Q. What is/are the most likely advantages of implementing 'Goods and Services Tax (GST)'? - It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.
- It will drastically reduce the 'Current Account Deficit' of India and will enable it to increase its foreign exchange reserves.
- It will enormously increase the growth and size of economy of India and will enable it to overtake China in the near future.
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Answer:
1 only
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[A] 1 only. While GST was a landmark tax reform in India, the statements regarding its impact on the Current Account Deficit and overtaking China are geographically and economically overstated.Detailed Analysis of the Statements:
- Single Market Creation (Statement 1 – Correct):GST replaced a complex web of indirect taxes, including Central Excise Duty, Service Tax, VAT, Purchase Tax, and Luxury Tax. By subsuming these into a single tax structure, it eliminated the "tax on tax" (cascading effect) and removed interstate checkpoints. This effectively turned India into a unified national market, allowing goods to move more freely across state borders.
- Current Account Deficit (Statement 2 – Incorrect):The Current Account Deficit (CAD) is primarily a reflection of the gap between a nation's total imports and its total exports of goods and services. While GST makes Indian exports more competitive by zero-rating them (refunding taxes paid on inputs), it does not "drastically" reduce the CAD on its own. The CAD is more heavily influenced by global oil prices, gold imports, and the performance of the manufacturing sector.
- Overtaking China (Statement 3 – Incorrect):While GST does contribute to the Ease of Doing Business and can boost GDP growth by 1-2% over the long term, claiming it will "enormously" increase the economy to the point of "overtaking China in the near future" is an exaggeration. China's economy is significantly larger than India's, and such a shift would require sustained, multi-decadal growth across various sectors beyond just tax reform.
Key Benefits of GST:- Mitigation of Cascading Effect: It ensures that tax is levied only on the "value added" at each stage of the supply chain.
- Increased Compliance: The digital nature of the GST portal (GSTN) makes it harder to evade taxes, as the system requires matching invoices between buyers and sellers.
- Lower Logistics Costs: The removal of state-level entry taxes (like Octroi) has significantly reduced the travel time for trucks across India.
Quick Summary:
| Feature | Impact of GST |
| Market Structure | Fragmented \rightarrow Unified (One Nation, One Tax) |
| Tax Burden | Reduced due to removal of cascading effect |
| Transparency | Increased via the GST Network (GSTN) |
| Foreign Reserves | Indirect/Minimal impact |