What is/are the most likely advantages of implementing ‘Goods and Services Tax (GST)’?

1. It will replace multiple taxes collected by multiple authorities and will thus create a single market in India.
2. It will drastically reduce the ‘Current Account Deficit’ of India and will enable it to increase its foreign exchange reserves.
3. It will enormously increase the growth and size of economy of India and will enable it to overtake China in the near future.

Select the correct answer using the code given below:

[UPSC Civil Services Exam – 2017 Prelims]

(a) 1 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Answer: (a)        

Explanation:

• The Goods and Services Tax (GST) is a consumption-based value-added tax imposed on the majority of goods and services sold within a country. Consumers bear the burden of the GST, but it is collected by businesses on behalf of the government. The GST applies to the supply of goods and services, following the principle of destination-based consumption taxation.
• Statement 1 is accurate, as the implementation of GST consolidates multiple taxes collected by different authorities, establishing a unified market in India.
• GST operates as a dual tax system, with both the Central Government and State Governments levying taxes on a shared tax base. The Central GST (CGST) is collected by the Central Government, while the State GST (SGST) is collected by the State Governments.
• In India, the GST Bill was first introduced in 2014 as the 122nd Constitutional Amendment Bill. It received approval in 2016 and was subsequently renumbered as the 101st Constitutional Amendment Act, 2016.
• Contrary to statement 2, the impact of GST on the Current Account Deficit (CAD) is not expected to be significant due to factors such as crude oil imports and the influence of the OPEC cartel on oil prices.
• Similarly, statement 3 is incorrect as GST is not projected to result in an enormous increase in the size of the Indian economy. The International Monetary Fund (IMF) estimates a modest addition of around 1-1.5% to the growth rate. Achieving economic growth comparable to China would require other factors such as currency undervaluation and labor exploitation, which are not dependent on GST alone.