In any state, it is the government’s primary responsibility to use public funds to meet the growing developmental requirements of people. As a growing economy, India has struggled to meet the needs of a state with its limited resources and tax levy.
Several indirect taxes were levied in India before the introduction of the Goods and Services Tax (GST), including excise duty, customs duty, service tax, VAT/CST, entertainment tax, entry tax, and so on.
However, India’s indirect taxation has undergone a paradigm shift with the implementation of a unified indirect tax scheme that combines a significant number of central and state indirect taxes into a single GST.
Pre-GST Scenario in India
Before the introduction of GST in India, the main indirect taxes applicable in India were:
- Excise Duty – A tax on the manufacture of goods.
- Service Tax – A tax on the provision of services.
- Customs Duty – A tax on items imported and exported.
- State-level VAT – It is a tax on products sold inside a state.
- Central Sales – It is a tax on goods sold within a state.
Deficiencies in Earlier Tax Regime
Certain flaws in the tax structure were followed before the GST came into existence:
1. Variety of Taxes and Rates
The country’s several value-added tax laws, which have differing tax rates and tax processes, divide the country into separate economic groups.
2. Double Taxation
Previously, some products were classified as both commodities and services, and hence tax was charged twice.
3. High Compliance Cost
Octroi is levied when the goods enter a city, whereas entry tax is levied when the goods enter a state.
Tariff and non-tariff barriers such as octroi (a duty levied in some countries on various goods entering a town or city), entry tax, checkpoints, and others hampered the free movement of trade across the country. Furthermore, the enormous number of taxes resulted in a high compliance cost for taxpayers in terms of the number of returns, payments, and so on.
Features of Goods and Services Tax (GST)
Mentioned below are the features of GST, which will help in a better understanding of this concept.
1. Destination-Based Tax
Goods and Services Tax is imposed on the supply of goods or services. GST is based on the destination-based consumption taxation theory rather than the previous origin-based taxing approach.
2. Single Indirect Tax
GST was implemented as a single, unified tax reform. The abolition of these indirect taxes has helped make many goods and services more inexpensive for consumers while also making tax compliance easier for businesses.
3. Four-Tier Tax Structure
GST has a four-tiered tax structure- 5%, 12%, 18%, and 28%. This tax structure is the only way to tax all products and services. Many basic commodities, such as flour, are exempt from the GST. Two of the most significant advantages of this 4-tier system are increased transparency and lower prices for goods and services.
4. Integrated GST
Inter-state supply (including stock transfers) of goods or services is subject to an Integrated GST (Integrated tax-IGST). Inter-state supply means transferring any goods or services from one state to another, and such a supply will be charged with integrated GST. This GST is collected by the centre and afterwards disturbed with the states, so there won’t be any issues.
Benefits of Goods and Services Tax (GST)
Benefits or advantages of Goods and Services Tax (GST) are:
1. Creation of Unified National Market
The GST aspires to create India as a single market with comparable tax rates and processes, removing economic obstacles and opening the path for a national economy.
2. Mitigation of Ill Effects of Cascading
The cascading effect means there is a tax on tax levied on any product at every stage of the sale. It limits the negative impacts of cascading, enhances competitiveness, and improves the liquidity of the business by combining most central and state taxes into a single tax. It also allows set-off (adjusting losses against profit) of the previous stage of taxes charged for transactions across the whole value chain.
3. Elimination of Multiple Taxes and Double Taxation
GST consolidates the majority of existing indirect taxes at the federal and state levels into a single tax. This makes doing business easier and also addresses the controversial issue of a transaction being taxed twice as goods and services.
4. Boost the ‘Make in India’ Initiative
GST provides the government of India’s ‘Make in India‘ strategy with a huge boost by making goods and services produced in India competitive in both the domestic and international markets.
5. Buoyancy to the Government Revenue
By broadening the tax base and boosting taxpayer compliance, GST is projected to boost government revenue.
Provisions Related to GST Under the Indian Constitution
Here are the reforms brought by GST in the Constitution of India:
1. Article 246
Parliament has the authority to enact legislation relating to the Union or a State’s goods and services tax (CGST, SGST & UTGST). It also has exclusive power to make laws on the inter-state supply of goods and services or both. Read Article 246.
2. Article 269A
The Central Government will levy and collect GST on interstate supplies, which will subsequently be split between the Union and the States. Read Article 269A.
3. Amendment to Article 270
Except for the duties and taxes referred to in Articles 268, 268A, and 269, and surcharges referred to in Article 271, all taxes and duties referred to in the Union List shall be levied and collected by the Indian Central Government and apportioned (split) between the Union and the States.
4. Amendment to Article 249
If the Council of States has declared by the resolution that is supported by not less than two-thirds of the members, present and voting that:
- Parliament should make laws that are necessary for the public interest.
- Any matter concerning Goods and Services Tax mentioned under Article 246A or in the State List.
- It is lawful for Parliament to make laws for the whole or any part of the Indian territory for any matter when the resolution remains in force.
5. Amendment to Article 250
While a proclamation of emergency is in effect, the Parliament has the right to adopt laws for the entire or any portion of India’s territory about the Goods and Services Tax given under Article 246A or any of the matters mentioned in the State List.
The GST Council is a governmental body that is responsible for regulating and directing all the applications related to goods and services tax nationwide, including tax rates and other implementation procedures.
GST Council combines ideas and regulations into a single document and formalises the modifications with its departments and the Finance Ministry through notifications and circulars.
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