[Solved] 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 GS-2 Mains 2017)
The 101 st Constitutional Amendment Act pave way for Goods and Service Tax in India which unified the nation in terms of indirect taxation.
Salient features of GST are:
• Single tax on supply of goods and services, right from the manufacturer to the consumer • It is a destination based tax unlike the present taxation scheme which is origin based • It is a value based tax as credits of input taxes paid at each stage will be available in the subsequent stages
• The final consumer will bear only the GST charged by the last dealer in the supply chain At the central level, following taxes are being subsumed under GST.
• Central Excise Duty
• Additional Excise Duty
• Service Tax
• Countervailing Duty
• Special Additional Duty of Customs
At the state level, following taxes are being subsumed under GST:
• State VAT/Sales Tax
• Entertainment Tax
• Central Sales Tax
• Octroi and Entry Tax
• There are two components of GST – Central GST and State GST. Both CGST and SGST will be simultaneously levied across the value chain, both on goods and services.
• The tax will not be levied on exempted goods (alcohol, petroleum and its products) and those transactions which are below the prescribed threshold limits.
• In case of interstate movement of goods and services, IGST will be levied.
• GST Council has been made as a constitutional body having representation from both Union and States to make recommendations on rates, taxes, surcharges etc.
• It will be able to provide a single national market and remove the cascading effect of taxes as• It provides for a uniform tax structure for the whole of country.
• Self-monitoring mechanism
• Easy compliance
• It removes the barrier like state entry tax, octroi etc. making the goods and services available at the same price all over the nation.
There are some challenges too:
• Exempted Items- petroleum products and alcohol are kept out of its purview.
• Hasty Implementation- The former PM Manmohan Singh said that government did not prepare well for its implementation and it affected the small and medium sector enterprises.
• Preparedness- The companies and MSME sector was not trained by govt before ushering this significant reform. This poses a big implementation challenge.
• Lack of Common market: it is not possible till it abolishes the state- specific APMC laws.
But overall, it’s a good reform as it truly reforms India into an economic union.
Salient Features of the Act
- It amalgamates a large number of Central and State taxes (like Central Excise Duty, Countervailing Duty, Service Tax, value added tax, octroi etc) into a single tax.
- It inserts a new Article 246A in the Constitution to give the central and state governments the concurrent power to make laws on the taxation of goods and services.
- Only the centre may levy and collect an integrated GST in the course of inter-state trade – to be divided between the centre and the states.
- It provides for the constitution of a GST Council to develop a harmonized national market of goods and services.
- It makes provision for compensation to states for revenue losses arising out of the implementation of the GST.
Cascading Effect of Taxes
GST follows a multi-stage collection mechanism in which tax is collected at every stage and the credit of tax paid at the previous stage is available as a set off at the next stage of transaction. This means that tax paid on inputs is deducted from the tax payable on the output produced (input tax credit). This is expected to mitigate the ill effects of cascading. However, the effectiveness of this will depend on the level of digital literacy of the traders and the efficient functioning of the GST Network (GSTN).
‘One Nation, One Tax and One Market’
GST aims to make India a common national market through:
- uniform tax rates and procedures, and
- removal of hurdles in inter-State transactions as only IGST will be applied on inter-State trade.
However, the efficaciousness of a uniform market is hindered by multiple tax slabs (0%, 5%, 12%, 18% and 28%), tax exemption to real estate, petroleum and alcohol, and exclusion of the informal or unorganizedeconomy which accounts for nearly 50% of India’s gross domestic product./salient/
Constitution(One Hundred and First Amendment) Act, 2016 is Goods and Services tax(GST),which subsume the multiple indirect taxes into one single tax./salient/
- This tax rate decided by GST council consisting of representative from all states, UTs and Union government. This tax consisting of three components like, state GST, central GST, integrated GST. Tax amount will be shared between center and states according to suitable formula.
- There shall be an IT network called GSTN, is an IT Platform is a user interface to file the returns and paying the taxes.
- It eliminates the human interference in entire process. Input tax credit is the novel feature, provided on the goods and services, originated with in the, outside the state.
- This tax will remove the cascading effect of tax and maintain a uniform tax rate throughout that nation. It eliminates barriers to trade across the states by removing check posts.
- Goods and services are moving freely and traded at similar price as it attracts the same tax rate. This creates a common national market.
- In implementing this act traders and people must create an awareness in order to utilize the full benefits of this tax system. Some unscrupulous always takes an advantage of new system to reap maximum benefits by escalating the costs or by not passing the benefits.
- A body like anti profiteering authority need to constituted as early as possible to regulate such trade practices and make sure that IT network should be simple, flexible and user friendly then a common national market will be created.
- GST: Goods and Services Tax is an indirect tax, which is used on the supply of goods and services. It is a multistage, destination-based tax. It is collected from the point of consumption and not from the point of origin like the previous taxes.
- Cascading effect of tax: cascading effect in the tax system imposes taxes on products at each successive stage in the supply chain starting from the raw material to the consumer purchase stage. It is a condition like paying tax on already paid tax./salient/
- Value Added Tax: In the year 2005, VAT was introduced with the same objective of nullifying the cascading effect of the tax system. VAT was succeeded to eliminate the cascading effect on the state indirect tax, but in the case of other indirect taxes still, the cascading effect was still there./salient/
- How GST tackles the cascading effect: GST ensures a seamless flow of tax credit, that eliminates the cascading effect of all indirect taxes in the supply chain starting from manufacturers to retailers, and also across the state borders.
- Real-life instance: Suppose a manufacturer of a product buys raw materials for Rs. 100 including a tax of Rs. 5.
- Then he made the product and added value of Rs. 20 to it. The total cost is now 120 With a rate of 10%, the tax will be Rs. 12. But he has already paid a tax of Rs. 5 So now only Rs. 7 has to be paid./salient/
- GST has converted India into a unified market of more than 1.3 billion citizens. It has a positive impact on macroeconomic indicators, inflation, FDI inflow, exports. GST will become accessible to everyone and more beneficial, only when the entire population will start adopting it as a whole towards making it a landmark in tax reforms.
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