Define GST, What are its types and Role in Tax Revenue with Reference to Indian Economy

Author: ADV. Grace Deebthee John


SYNOPSIS
Introduction
Meaning and Definition
Features
Types of GST
Benefits of Goods and Service Tax
Role of GST
Conclusion
FAQS

INTRODUCTION

Since independence, one of the most significant tax reforms has been the goods and services tax (GST). An innovative indirect tax reform, the GST will create a common national market by lowering trade barriers between states. The GST has incorporated a number of federal and state indirect taxes.


In 1954, France introduced the Goods and Services Tax (GST), which was later embraced by a number of nations, including Australia, Canada, the United Kingdom, Spain, and others. India becomes one shared market as a result of the GST, which establishes a single indirect tax for the whole nation. Most indirect taxes are intended to be consolidated into a single taxation structure by the GST. GST is a single tax that is levied when a manufacturer supplies products and services to a consumer. In essence, GST is a tax on only value addition at each stage since credits for input taxes paid at each level will be open in subsequent value addition levels. As a result, the final customer will only be liable for paying the GST that was assessed by the final dealer in the supply chain, thanks to set-off benefits at every previous stage. Interstate economic inefficiencies are expected to be reduced, tax compliance will increase, and the tax base will grow.


The GST rates are applied uniformly throughout the country for a variety of goods and services. However, different kinds of products and services have been granted distinct tax slab rates. Comfort and luxury goods fall under higher slab costs, whereas necessities are covered by reduced and zero slab rates. This classification’s main objective is to ensure that Indian citizens receive a fair income distribution. The comprehensive, multi-stage, destination-based goods and services tax is levied at every stage of value addition. Through the replacement of numerous indirect taxes across the country, it has effectively assisted the Indian government in achieving its “One Nation One Tax” goal.


Meaning and Definition of GST
GST is a single indirect tax that is based on a destination and is applied on the value added to goods and services at every stage of the supply chain. The main justification for enacting this kind of tax is to consolidate numerous indirect tax levies into a single levy. Thus, the GST incorporates a number of taxes. This enhances the effectiveness of tax administration and overcomes the shortcomings of the previous indirect tax system.


The GST is an indirect federal sales tax that is applied to the price of certain products and services. Once the company has added GST to the product’s cost, the buyer pays the sales price with GST included.


Taxes on domestically marketed products and services for consumption are known as the goods and services tax. Most nations in the world transfer the tax to the government, and consumers pay it at the point of sale. It is part of the final price. Taxes are collected at every point of sale under the GST regime. Within-state sales are subject to both Central GST and State GST. Every interstate transaction is subject to the Integrated GST. GST is a multi-phase, all-inclusive tax system that is applied to the sale of goods and services. Applicable across India, the primary goal of this taxing scheme is to reduce the ripple impact of other indirect taxes.


Features
It is a destination-based consumption tax on goods and services. This means that the tax would be paid to the taxing authority that oversees the consumption site.


It is evaluated till it is consumed. That is to say, GST will be assessed at every stage of the production, distribution, storage, wholesale, retail, and trade process up until the moment of final consumption; however, past tax credits will be available for offset. Because GST upholds the notion that only value-added taxes should be imposed, there would be no tax cascade effect. The entire tax burden will be borne by the final consumer.


Equitable power allocation to the Union and State Legislatures: Our constitution grants states the authority to levy taxes in order to fund their operations. The GST regulations have also been followed, but the Center cannot change its authority that is listed in the State List until the States desire to do so. The Union Government will have the authority to enact regulations pertaining to supplies used in interstate commerce or trade. In a similar vein, the State Government will impose taxes on intrastate transactions, including services.

