The Regime of Goods and Services Tax

INTRODUCTION

Goods and services tax was introduced in India in 2017 with the passing of the Goods and Services Tax Act in the Parliament. The definition of GST or the Goods and Services Tax was inserted in Article 366 of the Constitution of India by the Constitution (101st Amendment) Act, 2016. According to Clause 12A of Article 366, ‘Goods and Services tax’ means “any tax on supply of goods or services or both except taxes on the supply of the alcoholic liquor for human consumption.”

Tax is the government’s revenue or source of income. The tax structure in India is divided into:

1. Direct Taxes
2. Indirect taxes

Direct taxes are paid by individuals or corporate entities directly to the government from their income and cannot be transferred to someone else. Indirect taxes, on the other hand, are levied on the sale of goods and provision of services. The burden to collect and deposit taxes is on the seller and not on the individual consumer, although it is the consumer who is paying tax on goods and services. ‘Goods’ include all material, commodities and articles and ‘services’ are all things other than goods. Tax on the sale or purchase of goods includes ‘tax on transfer, delivery and supply of any good’.

Thus GST is an indirect tax. By the ‘special provisions in respect to goods and services tax’ clause inserted in the Indian Constitution, GST is levied by both the Centre and the State (Article 246A). The provision also says that it is only the Parliament who has exclusive power to make laws concerning GST. The law regarding GST is Central Goods and Services Tax Act, 2017.

GST IN INDIA

The introduction of GST or Goods and Services Tax is one of the biggest economic and tax reforms in the country. If we trace the trajectory of birth of GST in India, we see that as early as in the year 2000, the then Prime Minister had set up a committee to draft GST law. After a lot of deliberations and obstacles, in 2016, the Constitutional Amendment Act to enable GST law was introduced and GST was launched in 2017.

GST has a dual structure as it falls under concurrent jurisdiction; both Centre and State can do the levy and collection of GST. Also, the Centre will levy and collect Integrated Goods and Services Tax (IGST) in the course of inter-state trade or commerce and will compensate the State in case of revenue loss [Article 269A].  

State Goods & Services Tax (SGST)

State Goods & Services Tax (SGST) subsumes various state taxes and levies such as State Sales Tax, Luxury Tax, Entertainment Tax, Levies on Lottery, Entry Tax, and other taxations connected with the movement of commodities and services under state governments. Each state has its own State Authority to collect SGST and the revenue thus collected belongs to the State Government.

Integrated Goods & Services Tax (IGST)

Integrated Goods & Services Tax (IGST) focuses on the concept of ‘one nation, one tax’. It is levied on the supply of commodities and services from one State to another.

Union Territory Goods & Services Tax (UTGST)

The union territories come under the ambit of a specialized taxation regimen called Union Territory Goods and Services Tax (UTGST). The UTGST subsumes the various taxations, levies and duties in the Union Territories.

GST is imposed at multiple stages in the production process, including transfer, supply and delivery of the goods to the consumer. It is collected at the point of consumption and under GST, the input tax credit can be claimed, which means that tax will be refunded to those involved at different stages of production and supply. To illustrate, if a person is buying goods or materials at INR.15, 000 on which GST is 12%, the GST amount payable will be INR1800. But when he sold the product at INR 20, 000 at GST 12% then the GST amount received was INR 2400. Thus the person has to pay INR 600 only.

ADVANTAGES OF GST

A large number of Central and State taxes are merged into GST and brought under one homogenous head. The various advantages of this are:

1. It removes the ‘cascading effect’ on tax or simply put; no one will have to pay tax on tax which results in the overall reduction in prices.
2. By simplifying the tax regime and reducing the diversity of taxes, it creates transparency and more informed consumers.
3. It keeps control over black money.
4. It makes Indian products competitive in the domestic market. It makes doing business easier by creating a common national market and benefitting small taxpayers.
   

DISADVANTAGES AND CRITICISM

As the GST regime has been introduced, there have been many disadvantages that have come to the fore. Firstly, the cost of software purchase and the update had been unforeseen. Then, the biggest disadvantage had been the tax compliance process, which means paying taxes timely and accurately. Tax compliance has been a cumbersome process due to technical glitches. It has also been noticed that there had been tax refund delays. Multiple registration processes have complicated it for industries. And finally, although GST was made to combine various tax, a new levy in the form of compensation cess has been introduced.

CONCLUSION

GST has been a bold step that has been taken towards tax reform to improve the economy of the country. There had been certain economic and non-economic benefits over the years. However, the effectiveness of GST has to be proved not only to economists but to citizens as well, through showing a visible reduction in inflation of prices and increase of profit for businesses, especially during and post COVID era.