Goods and Services Tax (GST)

How GST created single market

Note4Students

From UPSC perspective, the following things are important :

Prelims level : GST

Mains level : Paper 3- GST and its benefits to various stakeholders

The article analyses the instrumental role played by the GST in transforming nation into a single market dismantling the barriers across the states.

Reduced tax burden on consumers

  • In the pre-GST era, the total of VAT, excise, CST and their cascading effect led to 31 per cent as tax payable, on an average, for a consumer.
  • In its first two years, as the collections improved, the GST Council kept reducing the tax burden on consumers.
  • Most items have been brought in the 18 per cent, 12 per cent or even 5 per cent category.
  •  Most items of daily common use are in the zero to 5 per cent slab.
  • An analysis by the Reserve Bank of India (RBI) observes that since the roll out of GST, the rate changes have brought down the GST incidence from 14 per cent to 11.6 per cent.
  • This explains the revenue loss stated above. The consumer pays less tax now under the GST.

Flexibility and increased compliance

  • Taxation threshold for goods was increased to Rs 40 lakh.
  • The composition limit was increased from Rs 75 lakh to Rs 1.5 crore.
  • For manufacturers, composition tax rate was lowered from 2 per cent to 1 per cent.
  • The composition scheme was extended to services as well.
  • Special lower rates without Input Tax Credit (ITC) were prescribed for construction and restaurants.
  • As per an RBI calculation, the weighted GST rate at present is 11.6 per cent.
  • The revenue-neutral rate determined at the time of GST introduction by its own committee was 15.3 per cent.

Widened tax base

  • Today, there are 1.2 crore GST assessees compared to 65 lakh at the time of introduction of the tax regime.
  • The average revenue collected per month for the nine months (July-March) in 2017-18 was Rs 89,700 crore in  2018-19 it rose by 10 per cent to Rs 97,100 crore.
  • In FY 2019-20, the revenue per month was Rs 1,02,000 crore.
  • This steady increase was despite the various concessions and rate reductions mentioned above.

 Simplification

  • GST is an IT-enabled platform.
  • Accounting and billing software is provided free to the small taxpayers.
  • Those with nil return to file can do so with an SMS.
  • Since the registration is completely online, the refund process is also fully automated.
  • The Centre is the only refund disbursal authority and no physical interface is required.

Agriculture sector under GST

  • Concessions are extended to the agriculture sector under GST, agricultural inputs such as fertilisers, machinery have seen a considerable reduction in rates.
  • Other inputs such as cattle/poultry/aquatic feeds are kept at the nil rate.
  • Agricultural produce such as vegetables, fruits, flowers and foodgrains are exempt from GST.
  • Dairy products — milk, curd, lassi, buttermilk and minor forest produce such as lac, shellac and sisal leaves are also exempt.
  • Silk cocoon, raw silk, wool, jute fibre are nil rated.
  • In the pre-GST era, many of these were in the 5 per cent slab.
  • Service inputs to agriculture are similarly treated.
  • Before the introduction of GST, many such items were taxed at a standard rate of 15 per cent.

MSME  under GST

  • Micro, small and medium enterprises (MSMEs) have consistently received sensitive treatment under the GST regime.
  • Items that have large employment creating activities, rough diamond/precious stone sorting and polishing for example, have seen a GST reduction from 3 per cent to 0.25 per cent.
  • Services rendered by MSMEs have also received such sensitive treatment.

Concerns

  • Tax reduction in some cases has led to an inversion of duty structure.
  • Manufactured goods in lower slabs have suffered due to inversion in the duty structure.
  • With lockdowns and consequential deferrals in tax payments, compensation payments to the states is a concern that the Council has taken cognisance of.

Consider the question “Elaborate on how the GST has been benefiting the various stakeholders and helped in transforming India into a single market?” 

Conclusion

The states have shown maturity and understanding. The spirit of collective responsibility and statesman-like thinking have kept mutual trust and confidence high. The much talked about cooperative federalism is actually in action in the GST Council.

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