing process can be cumbersome for businesses.
- Trust Deficit: Concerns over revenue sharing between the Centre and states.
- Exemptions: Certain sectors, like petroleum and real estate, remain outside GST.
Recent Developments
The GST Council has made several recent recommendations –
- Implementation of a dual GST model.
- Classification of goods and services into five tax slabs.
- Exemptions for educational institutions.
- Increased filing periods for returns.
GST Compliance System
The GST compliance framework includes an online portal for filing returns and making payments. This system aims to streamline processes and reduce compliance costs for businesses.
Input Tax Credit (ITC)
Input Tax Credit allows businesses to offset GST paid on inputs against their output tax liability. This mechanism prevents the cascading effect of taxes and encourages compliance.
GST and Economic Growth
GST is expected to boost economic growth by –
- Encouraging foreign investment.
- Enhancing the manufacturing sector.
- Creating employment opportunities.
GST and Consumer Prices
GST has implications for consumer prices. The tax structure aims to reduce the overall tax burden, potentially leading to lower prices for goods and services. However, some essential items still attract higher rates.
GST Council’s Recommendations
The GST Council regularly reviews and recommends changes to the tax structure. Recent recommendations include –
- Rate adjustments for certain goods.
- Provisions for special rates during natural disasters.
- Rationalisation of late fees for delayed filings.
Inter-State Trade and GST
IGST facilitates seamless inter-state trade. It ensures that goods transported between states are taxed uniformly, promoting a unified market.
Dispute Resolution Mechanism
The GST Council has established a mechanism to resolve disputes between the Centre and states. This framework aims to address conflicts arising from GST implementation.
Future of GST
The future of GST involves ongoing discussions on improving the system. Key areas of focus include –
- Bridging the trust deficit between the Centre and states.
- Addressing the complexity of compliance.
- Expanding the GST base to include more sectors.
GST and Federalism
GST has implications for fiscal federalism in India. The centralised nature of GST has raised questions about states’ autonomy in taxation. Discussions on decentralisation may shape future reforms.
Global Comparisons
Many countries have implemented GST or Value Added Tax (VAT) systems. India’s approach, with multiple rates, differs from simpler models in other nations. This complexity can hinder efficiency and compliance.