Types of GST

There are 4 four types of GST such as:

1.The Central Goods and Services Tax (CGST)
All previous Central Government levies were replaced by it. Two examples of these taxes are central excise duty and central surcharges and cess. Every time products are shipped, CGST must be collected by the state.The Central Tax, which is imposed on transactions involving products and services that occur within the state. enforced by the national government. State taxes, CST, SAD, and other central taxes will all be replaced by CGAT. The basic market price is used to determine the prices of goods and services subject to CGST. When a merchant conducts business within the state, the commodities are subject to both SGST and CGST taxes. The central government owns the funds raised by the CGST, and the SGST and CGST each receive an equal portion of the GST rate.


2.The State Goods and Services Tax ( SGST)
Purchases made within the State Government’s physical borders are subject to a sales tax, sometimes known as the State Government Sales Tax, or SGST. Under the new tax structure, state levies such as the state sales tax, VAT, and entertainment tax were eliminated.

Alcoholic beverages are exempt from the State Goods and Services Tax (SGST), which is a single tax levied on intrastate supplies of goods and services. It might just be determined by an item’s transactional worth, or the amount the buyer must pay.


The characteristics of SGST may vary from state to state due to the distinct laws that each State Government has. Measurements, valuation, taxable events, and product and service classifications are among the numerous characteristics that are consistent throughout the nation.


The new tax system’s premise—one tax, one nation—is embodied in this tax.
Human-consumed alcohol is not included in the supplies covered by SGST. The State Goods and Services Tax (SGST) Act, 2017 also governs this tax, which is imposed under it. Section 15 of the SGST Act stipulates that this type of tax is imposed on the transaction value of the products or services that are provided.


On all goods and services provided for consideration, the states impose and collect the SGST.


3.The Union Territory Goods and Services (UTGST)
The State Products and Services Tax (SGST), which is imposed on the delivery of goods and/or services in the Union Territories (UTs) of India, is mirrored by the Union Territory Goods and Services Tax (UTGST).


Goods and/or services in the Andaman and Nicobar Islands, Chandigarh, Daman Diu, Dadra and Nagar Haveli, and Lakshadweep are subject to the UTGST. Regulating the UTGST is the UTGST Act. Revenues from the UTGST are collected by the Union Territory administration. The SGST has been superseded by the UTGST in Union Territories. Thus, in addition to the CGST, the UTGST will be applied in Union Territories. Instead of UTGST, SGST is applied to Delhi, Puducherry, and even the newly created UTs of Jammu and Kashmir. Merely comprehending the meaning of UTGST is not enough.


The central government collects this tax, which replaces the state’s goods-and-services tax in UTs. The UTGST percentage is therefore comparable to the SGST rate, which is 2.5%, 6%, 9%, and 14%.
4.The Integrated Goods and Services Tax (IGST)
The tax collected on interstate transactions when the vendor and the buyer are in different states is known as the Goods and Services Tax (IGST). In addition, GST is levied on the import and export of products and services as well as on supply-related operations involving SEZs. In the event of interstate tax collection, the government collects IGST, which is then split evenly between the state and the federal government, rather than charging taxes for each separately. That being said, since IGST is equivalent to the sum of SGST and CGST, the consumer is not burdened excessively.


To guarantee that the tax is split equitably between the federal government and the state governments, it is collected by the government. However, this adds no extra burden on the consumer’s pocket since IGST is equal to the SGST and CGST clubbed together. The government collects it to guarantee that the federal government and state governments receive a fair share of the tax. IGST streamlines the tax collection process and helps tax collectors when two states are involved rather than just one.
An Integrated GST (IGST) will be levied and collected by the Center on interstate supplies of goods and services under the GST system. The GST is levied and collected by the Indian government on goods made during interstate trade or commerce, as per Article 269A of the Constitution. Then, in line with any legal restrictions established by Parliament and the Goods and Services Tax Council, the GST is split between the Union and the States.


