Introduction –

India is a modern welfare country and it is the duty of the government to ensure the welfare of its
people. But to ensure such welfare, the government needs funds. Taxation is one of the main
sources of income for any government and it is important that the taxation system of a country is
efficient, for the welfare of both, the people and the government. More than 140 countries,
including India have now implemented the GST model which complies with the principle of
“one nation, one tax.” Prior to the introduction of the GST model, the taxation system of India
included various indirect taxes such as sales tax, entertainment tax, VAT, etc.

The implementation of an entirely new system of taxation and abolition of the existing tax
system was a very significant task in front of the government. on July, 2017, the government of
India implemented the GST model and even after almost four years of its implementation, people
find it tricky to entirely understand the concept of the goods and services tax. This project
discusses the need for the introduction of GST, how GST is administered in India and what
economic impact it has had in the past few years.

CH 1: Goods and services tax explained in brief –

 Taxation system prior to the introduction of GST in India:

Prior to the introduction of GST in India, the central and state government levied several indirect
taxes which included central excise duty, duties of excise, additional duties of excise, additional
duties of customs, special additional duty of customs, cess, state vat, central sales tax, purchase
tax, luxury tax, entertainment tax, entry tax, taxes on advertisements and taxes on lotteries,
betting, and gambling.1

 Why was GST introduced in India?

Good and Services tax was introduced in the year 2017 by the current government, but the idea
of imposing only one tax and abolishing different taxes was first introduced to the legislature by

1
Brief History of GST | Goods and Services Tax Council, GSTCOUNCIL.GOV.IN (2021), (last visited Mar 24,
2021), http://www.gstcouncil.gov.in/brief-history-gst.
the Atal Bihar Vajpayee government. But when it was introduced, multiple countries had already
adopted the GST model and India was able to study the impacts of the implementation of GST in
those countries. Also, there were multiple shortcomings in the existing tax system and it was a
much more complex taxation system as compared to the GST model.2

 Concept of Goods and Services tax explained:

The goods and services tax, or GST is a form of tax which is levied on the consumption of goods
and services. GST is an indirect tax, meaning it is imposed on the manufacturer or seller of
products and the suppliers of services rather than being paid directly to the government by
consumers.3 The tax expense is normally factored into the seller's expenses, and the price the
customer pays includes GST.

It is the liability of the manufacturer to pay GST to the government. The manufacturer sells these
goods to the wholesaler, who then sells them to the consumer and the price that the consumer
pays for the commodity includes the GST within its price. Imposing the good and services tax on
the manufacturer makes the taxation system a little less complicated.

 GST is an indirect tax:

The goods and services tax is an indirect tax which means that it is one of the major sources of
revenue for the government of India. It is a tax which is levied on the commodities and services
rendered and not on an individual’s personal income.

 Avoids cascading of taxes:

Since the GST is levied only on the value added on each stage, there is no problem of taxation on
a previously taxed commodity and this avoids the cascading of taxes and makes for an efficient
taxation system.

CH 2: GST administration in India –

2
FE Desk, What is Goods and Services Tax (GST)? THE FINANCIAL EXPRESS (2021), (last visited Mar 24,
2021), https://www.financialexpress.com/what-is/goods-and-services-tax-gst-meaning/1620322.
3
Desk, Supra.
  Implementation of GST in India?

“The goods and services tax was implemented in the Indian taxation system in the year 2017 by
the introduction of various legislations which include Central Goods and Services Tax Act, 2017
including Central Goods and Services Tax (Extension to Jammu and Kashmir) Act, 2017, State
Goods and Services Tax Act, 2017 as notified by respective States, Union Territory Goods and
Services Tax Act, 2017, Integrated Goods and Services Tax Act, 2017 including Integrated
Goods and Services Tax (Extension to Jammu and Kashmir Act, 2017), Goods and Services Tax
(Compensation to States) Act, 2017 (hereinafter referred as CGST, SGST, UTGST, IGST and
CESS respectively at the GST portal) and rules, notifications, amendments and circulars issued
under the respective acts.”4

The implementation of GST also meant that the Constitution of India would have to be amended
and that would require the confidence of at least two-thirds majority of the parliament and
cooperation of at least half of the states and union territories of India. The government managed
to attain both, and by the way of the 101 st constitutional amendment, the legislature introduced a
national goods and services tax in India.

 Constitutional provisions related to GST in India:

The constitution of India is the supreme source of law in India and it is essential to study the
provisions of the Constitution in order to ensure that no part of the taxation laws in India
contradict it, otherwise they would be declared ultra vires and rendered null and void. The
articles of the Constitution relevant for this study are:

1. Article 245 – Article 245 gives the powers to the central and state legislative bodies to make
laws for the whole or part of their country or state respectively and these include laws made
relating to taxation. GST has been introduced by both the central and the state legislative
bodies in India.5
2. Article 246 – Article 246 gives the central and state the authority to levy taxes. The
parliament may make laws levying taxation for the entire country and the state parliament
4
Goods & Services Tax (GST) | State VAT Websites, SERVICES.GST.GOV.IN (2021), (last visited Mar 24, 2021),
https://services.gst.gov.in/services/gstlaw/gstlawlist.
5
INDIA CONST. art. 245.
 may make laws for the people of their respective states.6
3. Article 265 – Article 265 of the constitution of India states “Taxes not to be imposed save by
authority of law No tax shall be levied or collected except by authority of law.” This gives
the authority to the legislature to make laws regarding taxations in India.7

 Framework of GST in India:

1. Dual GST model –

India observes a dual GST model which complies with the federal structure of the country. The
implementation of this dual model means that the state and the central government both
concurrently levy taxes on the same commodity or services that are produced within the territory
of a state/ union territory of India.

