Essay on Goods and Services Tax-
GST, Goods and Services Tax , is a tax reform or as the government is calling "the single most important tax reform since 1947", which seeks to absorb various Central indirect taxes like excise duty and service tax and also taxes imposed by the States like the Value added tax and the luxury tax. It is in principal similar to the Value Added Tax (VAT) which was adopted by all Indian. The difference lies in the fact that VAT was only on goods, while the GST, as the name suggests will be imposed on Goods and Services, both. Currently, states only tax goods and Centre taxes Services and manufacturing.
As the government is calling it "the single most important tax reform", it is important to know if it offers any good or not. Obviously, it carries a lot of benefits with it. First, it will widen the tax base, as it includes the Services as well, making tax evasion difficult. This will increase tax to GDP ratio of the government which was reduced to as low as 10% in the last fiscal. This in turn will bring more revenue and thus will allow the government to spend more on infrastructure and social reforms which is the need of hour as India looks to become a manufacturing powerhouse. Second, it will integrate country's taxation system through a uniform tax rate, doing away with the cascading of various taxes at each level of supply chain, and thereby cutting the production costs and fewer burdens on the consumers. Not to forget, thus will also help in making exports more competitive. Third, it will bring the inflation down as the prices of goods and services will reduce as the cascading of tax is avoided in GST.
This tax, the Goods and Services, has two components - The Central Goods and Services Tax (CGST) and the States Goods and Services tax (SGST). Yes, this tax is expected to increase the country's GDP by 2%, but does it offer anything to its other stakeholders - the States? Well, yes, it does and the flexibility shown by the Central government in order to bring the States in confidence is by far commendable.
There are several issues which are bothering the states as they fear loss of revenue. They feel that they now cannot levy tax on whichever good they want to and thereby will lose a major part of revenue. This was taken in view and the government as exempted liquor, petroleum and real estate. Also, their fear of losing the revenue has been tried to overcome as the government has decided to compensate any loss in the next 5 years.
The government has also taken the interest of Small and Medium Enterprise (SMEs) as it has exempted GST from enterprises having a turnover less than Rs 1.5 crore.
It is important to bring this reform soon, as it has been already in the bag for very long, having been introduced in 2000 itself. To implement this by April 2016, the target set by the government, it is important for them to bring the states in confidence and make sure that none of their interests are ignored. It is also important to have a consensus between the states and the centre because this bill seeks to insert an article in the constitution as thus requires a Constitutional Amendment which requires a two-third majority in the parliament and ratification by half of the states, i.e. 15 states, as they are also one for its stakeholders.
On the whole, a win-win situation and most importantly a win for cooperative federalism.
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