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Goods and Services Tax (GST) UPSC NOTE


What is Goods and Services Tax (GST)?
  • Introduced through the 101st Constitution Amendment Act, 2016.

  • One of the biggest indirect tax reforms in the country.

  • Introduced with the slogan of ‘One Nation One Tax’.

  • It is a consumption tax

  • The GST avoids the cascading effect or tax on tax - which increases the tax burden on the end consumer.

  • Indirect taxes such as excise duty, VAT, service tax, and luxury tax have all been absorbed by GST.

GST tax structure:

  • Central GST covers excise duty, service tax, etc

  • State GST covers VAT, luxury tax,etc.

  • Inter-state trade will be covered by the Integrated GST (IGST).

Significance of GST

  • Reduced fiscal pressure -  More revenue to the Central and State Governments.

  • Fund compensation payments dues to states

  • The increased tax revenue, combined with improved compliance, would provide the GST Council with a much-needed opportunity to consider GST rate slab rationalisation.

  • Applicable on supply side

  • Destination based Taxation

GST Council 

  • Article 279A - The President will appoint a council to oversee and administer GST. 

  • Its Chairman is India's Union Finance Minister, and it has ministerial members.

    • Members who have been nominated by state governments.

  • The council is set up so that the centre has one third(1/3) of the voting power.

  • States hold two-thirds(2/3) of the vote.

  • A 3/4 majority is required for decisions to be made.

Challenges in its implementation

  • Rate structure issues.

  • Inclusion and exclusion of commodities.

  • Revenue sharing from GST and associated compensation.

  • The suggested GST apportionment between the states and the centre was 60:40 ratio.

  • Almost 44% of the state's own tax revenue was subsumed under the GST as compared to 28% for the centre.

  • The centre still retains their power to levy additional excise duty on, for instance, tobacco products, even though it has been brought under the GST.

  • State governments lost their independent taxation powers

  • Loose thread of "compensation guarantee", under which states surrendered their fiscal powers in return for guaranteed revenues.

  • However, during the Covid-19 pandemic, the Union government repeatedly violated the compensation guarantees to the States under the GST regime. 

  • Delay in paying the States their due worsened the impact of the economic slowdown.

  • GST Compensation cess levies have been extended till at least March 2026, instead of the initial five-year tenure, due to the transitory shock of COVID-19 lockdowns on revenues.

  • Dispute resolution remains a pain point for industry, with GST appellate tribunals still not set up. 

  • There is no road map in sight on the rate rationalisation exercise or the inclusion of excluded items such as electricity, petroleum and real estate, without which the efficiency gains from the GST remain constricted.

Recent Outcomes

  • Tightening compliance and the post-pandemic rebound in economic activity have helped improve revenues from the GST.

  • This June, GST revenues crossed ₹1.6 lakh crore, only the fourth such occasion in its 72 months’ existence.

  • Lifting the average collections in the first quarter of this year to nearly ₹1.7 lakh crore — a healthy 12% over last year’s kitty.



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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Goods and Services Tax (GST) UPSC NOTE
Goods and Services Tax (GST) UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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