Explain the salient features of the constitution (One Hundred and First Amendment) Act, 2016. Do you think it is efficacious enough ‘to remove cascading effect of taxes and provide for common national market for goods and services’? (UPSC IAS Mains 2017 General Studies Paper – 2)
The Constitution (One Hundred and First Amendment) Act, 2016, introduced the Goods and Services Tax (GST) in India, a comprehensive indirect tax system aimed at streamlining the taxation process and creating a common national market for goods and services.
The amendment’s salient features include:
- Dual GST structure: This includes Central GST (CGST) and State GST (SGST) or Union Territory GST (UTGST) depending on the transaction type.
- Integrated GST (IGST): For inter-state transactions and imports, the Integrated GST is levied and administered by the Central Government.
- Destination-based taxation: The GST is a destination-based tax system, meaning that the tax revenue is collected by the state where the goods or services are consumed, rather than the state where they are produced.
- GST Council: The amendment establishes the GST Council, a constitutional body comprising representatives from the Central Government and all States/Union Territories.
- Compensation to states: To address potential revenue losses for states, the amendment provides for compensation payments for a period of five years from the implementation of GST.
The efficacy of the GST in removing the cascading effect of taxes and providing a common national market for goods and services can be assessed as follows:
- Removal of cascading effect: By subsuming multiple indirect taxes, such as excise duty, service tax, and value-added tax, into a single tax, the GST has significantly reduced the cascading effect of taxes, leading to a more transparent and simplified tax structure.
- Enhanced compliance and reduced tax evasion: The GST’s comprehensive input tax credit system incentivizes businesses to ensure compliance and reduces opportunities for tax evasion.
- Facilitating a common market: By harmonizing tax rates and eliminating state-level barriers, the GST has facilitated the creation of a common national market, making it easier for businesses to trade across state borders and improving economic efficiency.
However, there are some concerns and challenges:
- Multiple tax rates: The GST system still has several tax rates, which can create confusion and complexity for businesses.
- Compliance burden: Small and medium-sized enterprises (SMEs) may face challenges in complying with the GST’s digital filing requirements and navigating the tax system.
- Revenue concerns for states: Some states may experience revenue losses despite the compensation mechanism, as they lose the autonomy to levy their taxes.
Addressing the challenges faced by businesses and states, and further simplifying the tax structure, can enhance the overall efficacy of the GST system.
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