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Critical Analysis of GST regime | UPSC

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UPSC Syllabus: Prelims economy, Mains – GS Paper III – Indian Economy

Sub Theme:  GST| UPSC

The new GST system was implemented on 1st of July 2017 to replace a number of central and state taxes on the same base with a country-wide common framework. As each State levied its own VAT, the tax system was fragmented with different rates being applied for similar sales of goods.

Brief Outline of the GST system

Legal Framework: The legal regime of GST includes four Central laws (the Central Goods and Services Tax (CGST) Act, Integrated Goods and Services Tax (IGST) Act, the Union Territories Goods and Services Tax (UTGST) Act and the Goods and Services (Compensation to States) Act along with twenty-four state laws, the relevant State Goods and Services Tax (SGST) Act

Policy Framework: The GST system is based on a system of multiple rates to various categories of sales (0%, 5%, 12%, 18%, 28% and additionally 0.25% for precious stones and 3% for gold).

Tax Administrative Framework: The administration of the GST is done in parallel by the Central and the State GST administrations with the powers to audit and administer shared. To support the administration of the taxpayers, a common nation-wide IT backbone called the GST Network (GSTN) has been put in place through which all tax returns are required to be filed.


Three years after the introduction of the Goods and Services Tax (GST), the number of registered taxpayers have increased from 1.08 crore to 1.23 crore. The number of returns filed has increased steeply, and there is a significant presence of ‘informal’ entities.

Issues in GST Implementation and functioning –

The 15th Finance Commission has highlighted some challenges with the implementation of the Goods and Services Tax (GST).  These include: (i) large shortfall in collections as compared to original forecast, (ii) high volatility in collections, (iii) accumulation of large integrated GST credit, (iv) glitches in invoice and input tax matching, and (v) delay in refunds.  The Commission observed that the continuing dependence of states on compensation from the central government (21 states out of 29 states in 2018-19) for making up for the shortfall in revenue is a concern.

Stagnation in GST Tax Collection: As Chart 1 shows, the total monthly collections from State (SGST), Central (CGST), and integrated (IGST) goods and services taxes and the compensation cess first crossed Rs 1 lakh crore in April 2018. But after that, there has been stagnation in GST revenue growth.

Complexity: The GST was introduced in order to simplify the tax structure and improve the tax compliance. However, the existing GST regime has multiple rates: 0, 0.25, 1, 3, 5, 12,

18 and 28%; Need to reduce the number of tax slabs.

Coverage: Some of the products such as petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel etc are outside the purview of GST and hence should be brought under the GST to boost the manufacturing sector.

Issues in collecting taxes on sales: Issues arise due the multiple rates and classification. For example, it has been reported just in the case of the business of selling paper, pamphlets are taxed at 5%, letterheads at 12%, files at 18% and hardbound registers at 28%. This multiple layering of taxes defeats the basic idea of “One nation One tax”.

Basics about GST Council


  • Composition of GST Council is as per the 101st Constitutional Amendment Act.
  • The Union finance minister is the chairman of GST council. Other members include Minister in charge of Finance or Taxation of State as members.
  • The members of the GST Council choose one amongst themselves to be the Vice-chairman of the council for such period as they decide.
  • One half of the total number of members of GST council shall constitute the quorum at its meetings.

Decision Making:

  • Every decision of the GST Council shall be taken at a meeting, by a majority of not less than three-fourth of the weighted votes of the members present and voting of Central Government has a weightage of one-third of the total votes.
  • Votes of State Governments taken together have a weightage of two-thirds of the total votes. Thus, Central Government has an effective veto on all decisions of the GST Council.

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