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

The One Hundred and First Amendment Act (122nd amendment bill) of the constitution of India introduced Goods and Services Tax in India. It commenced on 1st July 2017.

GST: Goods and Services Tax is an indirect tax, which is used on the supply of goods and services. It is a multistage, destination-based tax. It is collected from the point of consumption and not from the point of origin like the previous taxes.

Cascading effect of tax: cascading effect in the tax system imposes taxes on products at each successive stage in the supply chain starting from the raw material to the consumer purchase stage. It is a condition like paying tax on already paid tax.

Value Added Tax: In the year 2005, VAT was introduced with the same objective of nullifying the cascading effect of the tax system.  VAT was succeeded to eliminate the cascading effect on the state indirect tax, but in the case of other indirect taxes still, the cascading effect was still there.

 

How GST tackles the cascading effect: GST ensures a seamless flow of tax credit, that eliminates the cascading effect of all indirect taxes in the supply chain starting from manufacturers to retailers, and also across the state borders.

Real-life instance: Suppose a manufacturer of a product buys raw materials for Rs. 100  including a tax of Rs. 5.

Then he made the product and added value of Rs. 20 to it. The total cost is now  120

With a rate of 10%, the tax will be Rs. 12. But he has already paid a tax of Rs. 5

So now only Rs. 7 has to be paid.

Comment: GST has converted India into a unified market of more than 1.3 billion citizens. It has a positive impact on macroeconomic indicators, inflation, FDI inflow, exports. GST will become accessible to everyone and more beneficial, only when the entire population will start adopting it as a whole towards making it a landmark in tax reforms.

Question for UPSC Mains:
Explain the salient features of the Constitution (One Hundred and First Amendment) Act, 2016. Do you think it is efficacious enough to remove cascading effects of taxes and provide for common national market for goods and services? (Answer in 250 words)

Published: October 30, 2017 | Modified:August 18, 2020

Comments