Chanakya IAS Academy Blog

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At stroke of midnight, India gets a ‘good and simple tax’

President Pranab Mukherjee launched the new indirect tax regime at the stroke of midnight at a special function at Parliament’s Central Hall. The president termed the introduction of the tax as a disruptive change.

At the event, Prime Minister Narendra Modi termed the new Goods and Services Tax (GST) regime as a Good and Simple Tax. He even sought to allay the anxiety in the business community about the preparedness for the transition to the new tax regime.

GST is a simpler, modern and more transparent taxation system that will do away with 500 different taxes levied across the country’s 29 States and seven Union Territories.

Hours prior to the official launch, the GST Council chaired by Finance Minister Arun Jaitley slashed the tax rate on fertilizers from 12% to 5% and tractor parts from 28% to 18%, in a bid to make the new tax regime more farmer-friendly.

Significant implications of GST as stated by the PM:

  • The Prime minister added that its introduction was not just a tax or economic reform, but a social reform that would nudge people on the path to honesty and benefit the poor the most
  • The practice of giving out kachcha (informal) bills would become history as the GST presented an opportunity to stop black money and corruption, and give people a chance to do honest business
  • It would end the spectre of tax terrorism and Inspector Raj, as the technological backing for the GST would do away with grey areas and reduce the discretion enjoyed by the bureaucracy over tax matters
  • GST will also lead to economic integration of the country

What is GST:

  • GST is essentially a consumption tax and is levied at the final consumption point.
  • GST will subsume all central and state-level taxes and levies within an integrated tax
  • It would comprise of two components, a central GST and a state GST
  • It is levied on the value addition and thus avoids the cascading effect or tax on tax which increases the tax burden on the end consumer
  • It is collected on goods and services at each point of sale in the supply line • The GST that a merchant pays to procure goods or services can be claimed as input tax credit later against the tax applicable on supply of goods and services
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