How Goods and Services Tax (GST) reform will help in economic growth of India?

Goods and Services Tax (GST) popularly called as second generation reforms is one of the most important topics for UPSC IAS Prelims Exam preparation. India geographically is a single entity but marketwise it is fragmented into smaller blocks. GST will replace the complex taxation regime with a simpler one. Candidates preparing for Civil services Examination must go through this topic meticulously.

Presently India has multiple tax regimes with different set taxes which are levied by centre and States respectively. Union government charges Excise duty, Central Sale tax, Service tax and cess etc. Similarly state government’s charges sales tax, value added tax, Octroi etc.

Suppose a Company ‘A’ in the state of Maharashtra imports raw material from Madhya Pradesh then the company A has to pay Central Sales Tax. Using this raw material a new product is made by Company ‘A’ on which excise duty will be levied by Central Government. Finally, local sales tax or VAT is levied. Compliance with the present taxation regime is cumbersome and is cumulatively a high taxation regime. Goods and Service Tax (GST) will subsume all this taxes into a uniform/single tax regime across India. It will lessen the burden of cascading effect of taxes. It will simplify tax administration and make compliance easier. It will widen the tax base and significantly add to GDP. Given the government emphasis on “Make in India” it has become a Sine qua non.The cascading taxes in India severely restricts its export competitiveness in comparison to other countries.GST will have its spill over effect on export enhancement from India and finally leading to increased forex reserves.GST will serve as a catalyst for manufacturing sector which has potential to create huge employment opportunities.

            The proposed GST will have a dual component. The Centre will administer the Central GST (CGST) and the States the SGST. Compliance will be monitored independently at the two levels. The rates for both CGST and SGST will be fixed by GST Council, whose members will be state finance ministers and chairman will be the Union finance minister.

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