Benefits of Goods and Service Tax
In India, a tax known as the Goods and Services Tax (GST) is imposed on the supply of goods and services. The Central Excise Duty, Service Tax, VAT, Purchase Tax, Central Sales Tax, Entry Tax, Octroi, Luxury Tax, and other existing indirect taxes previously levied by the State and Central Governments have been merged into the GST.
It is advantageous to the government, the populace, and all other stakeholders. Increased economic growth, lower prices for goods and services, and greater global competitiveness of our products and services are all expected outcomes. Through the removal of economic obstacles and the establishment of a common national market with uniform tax rates and processes, GST will transform India into a single, integrated economy at the national level. GST would reduce the negative effects of cascading by allowing a set-off of previous-stage taxes for transactions along the whole value chain and combining most Central and State indirect taxes into a single tax. This would boost the competitiveness of the Indian industry.
GST will significantly strengthen the government’s “Make in India” program, making Indian-made goods and services more competitive on both the domestic and international markets. Additionally, all imported goods would be subject to an integrated tax (IGST) equal to the sum of the Central GST and State GST. This makes taxes on imported and domestic items equal.


Under the GST regime, exports are completely zero rated, unlike under the former system when refunds of some taxes were prohibited since indirect taxes between the Center and the States were divided. We shall reimburse all taxes paid on exported goods and services, as well as on input and input service supplies used to provide those export goods and services. The cost of the products or services would be exported, but not taxes. By boosting exports, this will help India’s balance of payments. The provisional refund of 90% of exporters’ claims within seven days of application receipt facilitates their relationship with the government.


The GST is expected to increase government income by broadening the tax base and improving taxpayer compliance. GST is expected to improve India’s standing in the Ease of Doing Business Index and increase GDP by 1.5% to 2%.

Role of GST in Tax Revenue

GST is essential to tax revenue because it

1. Tax Rate and Structure Uniformity
By ensuring that indirect tax rates and structures are consistent throughout the country, GST will provide certainty and facilitate commercial transactions. Stated otherwise, the GST would render doing business in the country tax-neutral, irrespective of the company’s location.


2. Cascade elimination
If a system of seamless tax credits reached across state lines and the whole value chain, there would be very little tax cascading. The inevitable costs of conducting business would be reduced as a result.


3. A Greater Ability to Compete
Eventually, reducing transaction costs would increase commerce and industry’s competitiveness. According to the World Bank, the introduction of the Goods and Service Tax (GST) and the elimination of interstate checkpoints are the two most significant reforms that could boost the manufacturing sector’s competitiveness in India.


4. Profit for exporters and producers
The progressive removal of the Central Sales Tax, the full and comprehensive set-off of input goods and services, and the inclusion of significant Central and State taxes in the GST would all lower the cost of locally produced goods and services. As a result, Indian exports would increase and Indian goods and services would become more competitive on the international market. The nation’s consistent tax rates and practices will also significantly lower the cost of compliance.


5. A transparent and single tax that is commensurate to the value of goods and services
Since the Center and State collect a large number of indirect taxes and there are no comprehensive or readily available input tax credits at various levels of value addition, the cost of most goods and services in the nation is now severely burdened with hidden taxes. The taxes paid by the final consumer would be transparent because the manufacturer would only be required to pay one tax to the customer under GST.


6. Improving the Tax Burden
In essence, GST simply taxes value addition at every level since credits for input taxes paid at each level can be used in the subsequent value addition stage. Customer benefits will result from increased efficiency and the removal of leakage, which will lower the overall tax burden on most commodities. With set-off benefits at every point of the supply chain, the final customer will only have to pay the GST that was assessed by the final dealer.


7. Greater Effectiveness
It is anticipated that the GST will reduce the government’s tax collection expenses, resulting in increased revenue efficiency. Combining tax collecting into a single process will improve the country’s economic standing.


