ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Some Concerns Regarding the Goods and Services Tax

The proposed Goods and Services Tax would aggravate the already high degree of inequality in the country, and would inevitably curb the fiscal autonomy of state governments significantly. Contrary to the government’s claims, the implementation of the GST would not automatically enhance growth rate, reduce inflation or improve tax compliance. The calculations of the revenue neutral rates depend on various assumptions. Different states should be allowed to set their own state–GST rates with provisions for an entry tax. More emphasis should be put on direct taxes rather than the GST for improving India’s abysmally low tax to gross domestic product ratio.

The goods and services tax (GST) is nothing but an ad valorem sales tax on all goods and services with input tax credit. According to the current proposal, we understand that while there would be a variation in the GST rates for different commodities or service groups, the tax rate for any particular commodity or service would be uniform across all the states. Like the present value added tax (VAT) system, the input tax credit ensures that the producer does not pay tax on the material input cost of production and only on the value addition. Therefore, there is no question of payment of tax on the already paid tax amount on inputs, what is called the cascading effect.

Almost all other indirect taxesexcept custom duty collected by the central government, and duty on petroleum, electricity, and alcohol, levied by the state governmentsare supposed to be subsumed under the GST to simplify the tax system and to relieve producers and suppliers from paying multiple indirect taxes. Both the central and the state governments would levy GST on the same tax-base on all the transactions of commodities and services and there would be two rates, the Central Goods and Service Tax (CGST) and the State Goods and Service Tax (SGST) respectively, for an understanding of revenue sharing.

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Published On : 23rd Feb, 2024

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