Six years of GST
Why in News?
Goods and Services Tax has completed six years in 2023, since it’s launch in 2017.
In this context, lets learn more about Taxes and GST.
Taxes are important sources of revenue for the government to take up the financial spending on public goods and services, i.e., for the welfare of the public.
In our country, the govt.’s right to levy taxes is derived from the Indian constitution, Article 265 which grants the states and the central government’s equal jurisdiction to impose taxes.
A little deeper into the taxes:
There are two types of taxes – direct and indirect taxes.
DIRECT TAX:
Direct tax is levied directly on the tax payer and paid directly to the government by those who are
really subjected to pay it.
Direct tax is not transferable.
There are four types of direct taxes.
1) Corporation tax: It is levied on domestic and foreign firms that operate in India.
2) Personal Income Tax: This is the most popular direct tax in India, which is charged based on the personal income of an individual. The tax slabs are determined according to their age, income, and physical disability. The slabs can be changed from time to time according to which Individuals must pay annually.
3) Capital gains tax: It is imposed on the sale of assets or investments. For example, on house bonds, shares, etc… The tax is calculated according to holdings. Periods from the date they were sold and are categorized as short-term and long-term.
4) Estate tax: It is also called “inheritance tax” in common language, it is levied when property is inherited.
INDIRECT TAX:
Indirect taxes are levied on the consumer and are paid along with the price of goods and services
bought from the seller.
A tax that is transferable and that is collected through a middleman from the person who suffers the
tax’s ultimate economic burden.
Indirect taxes are based on an individual’s expenses rather than their income.
Indirect taxes are levied on suppliers of goods and services, so it is also considered consumer-based tax. Earlier there were the following indirect taxes which are now subsumed into one indirect tax i.e. GST
Central Excise Duty
Service Tax
Additional Excise Duty
Additional Custom Duty
Value Added Tax (VAT)
Central Sales Tax
Entertainment Tax
Octroi and Entry Tax
Purchase Tax
Luxury Tax
Any other taxes, levies or duties that the central government or state Governments earlier levied on the supply of goods and services. The two taxes that are not subsumed in the GST in India are:
Basic Customs Duty (BCD): Basic customs duty is a tax levied on goods imported into India. It is outside the purview of GST and continues to be levied as a separate tax.
Petroleum goods: The GST regime does not apply to petroleum goods including petrol, diesel, crude oil, aircraft turbine fuel, alcohol and natural gas.
These goods are still subject to excise duty, VAT, and additional state taxes under the old tax structure. The Indian government is still debating whether to include petroleum products under the GST system.
ABOUT GST:
GST was first introduced in France in the year 1954.
Many countries adopted a single model GST into their taxation system, but countries like Canada and Brazil adopted the dual model of GST.
India also adopted a dual model of taxation, which imposed concurrently by the centre and state.
GST came into effect on July 1, 2017, after nearly 10 years of debates and discussions.
GST is implemented by passing 101 constitutional amendment act.2016, GST. This is considered to be
the major tax revolution in India.
Features of GST:
In India GST is a multi-staged and destination based tax i.e. imposed on every value addition.
EXCISE DUTY: Any duty on manufactured goods that are normally levied at manufacture for internal consumption rather than at the sale.
We find value-added tax being levied on every stage of production.
Destination-based tax because the end consumer is paying the tax and not the middle input producers.
It is based on cooperative federalism and economic integration—cooperative federalism.
Economic integration promoted through the “ONE TAX, ONE NATION, AND ONE MARKET”
It is levied on domestic consumption, and India has become a unified market after the introduction of GST, which is beneficial for industries, the government, as well as the consumer.
It is a technology-based tax, which eliminates human interface to the maximum limit to reduce corruption and increase transparency.
This is the normal channel that takes place the most in the industry, and this channel is integrated with technology at its important nodes, like:
Invoicing
ITC Reconciliation
E-way Bill
Compliance
There are four types of GSTs:
CGST: interstate transfer of goods, paid to the centre
SGST: interstate transfer of goods paid to the state
IGST: intrastate transfer of goods, paid to the centre
UGST
The Indian GST model has four slabs: 5%, 12%, 18%, and 28%. 0.25% on rough and precious stones and 3% on gold
The primary feature of GST is INPUT TAX CREDIT: claim credit for the tax paid on the inputs used in the production of goods and services
One of the primary objectives of the GST was to remove the cascading effect of taxes. Previously, due to different indirect tax laws, taxpayers could not set off the tax credits of one tax against the other. For example, the excise duties paid during manufacture could not be set off against the VAT is payable during the sale. This led to a cascading effect of taxes Under GST, the tax levy is only on the net value added at each stage of the supply chain. This has helped eliminate the cascading effect of taxes and contributed to the seamless flow of input tax credits across both goods and services.
