GS Mains Model Question & Answer: What is goods and services tax (GST) ? Discuss salient features and benefits of passed GST bill

Q. What is goods and services tax (GST) ? Discuss salient features and benefits of passed GST bill . (12.5 Marks)

(General Studies Mains Paper III- Economy: mobilization of resources)

Model Answer :

GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

The passage of a single Goods and Services Tax (GST) Bill (122 Constitution Amendment Bill ) would be a remarkable achievement with few comparable precedents in the world. GST is one indirect tax for the whole nation, which will make India one unified common market.

Salient Features of the GST Bill

The salient features of the Bill are as follows:

i. Conferring simultaneous power upon Parliament and the State Legislatures to make laws governing goods and services tax;
ii. Subsuming of various Central indirect taxes and levies such as Central Excise Duty, Additional Excise Duties, Service Tax, Additional Customs Duty commonly known as Countervailing Duty, and Special Additional Duty of Customs;
iii. Subsuming of State Value Added Tax/Sales Tax, Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and collected by the States), Octroi and Entry tax, Purchase Tax, Luxury tax, and Taxes on lottery, betting and gambling;
iv. Dispensing with the concept of ‘declared goods of special importance’ under the Constitution;
v. Levy of Integrated Goods and Services Tax on inter-State transactions of goods and services;
vi. GST to be levied on all goods and services, except alcoholic liquor for human consumption. Petroleum and petroleum products shall be subject to the levy of GST on a later date notified on the recommendation of the Goods and Services Tax Council;
vii. Compensation to the States for loss of revenue arising on account of implementation of the Goods and Services Tax for a period of five years;
viii. Creation of Goods and Services Tax Council to examine issues relating to goods and services tax and make recommendations to the Union and the States on parameters like rates, taxes, cesses and surcharges to be subsumed, exemption list and threshold limits, Model GST laws, etc. The Council shall function under the Chairmanship of the Union Finance Minister and will have all the State Governments as Members.

Benefits of GST Bill

The benefits of GST can be summarized as under:

For business and industry

Easy compliance: A robust and comprehensive IT system would be the foundation of the GST regime in India.
Uniformity of tax rates and structures: GST will ensure that indirect tax rates and structures are common across the country, thereby increasing certainty and ease of doing business.
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.
Improved competitiveness: Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for the trade and industry.
Gain to manufacturers and exporters: The subsuming of major Central and State taxes in GST, complete and comprehensive set-off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services.

For Central and State Governments

Simple and easy to administer: Multiple indirect taxes at the Central and State levels are being replaced by GST.
Better controls on leakage: GST will result in better tax compliance due to a robust IT infrastructure.
Higher revenue efficiency: GST is expected to decrease the cost of collection of tax revenues of the Government, and will therefore, lead to higher revenue efficiency.

For the consumer

Single and transparent tax proportionate to the value of goods and services: Under GST, there would be only one tax from the manufacturer to the consumer, leading to transparency of taxes paid to the final consumer.
Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit consumers.