The Constitution (One Hundred and First Amendment) Act, 2016, marks a significant milestone in the Indian legislative landscape, primarily aimed at ushering in the Goods and Services Tax (GST) regime. This transformative amendment, which came into effect on July 1, 2017, sought to streamline and harmonize the country’s complex indirect tax structure, replacing a plethora of taxes with a unified GST. One of the salient features of this amendment is the creation of a common national market for goods and services, which endeavors to eliminate the cascading effect of taxes that plagued the pre-GST era. The Act introduces a dual GST model, where both the central and state governments have the authority to levy and collect taxes on the supply of goods and services. This collaborative approach aims to foster cooperative federalism by ensuring a seamless flow of credit and revenue sharing between the center and the states.
Tag: Indian constitution, Governance, Current Affairs.
Decoding the Question:
- In Introduction, try to briefly write about 101st Constitutional Amendment Act, 2016.
- In Body,
- Discuss various features of the Act and write their efficacy.
- Mention some issues in implementation and suggest some measures to address issues.
- In Conclusion, write the overall significance of the act in removing cascading effects and providing a common national market.
Answer:
The Constitution (One Hundred and First Amendment) Act, 2016 provides for the introduction of Goods and Services Tax (GST) in India. GST is one of the biggest indirect tax reforms in India. The GST is a Value Added Tax (VAT) and is proposed to be a comprehensive indirect tax levied on the manufacture, sale, and consumption of goods as well as services at the national level which will replace all indirect taxes levied on goods and services by a single tax on the supply, right from the manufacturer to the consumer.
Features of the GST Act:
- It amalgamates a large number of Central and State taxes (like Central Excise Duty, Countervailing Duty, Service Tax, value-added tax, octroi, etc) into a single tax.
- It inserts a new Article 246A in the Constitution to give the central and state governments the concurrent power to make laws on the taxation of goods and services.
- Only the center may levy and collect an integrated GST in the course of inter-state trade – to be divided between the center and the states.
- It amalgamates a large number of Central and State taxes (like Central Excise Duty, Countervailing Duty, Service Tax, value-added tax, octroi, etc) into a single tax.
- It inserts a new Article 246A in the Constitution to give the central and state governments the concurrent power to make laws on the taxation of goods and services.
- Only the center may levy and collect an integrated GST in the course of inter-state trade – to be divided between the center and the states.
- It provides for the constitution of a GST Council to develop a harmonized national market of goods and services.
- It makes provision for compensation to states for revenue losses arising out of the implementation of the GST.
- It provides for the constitution of a GST Council to develop a harmonized national market of goods and services.
- It makes provision for compensation to states for revenue losses arising out of the implementation of the GST.
Cascading Effect of Taxes:
- GST follows a multi-stage collection mechanism in which tax is collected at every stage and the credit of tax paid at the previous stage is available as a set-off at the next stage of the transaction.
- This means that tax paid on inputs is deducted from the tax payable on the output produced (input tax credit).
- This is expected to mitigate the ill effects of cascading. However, the effectiveness of this will depend on the level of digital literacy of the traders and the efficient functioning of the GST Network (GSTN).
‘One Nation, One Tax and One Market’: GST aims to make India a common national market through:
- uniform tax rates and procedures, and
- removal of hurdles in inter-State transactions as only IGST will be applied on inter-State trade.
Challenges to the Implementation of the GST Act:
- Some goods like petroleum crude, motor spirit etc. were kept outside of GST preview which limits its coverage.
- Despite its implementation, some of the provisions of the GST law are still ambiguous.
- There is no efficient government helpline for taxpayers to discuss their queries.
- It may substantially erode the state’s power to manage its taxation and resource generation.
- It seeks to treat unequal states equally; the large manufacturing states lose revenue on a bigger scale. For example: Maharashtra, etc.
- The input credit cannot be cross-utilized, and the exclusion of large informal and unorganized sectors still remains a big issue.
The Goods and Service Tax (GST) is a revolutionary tax system by removes the cascading effect and provides for a common national market for goods and services. There is a spurt in GST collections in recent times, which reflects both economic recovery and increasing formalization and tax compliance. However, reform is needed to impart greater competitiveness, a gradual course correction should continue for a comprehensive tax mechanism.
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