CONCLUSION

The GST system is designed to allow for the claim of credits at the next level for taxes paid at every stage of value addition, from the point of manufacture to the point of consumption. GST, which is essentially a value-added tax, allows input tax credits to be smoothly distributed along the value chain. The indirect taxes structure in the country will be streamlined and unified under the GST. The economy’s inflation and manufacturing costs are expected to decline, making Indian business and industry more competitive both here and outside. A uniform or smooth Indian market is also anticipated to be promoted by the GST’s implementation, which would also significantly contribute to the country’s economic growth.
GST will broaden the tax base, and result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an in-built mechanism in the design of GST that would incentivize tax compliance by traders.


FAQS


1. What is GST?
GST, or Goods and Services Tax, is a comprehensive, multi-stage, destination-based indirect tax applied to the supply of goods and services. It consolidates multiple indirect taxes into a single tax to reduce the cascading effect of taxes and create a unified national market.

2. When was GST introduced in India
GST was introduced in India on July 1, 2017, as one of the most significant tax reforms since independence.3. What is the purpose of GST?
The primary objective of GST is to:
1. Streamline the indirect tax system. 
2. Remove the cascading effect of taxes. 
3. Create a unified tax structure across states. 
4. Boost the economy by increasing compliance and reducing transaction costs.

4. What are the features of GST?
1. Destination-Based Tax: Tax is paid at the place where the goods or services are consumed. 
2. Multi-Stage Tax: Levied at every stage of the supply chain. 
3. Input Tax Credit: Allows seamless tax credits for inputs used at each stage. 
4. Dual Structure  Includes both Central GST (CGST) and State GST (SGST). 
5. Eliminates Cascading Effect: Reduces tax on tax.

5. How does GST impact tax revenue?
GST ensures:
1. Uniform tax rates and structure, reducing compliance burden. 
2. Elimination of cascading effects, lowering production costs. 
3. Increased competitiveness in trade and manufacturing. 
4. Higher government revenue through a broader tax base and better compliance.

6. What are the key roles of GST in the Indian economy?** 
1. Promotes ‘One Nation, One Tax’: Creates a unified national market. 
2. Boosts GDP: Estimated to increase GDP by 1.5%-2%. 
3. Improves Ease of Doing Business: Simplifies tax filing and reduces costs. 
4. Supports Exports: Makes Indian goods globally competitive by zero-rating exports. 
5. Enhances Transparency: Ensures a clear tax structure and reduces hidden taxes. 

7. What are some exemptions under GST?
Alcohol for human consumption, petroleum products, and certain essential goods and services are exempt from GST. 

3. What is the purpose of GST?
The primary objective of GST is to:
1. Streamline the indirect tax system. 
2. Remove the cascading effect of taxes. 
3. Create a unified tax structure across states. 
4. Boost the economy by increasing compliance and reducing transaction costs.

4. What are the features of GST?
1. Destination-Based Tax: Tax is paid at the place where the goods or services are consumed. 
2. Multi-Stage Tax: Levied at every stage of the supply chain. 
3. Input Tax Credit: Allows seamless tax credits for inputs used at each stage. 
4. Dual Structure  Includes both Central GST (CGST) and State GST (SGST). 
5. Eliminates Cascading Effect: Reduces tax on tax.

5. How does GST impact tax revenue?
GST ensures:
1. Uniform tax rates and structure, reducing compliance burden. 
2. Elimination of cascading effects, lowering production costs. 
3. Increased competitiveness in trade and manufacturing. 
4. Higher government revenue through a broader tax base and better compliance.

6. What are the key roles of GST in the Indian economy?** 
1. Promotes ‘One Nation, One Tax’: Creates a unified national market. 
2. Boosts GDP: Estimated to increase GDP by 1.5%-2%. 
3. Improves Ease of Doing Business: Simplifies tax filing and reduces costs. 
4. Supports Exports: Makes Indian goods globally competitive by zero-rating exports. 
5. Enhances Transparency: Ensures a clear tax structure and reduces hidden taxes. 

7. What are some exemptions under GST?
Alcohol for human consumption, petroleum products, and certain essential goods and services are exempt from GST. 

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