About Goods and Services Tax (GST)

• Goods and Services Tax (GST) is an indirect tax (or consumption tax) used in India on the supply of goods and services. 
• It is a comprehensive, multistage, destination-based tax:
  • Comprehensive because it has subsumed almost all the indirect taxes except a few state taxes. 
  • Multi-staged as it is, the GST is imposed at every step in the production process, but is meant to be refunded to all parties in the various stages of production other than the final consumer and 
  • Destination-based tax, it is collected from point of consumption and not point of origin like previous taxes.
• The tax came into effect from 1 July 2017 through the implementation of the One Hundred and First Amendment of the Constitution of India by the Indian government. 
• The GST replaced existing multiple taxes levied by the central and state governments.
• The tax rates, rules and regulations are governed by the GST Council.

Benefits of GST implementation

• To MSMEs: 

• The e-invoice system has now become an integral part of doing business in India.

1. 1. 1. The GST number that can track every supply chain transaction has helped to address fraudulent claims and fake invoicing.
      2. Compliance burden of MSMEs has reduced significantly with option of quarterly return filing for taxpayers having annual turnover of Rs 5 crore.

• To the logistics sector: 

1. 1. 1. GST ended long queues of trucks & goods carriers at highway toll plazas freeing goods movement across states.
      2. The E-way bill system has helped to facilitate free movement of goods in the country. 

• GST and cooperative federalism

1. 1. One of the biggest triumphs associated with GST is the spirit and display of cooperative federalism, with almost all decisions on GST being taken with consensus among members of the GST Council.
      1. Each state has the same voting right in the council irrespective of its population. 
      2. Decisions of the council are binding on Parliament in contravention to the principle of parliamentary sovereignty.

Shortcomings of GST

• Delay in compensation

• As GST harms producer states and rewards consumer states in terms of revenues, states like Tamil Nadu, which have invested highly in their manufacturing ecosystem, are facing new problems. 
• Though the government decided to roll out compensations for five years of revenue losses for such states, the guarantee of 14 per cent growth for the first five years in GST revenues choked under depleted funds owing to pandemic.
• Many states are thus coming together to demand an extension in these compensations because of their deteriorating finances.

• Increasing cesses and surcharges

• A large burden of the slowdown has been passed on to the states as the Centre has been steadily increasing cesses and surcharges to earn revenue. 

• Federal disputes

• • • State governments have lost most of their independent taxation powers, which has increased their dependence on the Centre. 
    • GST is monitored by a council where the states have only 2/3 of the voting rights and the Centre is vested with the remaining third. 
  • Issues related to real estate and intermediaries. 
    • Two significant structural issues in this sector are with transfer of developmental rights (TDR) and floor space index (FSI). 
    • TDR is a service liable for GST. Land being an immovable property, GST is not applicable on it and the benefits arising out of it. This makes TDR beyond the purview of GST. However buyers are paying an additional amount levied due to GST. 
    • Regarding FSI – which is the maximum permissible floor area that a builder can build on a particular piece of land. Developers are granted a right of additional FSI from local municipal authorities and GST is levied upon such grants.

• Delay in adjudication process

• • • Delay in establishment of an appellate tribunal related to GST is increasing the burden on the judiciary. 

• Sectoral issues with GST

• • Fuel is out of its purview and the airline industry doesn’t get credit for taxes on jet fuel. 
  • With a 28 per cent GST rate on products like plywood, automobile parts, and electronic items, potential buyers are forced to opt for unregistered dealers. 
  • For local and unskilled labour, it is difficult to derive an MRP for the products that they hand craft. 
  • With no differentiation between a game of skill and game of chance, a 28 per cent GST on the contest entry leads to a loss of investments.

Way forward:

• As state revenues are suffering, there is an urgent need for the inclusion of gasoline, diesel, jet fuel, real estate and electricity under GST.
• Certain structural level changes to the law may help overcome the above said challenges.

https://cbic-gst.gov.in/faq.html