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Goods and Services Tax (GST) for UPSC - Target IAS Kannada

GST implemented on July 1, 2017, marked a paradigm shift in India's taxation system. It replaced the complex and fragmented pre-GST indirect tax str
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GST 2017: A Game Changer in India's Tax System

Introduction:

The Goods and Services Tax (GST), implemented on July 1, 2017, marked a paradigm shift in India's taxation system. It replaced the complex and fragmented pre-GST indirect tax structure, unifying the country into a single market with a "One Nation, One Tax" framework.

  1.   Pre-GST Indirect Tax System for UPSC Mains
  2. Working of GST in India

Features of GST 2017:

  1. Comprehensive Tax Structure:
    GST subsumes multiple central and state taxes like VAT, excise duty, and service tax, simplifying compliance and administration.

  2. Destination-Based Tax:
    GST is levied at the point of consumption rather than origin, benefiting consumer states.

  3. Input Tax Credit Mechanism:
    Businesses can claim credit for taxes paid on inputs, mitigating the cascading effect and reducing the overall tax burden.

  4. Dual GST Model:

    • Central GST (CGST): Collected by the central government.
    • State GST (SGST): Collected by state governments.
    • Integrated GST (IGST): Levied on inter-state transactions and imports, shared between the Centre and states.

  5. Four-Tier Tax Structure:
    Tax rates are 5%, 12%, 18%, and 28%, with exemptions for essential goods and higher rates for luxury items.

Benefits of GST:

  1. Economic Integration: Unified tax system promotes free trade across states.
  2. Ease of Doing Business: Simplified tax compliance and reduced procedural hurdles.
  3. Increased Revenue Transparency: Enhanced tax compliance due to digitized systems like e-way bills and GSTN.
  4. Boost to MSMEs: Composition schemes reduce the tax burden for small businesses.
  5. Consumer-Friendly: Lowered cascading effects lead to reduced prices for goods and services.

Challenges and Criticisms:

  1. Implementation Hurdles: Initial teething issues, including compliance difficulties and IT glitches.
  2. High Compliance Costs: Frequent changes in rules and the need for technological adaptation burden small businesses.
  3. Revenue Shortfall: States faced delays in compensation, raising fiscal concerns.
  4. Exclusion of Key Sectors: Petroleum, alcohol, and real estate remain outside GST, limiting its comprehensiveness.

Conclusion:

GST 2017 is a landmark reform that has streamlined India’s tax regime, bolstered economic growth, and fostered federal cooperation. While it has addressed many inefficiencies of the pre-GST era, ongoing refinements are necessary to address sectoral challenges, ensure inclusivity, and maximize its potential as an engine for India’s fiscal transformation.

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