101 Constitution Amendment Act: Goods and Service Tax (GST)

(11)    Explain the salient feature of the Constitution (One Hundred and First Amendment) Act, 2016. Do you think that it is efficacious enough “to remove the cascading effect of taxes and provide for common national market for goods and services”?

    The Constitution (One Hundred and First Amendment) Act, 2016 makes changes to the constitution of India to usher in the Goods and Service Tax (GST) regime. GST has proposed to levy tax at each stage on the value added only.

The Salient features of the act are,  

• It empowers parliament and every state to make laws with respect to the goods and services imposed by the union and by the state.
• It empowers the state as well as center to enjoy concurrent powers over intra – state trade and commerce.
• The power to make laws regarding inter-state trade and commerce is vested exclusively with the Central Government.
• It proposed for the establishment of a Goods and Service Tax Council (GSTC) within 60 days. The members of GSTC are

(a)    Finance minister – Chairman

(b)    Union Minister of State in Charge of Revenue or Finance.

(c)    One Nominated member of each state who is in charge of finance or taxation

GST is a destination- based taxation system. It aims for a “One Nation, One Tax” system. It calculates the value addition at each stage, thereby removing the cascading effect of taxes as was the case earlier under VAT (Value Added Tax). The GSTN (Good and Service Tax Network) a non-profit, non-governmental organization provides the IT backbone for GST. Since the tax is levied on the value added at each stage, the final consumer will have to pay only his part of the tax and not that of the entire supply chain. The input tax credit can be claimed for the goods and services thereby decreasing the overall burden.

The GST has met with some challenges which the government in consultation with the GSTC has sought to redress effectively. Some issues are

• Lack of clarity due to multiple tax slabs (0%, 5%, 12%, 18%, and 28%). Far from being a dream of providing a common national market for Goods and Services, these multiple tax slabs have increased complexities and caused difficulties in compliance.  The need to fill various GST from has increased the compliance costs offsetting the benefits of GST.

Though the GST reform is yet to bear fruits, there is a universal consensus that it would be beneficial to the economy in the long run. Proper categorization of taxes into Central GST, State GST and Inter-State based upon minimal tax slabs with less compliance burden would enable GST to become the “Good and Simple Tax” that is was conceived to be.