GST COUNCIL:
The Goods and Services Tax Council (GST Council) is a constitutional body for making recommendations to the unions and state governments on issues related to goods and Service Tax.
The GST Council is constituted as per Article 279-A of the Indian Constitution It was created to modify, regulate, and reconcile the goods and services tax in India. It is entrusted with the responsibility of making recommendations on
o Inclusion of taxes, cesses, and surcharges in GST;
o Exemption of certain goods and services;
o Rates of GST;
o GST laws, principles of levy, and apportionment of GST;
o Other matters pertaining to implementation and regulation of GST
How Does the GST Council Take Decisions?
The GST Council takes every decision at a meeting where a majority of not less than three-fourths of the votes of the present member and voting, as per the following conditions:
o While making a decision, the Central Government of India has a weightage of one-third of the total votes cast.
o Also, the votes of the state governments taken must have a weightage of two-thirds of the total votes cast.
On the following grounds, any proceedings or acts of the GST Council will not become invalid.
o Any deficit or vacancy in the constitution of the GST Council
o Any defect in the appointment of any member of the GST Council
o Any procedural irregularity of the GST Council does not affect the merits of the case.
Limitations of GST:
Complex tax structure: one of the major challenges of GST is its complex tax structure. The GST system has four tax slabs: 5%, 12%, 18%, and 28%.
Additionally, there is a special rate of 0.25% on rough precious and semi-precious stones, and 3% on gold. This multi-tax system has made it difficult for businesses to understand and comply with tax Laws.
The complexity of the tax structure has led to confusion among taxpayers, resulting in increased compliance costs and a rise in litigation.
Cooperative federalism:
The GST has taken away much of the autonomy available to states and has made the country’s indirect tax regime is unitary in nature.
After the introduction of the GST in 2017, state Governments lost their independent taxation powers.
Liquor and fuel are the only two significant avenues left for states to generate their own tax revenues, without having to seek approval from the Union government, since they are outside the GST regime.
Technology Glitches: The GST system requires taxpayers to file returns online through the GST portal. However, the portal has faced several technical glitches, making it difficult for taxpayers to file returns on time. The technical issues have also resulted in the incorrect GST return filing, leading to penalties and fines.
The GST Network (GSTN), which manages the GST portal, has taken several measures to address the technical issues. However, the problem persists, and taxpayers continue to face difficulties with incorrect GST return filing.
High Compliance Costs: GST compliance involves various activities, such as GST Registration, GST return filing, maintaining records, and undergoing audits. These activities involve significant costs, which are borne by businesses. The compliance costs have increased significantly under GST, especially for small and medium-sized enterprises (SMEs). The High compliance costs have made it difficult for SMEs to operate and compete with larger businesses.
Input Tax Credit (ITC) Issues: ITC is a significant feature of GST, which allows businesses to claim a credit for the tax paid on the inputs used in the production of goods or services However, several Issues have arisen with the ITC mechanism under GST. The major issue is the delay in receiving the ITC refund. The delay in the refund has resulted in a shortage of working capital for businesses, leading to cash flow issues.
GST Rates: GST rates have been a topic of discussion since the introduction of the tax system. The high tax rates on essential goods and services have faced criticism, as they have a direct impact on the common man. The government has made several changes to the tax rates, reducing the rates on some goods and services. However, the high tax rates on certain goods and services continue to be a concern for businesses and consumers.
E-way Bill System: The E-way the bill is a document that is required for the transportation of goods worth more than Rs. 50,000. The E-way Bill system under GST has faced several issues, including technical glitches and delays in generating the bills. The delay in generating the E-way Bill has resulted in the detention of goods and increased compliance costs for businesses.
UPSC MAINS QUESTION (2019):
Enumerate the indirect taxes which have been subsumed in the goods and services tax (GST) in India. Also, comment on the revenue implications of the GST introduced in India since July 2017
UPSC PRELIMS QUESTION (2017):
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:
a) 1 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2 and 3