IMPACTS
OF GST – ECONOMY
News:
What lies ahead for GST
in India? | In Focus podcast
What's
in the news?
● Meeting
after nearly five months, the Goods and Services Tax (GST) Council unravelled
some knotty issues that were hanging fire for a long time, such as the
constitution of Appellate Tribunals and the tax treatment for the booming
online gaming industry.
Significance
of GST:
1.
Unified common market:
● It
helps to create a unified common national market for India.
2. Removal of
cascading:
● A
system of seamless tax credits throughout the value-chain, and across
boundaries of States, would ensure that there is minimal cascading of taxes.
3. Simple and
easy to administer:
● Multiple
indirect taxes at the Central and State levels are being replaced by GST.
● Backed
with a robust end-to-end IT system, GST would be simpler and easier to administer than all other indirect taxes of
the Centre and State levied so far.
4. Boosting
Compliance:
● By
minimizing rate arbitrage between neighbouring States and between intra-state
and inter-state sales, nearly uniform SGST and IGST rates will minimize the
incentive for evasion.
5. Discourage
Tax evasion:
● Uniform
SGST and IGST rates will reduce the incentive for evasion by eliminating rate
arbitrage between neighbouring States and that between intra and inter-state
sales.
6. Lessen
corruption:
● Increasing
the use of technology will eliminate the human interface between the taxpayer
and the tax administration, which will help to reduce corruption.
Challenges
with regard to GST:
1.
State fiscal autonomy:
● The
GST has reduced the fiscal autonomy of the state governments as most of the
state taxes were subsumed under the GST.
2. GST
compensation:
● Important
concern of the state governments is the delay in the allocation of the GST
compensation funds to the states.
3. Adoption
& Technical Issues:
● Small
and medium businesses are still grappling to adapt to the tech-enabled regime.
● The
fundamental principles on which the GST law was built viz. seamless flow of
input credits and ease of compliance has been impaired by IT glitches.
4. Multiple Tax
Rates:
● Unlike
many other economies which have implemented this tax regime, India has multiple
tax rates.
● This
hampers the progress of a single indirect tax rate for all the goods and
services in the country.
5. Lack of
Coverage:
● With
petrol, diesel, ATF outside GST, a large part of the economy is still not
covered by the indirect tax regime.
WAY
FORWARD:
1.
Dispute resolution mechanism:
● To
overcome the issues of dispute related to GST and increase efficiency in tax
administration, there is a need for a robust dispute redressal mechanism.
2. Efficient
coverage:
● The
Governments can consider bringing petroleum and electricity under GST ambit
that will help prevent cascading and ensure further uniformity.
3. Simplification
of compliance procedure:
● Streamlining
of anti-profiteering measures and simplification of compliance procedures also
needs to be revisited to ensure that the cost efficiency and reduction in
prices envisaged under GST law finally reach the common man.
4. Rationalization
of Tax Rates:
● There
is a need to review and potentially revise the tax rate slabs to simplify the
system and enhance compliance.
Back
to basics:
About
Goods and Services Tax:
● It
was introduced in 2017 through the 101st amendment of the constitution.
● It
subsumed around 14 state and central
taxes under its ambit.
● Five
slabs of the tax structure: 0%, 5%, 12%,
18%, 28%.
● It
applies for all the products except Alcoa for human consumption and five
petroleum products: petroleum crude,
motor spirit (petrol), high speed diesel, natural gas and aviation turbine
fuel.
● GST council:
○ The GST Council, established under Article 279A of the Indian
Constitution.
○ It serves as the apex committee
responsible for recommending modifications, reconciliations, and exemptions
related to GST.
○ It
plays a crucial role in shaping the GST laws and regulations.
○
The union minister of finance is the ex officio
chairman of the council.
○
States
have two third voting share while center has one third vote share.