INTRODUCTION:
In 2000, the Kelkar Task Force on Indirect Taxes suggested the notion of a statewide GST in India. The goal was to replace the current complex and fragmented tax structure with a single system that would make compliance easier, eliminate tax cascading, and encourage economic integration. The Empowered Committee of State Finance Ministers created a design and road map, presenting the First Discussion Paper in 2009. The Constitution Amendment Bill was introduced in 2011, however it received opposition due to concerns about state compensation and other factors.
After years of debate and talks between the Central and State Governments, the Constitution (122nd Amendment) Bill of 2014 was submitted in Parliament. The Bill sought to change the Constitution to facilitate the establishment of GST. The Constitution Amendment Bill was enacted by the Lok Sabha in May 2015. The Bill, with some revisions, was finally enacted by the Rajya Sabha and then by the Lok Sabha in August 2016. Furthermore, the Bill was ratified by the required number of States, gained the President’s assent on September 8, 2016, and was adopted as the 101st Constitution Amendment Act of 2016. The GST Council was notified on September 15, 2016. In order to help the GST Council, the GST Council Secretariat was established.
The GST Council, which consists of the Union Finance Minister and members from all States and Union Territories, was formed to make decisions on various areas of GST, such as tax rates, exemptions, and administrative procedures. It helped shape India’s GST framework. On July 1, 2017, GST laws were introduced, replacing a complicated network of Central and State taxes. Under the Indian GST, products and services are classified into four tax slabs: 5%, 12%, 18%, and 28%. Some critical commodities are excluded from GST, whereas gold and diamond-related jobs are taxed at a reduced rate. A compensation cess is placed on defective goods and certain luxury items.
To preparation for the GST implementation, significant efforts were made to create the necessary technology infrastructure and train tax officers and businesses. GST Network (GSTN), a non-profit organization, was established to provide the IT backbone for the GST system, which includes taxpayer registration, return filing, and tax payments.
Since its establishment, the Indian GST has undergone numerous adjustments and refinements based on feedback from businesses and the changing economic landscape. While the GST deployment originally presented hurdles for businesses in terms of understanding the new compliance requirements and reacting to the changes, it has progressively become integrated into the Indian tax landscape.
CURRENT FRAMEWORK OF THE GST
The implementation of GST has resulted in a fundamental shift in financial relations between India’s Central and State governments. GST is a unified tax system that replaced several indirect taxes levied by both the central and state governments. Under GST, both the central and state governments have the right to impose and collect taxes on goods and services. This has resulted in more tax harmonization and uniformity among states, hence encouraging economic integration.
The GST system has a dual structure, with Central GST (CGST) and State GST (SGST) levied concurrently by the Central and State governments, respectively. Additionally, an Integrated GST (IGST) is charged on interstate supplies and imports, which is collected by the Central Government but allocated to the recipient state.
The GST Council plays an important role in revenue distribution. It is a joint forum made up of the Union Finance Minister and representatives from all states and union territories. The Council decides on several areas of GST, such as tax rates, exemptions, and revenue distribution between the Central and State governments. Except for one decision, the Council made all of its decisions through consensus.
A compensation mechanism was designed to guarantee a seamless transition to the GST regime and to cover any revenue losses experienced by the states. The Central Government agreed to compensating the States for any revenue shortfalls that arose during the first few years of GST implementation. This compensation was intended to close the gap between predicted revenue growth and actual revenue collections by the states.
It has promoted more cooperation, lowered tax obstacles, and simplified the tax system, resulting in increased efficiency and competitiveness in the Indian economy. GST’s successful implementation is dependent on the Central and State Governments working together and reaching an agreement. It has revolutionized financial relations, resulting in improved coordination and efficiency in the Indian tax system.
SALIENT FEATURES OF GST
- Single indirect tax in GST :
GST was adopted as a single, unified tax reform that eliminated other indirect central and state taxes such as Central Value Added Tax, Special Additional Duty of Customs, Service Tax, and VAT and replaced them with a single tax. The abolition of these levies has not only made compliance easier for businesses, but it has also made many goods and services more inexpensive to consumers.
- Input Tax Credit System in GST:
The input tax credit is a key feature of GST. If a manufacturer or service provider has already paid input tax on a purchase, that amount can be reduced from their total output tax due. To claim the tax credit, the input and output invoices must match. This helps to eliminate the cascading tax effect or the classic ‘tax-on-tax’ system. Furthermore, it helps to reduce tax avoidance.
- GST composition scheme:
SMEs having an annual revenue of up to Rs. 1 crore or Rs. 75 lakh in specific states can also voluntarily participate in the composition program. Businesses participating in this arrangement can pay a set GST rate of 1% on their turnover. However, such enterprises will be unable to take advantage of the input tax credit. Businesses must decide whether to use the composition system or the input tax credit feature.
- Four-tier tax structure in GST:
GST has a four-tier tax structure: 5%, 12%, 18%, and 28%. All goods and services can only be taxed under this tax scheme. Many vital commodities, including food, are exempt from GST. This 4-tier organization has several advantages, including increased transparency and lower costs for goods and services. GST has transformed how businesses pay taxes by simplifying the complex web of taxes into a comprehensive multi-stage system that encompasses all supply chain components and assists businesses at each stage of value addition.
- Threshold Exemption:
Small enterprises having a turnover under a certain level (currently ₹ 20 lakhs for suppliers of services/both products & services and ₹ 40 lakhs for suppliers of commodities (Intra-Sate) in India) are exempt from GST. The threshold for suppliers of goods and/or services varies between ₹ 10-20 lakhs in some special category states, except for Jammu & Kashmir, Himachal Pradesh, and Assam, where the threshold is ₹ 20 lakhs for services/both goods and services and ₹ 40 lakhs for goods (Intra-State). This threshold serves to reduce the compliance burden for small firms.
CONCLUSION
In conclusion, GST, or Goods and Services Tax, is like the conductor of a symphony, orchestrating the harmonious flow of taxes throughout the economy. It simplifies the tax structure by bringing together various taxes under one roof, making it easier for both businesses and consumers to understand and comply with tax regulations.
Just like a well-oiled machine, GST streamlines the tax process, reducing paperwork and eliminating the cascading effect of taxes. It fosters transparency and accountability, ensuring that everyone pays their fair share while promoting economic growth.
In essence, GST is not just about numbers and regulations; it’s about creating a fairer and more efficient tax system that benefits everyone. So, as we navigate the complex landscape of taxation, let’s remember that GST is not just a tax; it’s a step towards a better and brighter future for all.
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