Context:

The 51st meeting of the Goods and Services Tax (GST) Council was recently held.

Main Features of GST

• Applicable On supply side: GST is applicable on ‘supply’ of goods or services as against the old concept on the manufacture of goods or on sale of goods or on provision of services.
• Destination based Taxation: GST is based on the principle of destination-based consumption taxation as against the present principle of origin-based taxation.
• Dual GST: It is a dual GST with the Centre and the States simultaneously levying tax on a common base. GST to be levied by the Centre is called Central GST (CGST) and that to be levied by the States is called State GST (SGST).
  • Import of goods or services would be treated as inter-state supplies and would be subject to Integrated Goods & Services Tax (IGST) in addition to the applicable customs duties.
• GST rates to be mutually decided: CGST, SGST & IGST are levied at rates to be mutually agreed upon by the Centre and the States. The rates are notified on the recommendation of the GST Council.
• Multiple Rates: Initially GST was levied at four rates viz. 5%, 12%, 16% and 28%. The schedule or list of items that would fall under these multiple slabs are worked out by the GST council.

Legislative Basis Of GST

• In India, GST Bill was first introduced in 2014 as The Constitution (122nd Amendment) Bill.
• This got an approval in 2016 and was renumbered in the statute by Rajya Sabha as The Constitution (101^st Amendment) Act, 2016. Its provisions:
  • Central GST to cover Excise duty, Service tax etc, State GST to cover VAT, luxury tax etc.
  • Integrated GST to cover inter-state trade. IGST per se is not a tax but a system to coordinate state and union taxes.
  • Article 246A – States have power to tax goods and services.

About GST Council:

• The 101st Amendment Act of 2016 (122nd Amendment Bill), paved the way for the implementation of GST.
• The GST Council is a joint forum of the Centre and the states under Article 279-A of the constitution.
• Article 279-A. gives the President the authority to appoint a GST Council by executive order.
• The members of the Council include the Union Finance Minister (chairperson), and the Union Minister of State (Finance) from various states.
• As per Article 279, it is meant to “make recommendations to the Union and the states on important issues related to GST, like the goods and services that may be subjected or exempted from GST, model GST Laws”.
• It also decides on various rate slabs of GST.
• The GST Council in its 51st meeting recommended certain amendments in the CGST Act 2017 and IGST Act 2017, including amendment in Schedule III of CGST Act, 2017, to provide clarity on the taxation of supplies in casinos, horseracing and online gaming.
• The Council also recommended inserting a specific provision in IGST Act, 2017 to provide for liability to pay GST on the supply of online money gaming by a supplier located outside India to a person in India, for single registration in India for the said supplier through a simplified registration scheme.

Advantages of GST

For the Government

• Create a unified common market: Will help to create a unified common national market for India. It will also give a boost to foreign investment and “Make in India” campaign.
• Streamline Taxation: Through harmonization of laws, procedures and rates of tax between Centre and States and across States.
• Increase tax Compliance: Improved environment for compliance as all returns are to be filed online, input credits to be verified online, encouraging more paper trail of transactions at each level of supply chain;
• Discourage Tax evasion: Uniform SGST and IGST rates will reduce the incentive for evasion by eliminating rate arbitrage between neighbouring States and that between intra and inter-state sales.

For Overall Economy

• Bring about certainty: Common procedures for registration of taxpayers, refund of taxes, uniform formats of tax return, common tax base, common system of classification of goods and services will lend greater certainty to taxation system;
• Reduce corruption: Greater use of IT will reduce human interface between the taxpayer and the tax administration, which will go a long way in reducing corruption;
• Boost secondary sector: It will boost export and manufacturing activity, generate more employment and thus increase GDP with gainful employment leading to substantive economic growth;
• Ultimately it will help in poverty eradication by generating more employment and more financial resources.

Challenges of GST:

• Refund delay issues: the Government has taken many steps to smoothen the process of export refunds, automatic processing of refunds has always been an area of major concern under GST.
• Lack of Dispute redressal mechanism: There is no statutory mechanism under the GST regime that could ensure uniformity in the rulings passed by the Authorities.
• Constant amendments: Over the last few years, the GST law has seen many amendments.
  • During this time, all these revisions often confused the taxpayer and as well the tax administrators which created misunderstandings and misconceptions.
• Adaption and Technical Issues: Small and medium businesses are still grappling to adapt to the tech-enabled regime.
  • The fundamental principles on which the GST law was built viz. seamless flow of input credits and ease of compliance has been impaired by IT glitches,
• Complex Penalties: Many businesses are genuinely not able to monitor their vendor behaviour and feel that they should not be penalised for the tax compliance deficiencies of their vendors once they have paid the GST amounts to their vendors.
• Other Concerns: Further, the 15th Finance Commission, in its report, has also highlighted several areas of concern in the GST regime relating to:
  • multiplicity of tax rates,
  • shortfall in GST collections vis-à-vis the forecast,
  • high volatility in GST collections,
  • inconsistency in filing of returns,
  • dependence of States on the compensation from Centre

What are the 3 Types of GST?

Goods and Services Tax (GST) was introduced by the Government of India to boost the economic growth of India. GST is considered to be the biggest taxation reform in the history of Indian economy. It was introduced to save time, cost and effort. Goods and Services Tax (GST) Act came into effect in 2017. In order to address the complex system in India, the Government introduced 3 types of GST which are given below.

1. CGST (Central Goods and Service Tax)
2. SGST( State Goods and Service Tax)
3. IGST(Integrated Goods and Services Tax)

As per 2016 GST regime, Union Territory Goods and Service Tax (UTGST) was also introduced to account for all the taxations in the Union Territories of India. The power to make any changes in the GST law is in the hands of GST Council. GST Council is headed by the Finance Minister. One hundred and first amendment act, 2016 introduced the GST in India from July 2017. 

Conclusion

Thus GST is a positive step towards shifting Indian economy from the informal to formal economy. It is important to utilise experiences from global economies that have implemented GST before us,to overcome the impending challenges.

FAQs about GST, its Features, Challenges:

Read also:- Goods and Services Tax Network (GSTN)