The idea of a pan-India Goods and Services Tax was first conceptualized by the Kelkar Task Force on Indirect taxes in 2000. Its primary goal was to replace the existing complex and fragmented tax regime by a harmonized system which would, in turn, streamline compliance, reduce cascading, and promote economic integration. The financial relations between the Indian Central Government and State Governments have been considerably altered by GST. Central and state governments have scrapped many indirect taxes like excise duty, sales tax, luxury tax, and state levies that have been replaced by uniform GST. Thus, the tax structure has been streamlined and the problem of the ‘tax on tax’ cascading effect has been eased.

For the first time in India, the Constitution (122nd Amendment) Bill brought about GST in 2014. It was passed in Rajya Sabha in 2016, and it became the 101st Amendment Act of that country. The main features of this act were :

• GST taxes that would be included within Central GST are excise duty, service tax, and all other such taxes, while State GST will cover VAT, luxury tax, and so on.
• IGST (Integrated Goods and Services Tax) would be levied where the goods and services were transferred from one state to another. IGST is no tax but an amalgamating device intended to rationalize and bring the two-state and the union taxation methods into sync.
• Article 246A – The state has the right to tax goods and services.
• Article 279A – GST Council is to be formed by the President to administer and govern GST. Its chairman is the Union Finance Minister of India with ministers nominated by the state governments as its members.
• Input Tax Credit (ITC) is allowed under the system of GST because the business can claim its input tax paid on inputs used in the processes of producing and distributing goods and services. This again is a strategy to eliminate the threat of being taxed twice and reduces the total amount of tax payable.
• Online Compliance- GSTN had put in an online platform that engaged services for registration, return filing, tax payment, etc. relating to all the operations of compliance work associated with it. It streamlined the process and helped taxpayers in discharging their duties.

The GST Council is quite the platform for inter-governmental cooperation and decides on the rates at which CGST and SGST are levied in mutual consultation between the Centre and States. The GST Council reviews the rate slabs on goods and services periodically. GST rates are generally high in the case of luxuries and low in the case of necessities. The various goods and services have been classified under four slabs of GST rates in India: 5% GST, 12% GST, 18% GST, and 28% GST.

Impact on Indian Economy:

GST has impacted the Indian economy in a lot of ways. Firstly, it can be said that GST helped in the economic development of the country. It helped in decreasing the charges for services and goods. To understand the impact of GST on the Indian economy it can be said that GST can be useful for enhancing the FDI’s flow. In the long run, the revenue of the Government can be increased by using GST. Through GST, the ease with which business is done in India can also be facilitated. Apart from all these points, with the help of GST, a kind of transparency can be seen in the whole system such that the buyers would know about the taxes that they are paying and what is the basis for these taxes.

It would quite aptly be said that with the help of GST, the facilitation of economic growth is expected in India. The salutary effect of GST on the Indian economy may be in creating a system of transparency in the sales process. Furthermore, ease of doing business may exist there as GST would not require multiple instances to follow the need for paying different diversified taxes in different states. With this, the positive impact of GST can be understood. The negative impact of GST can be such that certain sectors may be at a loss because of the increased price of their commodities. Seamless flow of credit was the basic aim behind the introduction of GST. However, the availment of input tax credits has become a big headache under GST. Some conditions along with credit requirement alignment need to be satisfied before input tax credit is availed. Working capital plays the most significant role in business financial growth. Compared with the pre-GST regime, the working capital requirement is relatively higher under the post-GST regime.

Conclusion

In conclusion, the Goods and Services Tax implemented in India has proved primarily to be positive and profitable as far as the negatives are concerned. Overall, any success GST saw will be reflected in a smoother system, easier procedures for compliance, and increased revenue collection.

This article is authored by Aditi Srivastava, Team member at Lets Learn Law.