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Critical Analysis of GST | UPSC

Daily Current Affairs for UPSC IAS

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UPSC Current Affairs: 
A blip- 4 Years of GST |UPSC

UPSC Syllabus: GS Paper III: Indian Economy

Details about GST

What is GST? GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input taxes paid at each stage is made available in the subsequent stage of value addition, which makes GST essentially a tax only on value addition at each stage. GST is a consumption-based value-added tax on goods and services with dual levy by both the Union and the States.

Components of GST: States levy and collect State GST (SGST) and the Union levies and collects the Central GST (CGST). For any particular good or service, the SGST and CGST rates are equal. An integrated GST (IGST) is applied on inter-state movement of goods and services and on imports.

Taxes subsumed under GST:

Trends in GST Collection- Important Prelims Pointers

Lack of Revenue Neutrality:  A change in tax structure can be said to be revenue neutral if the modified tax is able to realize revenue comparable to the original tax regime. In this sense, the much-needed revenue neutrality of GST stands compromised. The Share of General Government’s revenue from taxes subsumed under GST was 6.3% of GDP in 2016-17.  However, the collections under GST was 5.7% of GDP in 2018-19 and 5.6% in 2019-20.

Share of GST in Total Tax collection: GST accounts for the highest share followed by Income Tax and Corporate Tax. Amongst different components, IGST accounts for highest share.

Improvement in Tax base: Increase in number of registered taxpayers from 1.08 crore to 1.23 crore. More number of informal entities have come under the tax bracket.

Challenges and Concerns

The 15th Finance Commission has highlighted some challenges with the implementation of the Goods and Services Tax (GST).  These include:

Stagnation in Revenue: Monthly GST collections crossed Rs 1 lakh crore in April 2018 and since then remained stagnant.

Inverted Duty Structure: The term ‘Inverted duty Structure’ refers to a situation where the rate of tax on inputs purchased (i.e. GST Rate paid on inputs) is more than the GST rate on finished goods. The inverted duty structure leads to higher input tax credits and hence lower tax collection for the Government.

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%.

Coverage: Petroleum crude, petrol, high speed diesel, natural gas etc. are still outside GST.

Issues in Refunds: Delays in GST refunds, recent unearthing of fake invoices and fraudulent practices to corner input tax credit.

Anti-profiteering framework: Need to evolve clear guidelines on anti-profiteering mechanism.

Shortfall in GST Compensation Cess: Almost 21 states still depend upon Centre for the GST compensation.

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