The Goods and Sevices Tax (GST) is a comprehensive and multi-stage destination-oriented indirect tax levied on all goods and services produced within India. It came into existence on July 1, 2017, in all of India’s states and union territories. 

Several indirect taxes levied by the Government of India and different state governments came under the GST, and many products are now taxable under the GST regime. 

One of the most significant aims of introducing the GST was to create a streamlined, efficient, and unified taxation system that would lead to ease of doing business by seamlessly moving goods and services across the country. 

In simple terms, GST has led to the country’s economic integration. Read along to learn more about what GST is and its different aspects, such as features, evolution, advantages, etc.

The Origin and Evolution of GST 

After almost half a decade of license raj and stringent control, India opened its doors to liberalisation and globalisation in 1991. In 2000, the Atal Bihari Vajpayee government proposed the idea of a comprehensive and unified taxation system for the first time.

Leading industrial figures and industrial advocacy groups complained that the complex web of indirect taxes for every state made doing business difficult. This led to the cascading effect of taxation and double taxation, i.e., paying tax twice for the same product. 

Constant negotiations at different levels of the government continued for more than 17 years before GST became a reality. After long negotiations, the Union government passed a unanimous constitutional amendment Act (101st Constitutional Amendment Act) to incorporate the GST.

This led to the creation of a GST council that was responsible for all decisions concerning the regulation and administration of the GST regime. As per the Constitutional Amendment Act, all indirect taxes came under the GST regime, barring a few products like petroleum, alcohol, stamps, and currency, which are still under different state taxation systems.

Now that we are aware of what GST is, let’s delve into other aspects of GST, such as its features, advantages, limitations, types and much more. 

Key Features of GST

Some of the key features of GST are as follows: 

Comprehensive Taxation System 

GST is truly a comprehensive and unified taxation system that subsumes a number of indirect taxes, leading to ease of doing business. The taxes subsumed under the Goods and Sevices Tax are: 

• Central Excise Duty
• Services Tax
• Additional Customs Duty
• Special Additional Duty of Customs
• Value Added Tax (VAT)
• Central Sales Tax (CST)
• Octroi
• Entertainment Tax
• Entry Tax
• Purchase Tax
• Luxury Tax

Consolidating these taxes under one head eliminates the cascading of taxes. It means double taxation, and preventing it saves consumers from higher prices. 

Multi-Stage Taxation

Another feature of GST is its multi-stage system. The government levies GST on all stages of production, but all these entities receive a refund for the GST paid except for the final consumer. This leads to greater transparency in the taxation system and a more efficient tax regime. 

Destination Based Tax

As already discussed, the authorities levy GST at the level of consumption and not at the point of origin. This implies that tax revenues under the GST mechanism go to the state that consumes them, not the state that produces them. 

Structure of GST       

The Goods and Sevices Tax has three working categories: 

Central GST

This is the union government’s share of every GST transaction. 

State GST

This is the share of the respective state government under which the specific consumption activity on which GST is applicable takes place. 

IGST (Integrated GST)

The union government collects GST, which occurs on intra-state sales. The government distributes GST revenues to the respective states from time to time. 

Benefits of GST 

You can find the advantages of GST below: 

Simplified Tax System 

The foremost benefit of GST is its simplicity. By consolidating several indirect taxes under one head, GST eliminates inefficiency and confusion, which was quite prevalent in the erstwhile taxation regime. 

Reduced Tax Evasion  

GST incorporates a robust IT system that enables seamless transaction tracking. The GST Network (GSTN) is a comprehensive platform that monitors all GST-related activities, from registration to return filing. This transparency helps reduce tax evasion and fraud.

Higher Tax Revenues 

With the implementation of GST, compliance has increased manifold. Elimination of tax evasion and broadening of the tax base have helped increase tax revenues for the government (both central and state governments). 

Economic Growth 

A simplified taxation system has led to an increase in business activities, which has increased the economic activities on which GST is applicable. More economic activity leads India towards robust economic growth.

Additionally, the creation of a unified market because of the seamless movement of goods and services has also helped boost economic growth. 

Encouragement to SMEs 

The government also has a composite scheme for small and medium entrepreneurs under the GST system. This is quite beneficial to them as they need to pay only a fixed tax rate on their annual turnover under this scheme.

This provision has reduced their compliance burden and increased participation in the formal economic system. 

Challenges of GST 

Despite huge success, the Goods and Sevices Tax also had to face its fair share of criticism and challenges, which you can find below: 

Initial Implementation Hiccup 

The transition to GST was met with confusion and resistance among small business owners. Businesses had to overhaul their accounting practices and processes for compliance, and the regular amendments to GST rules and regulations did not make their work easy. 

Compliance Burden

Although GST aimed to create a favourable business environment, much paperwork made the entire compliance system cumbersome and burdening, especially for SMEs. 

Rate Complexity

Another challenge of GST was the multiple slab rates. There are five slab rates: 0%, 5%, 12%, 18%, and 28%. Determining the reasonable rate for a good or service is associated with multiple litigations and disputes. 

Impact on Prices

There were concerns about its impact on prices in the initial phase of GST implementation. While GST aims to reduce the overall tax burden, the immediate effect on prices varies across different sectors. 

The Future of GST 

As GST continues to evolve, the government is taking sincere steps to address grievances faced by businessmen and ease the system. The GST council, the apex decision-making body, reviews the GST system’s working regularly and initiates changes to improve the system.  

Moreover, the government aggressively uses data analytics and other modern software tools to eliminate evasion and ensure better compliance. 

The government is in discussions with different stakeholders regarding expanding GST’s tax base by bringing petroleum products and real estate under its ambit. This will benefit consumers, as tax incidence will significantly reduce, giving a boost to economic growth. 

Summing Up

The Goods and Sevices Tax represents a significant reform in India’s taxation system. By consolidating multiple taxes into a unified system, GST aims to simplify the tax structure, enhance compliance, and boost the economy.

While its implementation has encountered challenges, ongoing efforts to address these issues can make GST more effective and business-friendly. Hope you enjoyed reading the blog and developed a sharp understanding of what GST is and its working mechanisms.