GST : Analysis – UPSC GS3

Vision behind GST:
  • GST was launched in July,2017 with the vision of  “one nation one tax”.
  • It was expected to improve tax-GDP ratio, end tax cascading, enhance efficiency, competitiveness, growth, and ensure lower prices.
  • Many exemptions, along with different tax rates, have been accommodated to protect the interests of different stakeholders.
Key features of GST:
  • GST Council and GSTN: Its Foundation is built on GST Council and the GST Network (GSTN). While the former is the key decision-making body, chaired by the Union Finance, the latter generates high-frequency data and subjects them to analytics for informed policymaking.
  • Revenue neutrality and GST compensation for the States serve as its two key pillars. Although assured revenue neutrality remains a mirage and many States have experienced a declining tax-GDP ratio.
  • It is a destination-based consumption taxation, with input tax credit.
  • GST is applicable to all goods and services except alcohol for human consumption and five specified petroleum products.
Need for improvement in GST:
  • GST could be improved by limiting zero rating, tax-exemptions and harmonising tax rates.
  • Experience of other countries indicates that transfers through social security or subsides tend to be more progressive than subventions or exemptions. It is because reduced rates or zero rating do not usually get passed on to target groups or industries as happening in India.
  • GST is shared equally between the Centre and States despite two expert committees recommended for a higher share for the States. Also, GST compensation has also recently gone through much debate and controversy, this is not conducive to sustainable co-operative federalism.
  • GST is sometimes seen as discriminatory to manufacturing States, indicating the need for a revenue sharing formula that duly incentivises exporting States.
  • Need for swift and transparent functioning of the input tax credit system through a flawless IT infrastructure, the massive and invaluable data being generated via GSTN has to be put to effective use.
GST should be seen purely from a revenue point of view and as a fiscal policy tool for efficiency, competitiveness and growth. Profiteering and cascading will prevent both states and consumer to take true advantage of GST and also prevent the true vision behind GST to become a reality.
Scroll to Top