To what extent the proposed Goods & Services Tax has potential to alleviate the tax-on-tax problem? Substantiate your answer.

Model Answer:
India’s federal system, allows both states and center to levy taxes separately over goods and services, which causes problem of “taxation over taxes” or “cascading-effect”. The large number of taxes over goods are not only problem for government administrative regime, but heavy tax-burden on domestic manufactured goods curtails Indian manufacturing industries to compete outside. The GST taxation regime of government will no doubt control some of the problems of “taxation over taxes” or “cascading-effect”; but the matter appears overhyped as even under GST, there are going to be three taxes viz. CGST to be collected by Centre, SGST to be collected by States and the IGST to be collected by centre on inter-state sales of the goods. Thus, it appears that the CGST, SGST and IGST are nothing but new names for existing Central Excise/Service Tax, VAT and CST. This apart, it is likely that alcohol, tobacco and petroleum products would be left out of purview of GST mainly because of pressure from states. Further, electricity and real estate is also being left out of the GST net and thus they would be taxed separately. Thus, we see that the cascading effect of some taxes is going to stay and not to be alleviated completely.

Question for UPSC Mains:
To what extent the proposed Goods & Services Tax has potential to alleviate the tax-on-tax problem? Substantiate your answer.

Published: February 6, 2016 | Modified:June 27, 2019

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