03 Jan 2024 Slump in GST growth. Analyzing GST performance in last 6 years along with the challenges
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GS 3 : Indian Economy
Why in the News?
In December 2023, the Goods and Services Tax (GST) in India amounted to ₹1,64,800 crore. The month of November saw a 15.1% increase in GST revenue, but year-over-year growth has been slowed down to a three-month low of 10.3%.
About GST
- GST is a value-added tax that is applied to Indian suppliers of goods and services.
- Excise duty, service tax, and other state-level taxes are some of the several indirect taxes that have been replaced by the GST.
- It is imposed on service providers as well as producers and retailers of goods.
- The tagline “One nation, One market, One tax” was used to introduce the GST. The goal of the Goods and Services Tax (GST) is to replace the fragmented tax system that was in place before its implementation with a single, national tax framework.
- Destination-Based Tax: The Goods and Services Tax is levied at the place of consumption, as opposed to the point of origin, as it is a destination-based tax. This promotes the unrestricted movement of commodities and services across states.
Achievements of GST in last 6 years
- Revenue collection : In spite of the less buoyant performance of indirect taxes, gross GST income has increased at an average rate of 3% between 2018–19 and 2022–2023, hence exceeding the nominal GDP growth rate of 9.8%. From the start of the GST, monthly collections have continuously surpassed 1.6 lakh crore which shows the success of GST.
- Simplified Tax System: The GST has reduced the cascading effect of taxes by replacing a convoluted and multi-layered tax structure with a more consistent and simplified one.
- Unified National Market : By removing tax barriers between states, GST has provided a smooth movement of products and services throughout the nation hence it is helping in creating a unified national market.
- Helped in improving rank in Ease of Doing Business.
- Increasing Compliance: The indirect tax system’s technology foundation is provided by the GST Network (GSTN). In order to provide updated data and close income leaks, it has been utilising artificial intelligence and machine learning.
- Center-State Relations: Since the GST Council’s establishment, all of its decisions have been made by unanimous consent. This indicates that India’s cooperative federalism is getting better.
- Input Tax Credit (ITC) Benefits: The availability of ITC has helped businesses to reduce their tax liability by allowing them to claim credit for taxes paid earlier.
Challenges
- False invoicing and fake businesses reduce revenue and hurt sincere taxpayers’ ability to compete.
- Multiple Tax Rates: India has several tax rates, in contrast to many other economies that have adopted similar tax structures. This hampers the nation’s efforts to implement a single indirect tax rate for all commodities and services.
- Absence of Coverage: Since petrol, diesel and ATF are exempted from the GST, the indirect tax system still does not apply to a sizable portion of the economy.
- Compensation to States: If a State’s revenue (after the GST is implemented) falls short of 14% annual growth, the GST (Compensation to States) Act guarantees full compensation to the State for the first five years of the GST. Numerous States have relied on the compensation
Prelims Question
Q) Which Goods has been exempted from GST?
(a)Clothing
(b)Electronics
(c)Medicines
(d)Petrol
Ans- D
Mains Question
Q) How has GST impacted federalism in India? And what are its advantages over previous tax structure?
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