2. Types of GST –

There are four types of Goods and services tax that are levied in India. They are CGST, SGST,
UGST and IGST.

a. CGST: the goods and service tax levied by the central government is known as CGST.
b. SGST: the goods and service tax levied by the state government is on the states and union
territories with legislatures is known as SGST.
c. UGST: the goods and service tax levied on the union territories without an existing
legislature is known as UGST.
d. IGST: the integrated goods and service tax levied by the central government is known as
IGST.8
3. Registration of suppliers:

Every supplier who produces goods or services is required to register themselves with their
respective state or union territory for the production of taxable commodities if they exceed the
threshold limit during a financial year. Different threshold limits have been set by different states

6
INDIA CONST. art. 246.
7
INDIA CONST. art. 265.
8
Desk, Supra.
and union territories.

4. Scheme of classification of commodities:

There is a prescribed scheme of classification of commodities and services where the goods and
services are classified under various heads and taxed accordingly. For example, the tax payable
on a daily need item such as rice would be different from the tax payable on a luxury item such
as an expensive car.

CH 3: The impact of goods and services tax on the Indian

economy –

After four years of implementation of GST by the government, its impact on the economy of
India can be determined. It has had some positive impacts as well as some negative impacts on
the economic condition of India. These impacts of GST on the Indian economy are listed below
–

 Increase in number of tax payers:

Over 38 lakh taxpayers switched to the GST regime when it was implemented on July 1, 2017.
In September 2017, the number had risen to more than 64 lakh people. In addition, with the
addition of over 58 lakh new GST registrations, this number has grown by nearly 90%, bringing
the total number of active GST registrations to 1.23 crore in 2020. This expansion represents a
substantial increase in the tax base.9

 Boost in production:

The total tax component is around 30% of the product cost, according to the Indian retail sector.
Taxes have decreased as a result of the implementation of the goods and services tax. As a result,
the final consumer pays lower taxes. The reduction in tax burden has boosted retail and other
sectors' production and growth.10
9
3 years of GST | Impact of GST on Indian economy 2020 | Deloitte India, DELOITTE INDIA (2021), (last visited
Mar 24, 2021), https://www2.deloitte.com/in/en/pages/tax/articles/three-years-of-gst.html.
10
Growth Hub & Impact Economy, Impact of GST on Indian Economy - Know 5 Effects of GST | KARVY
  Easy nation-wide operations:

Tax roadblocks such as toll plazas and checkpoints can now be avoided. Previously, this caused
issues, such as damage to unpreserved goods during transportation. As a result, suppliers had to
keep buffer stock on hand to compensate for the losses. Their profit was hindered by the
overhead costs of storage and warehousing. These issues have been mitigated by a single
taxation system. This helps in making the nation-wide operations a little less complex on a daily
basis.11

 Cause of inflation:

The imposing of goods and services tax causes a spiral in the prices of good and services overall.
This means that there would be an upward shift in the prices of everything since GST is included
in the manufacturer’s expenses. This causes an inflationary trend in the economy.

 Regressive in nature:

After the implementation of GST in India, the indirect taxes are equally levied on the rich man
and on the poor man. This does create equality but does not necessarily create equity. The tax
applicable on a particular commodity is same for everyone. It is important to note that this
problem is not solely related to GST but to other indirect taxes as well.

CH 4: Suggestions for better implementation of GST in

India –

Though the government has ensured that the goods and services tax model is implemented
correctly, there are still some issues which both the government and the people of India face in
matters related to GST. Some suggestions which might have a positive outcome for the better
implementation of GST in India are listed below:

 Improved targeting for GST collection:

CORPORATE IMDB (2021), (last visited Mar 24, 2021), https://www.karvy.com/growth-hub/gst/impact-of-gst-on-
indian-economy.
11
Growth Hub & Impact Economy, Supra.
As per reports, the government’s monthly income from the collection of goods and services tax
was approximately 1 lakh crore rupees, which was extremely below the expected return. The
cause of this was the target set was extremely high and the administration could not efficiently
collect the taxes. Improved targeting would help the government better manage the collection of
GST and slowly improve the present condition.12

 Avoiding technical loopholes:

Technical loopholes and glitches are harmful not only for the GST model, but for any taxation
system and therefore, it must be ensured that there are not technical glitches and loopholes in the
filings and registrations for the payment of taxes in order to ensure the improvement of the
taxation system. This would lead to an efficient system and an increase in the government’s
revenue.13

 Relief to the small-scale producers:

Relief must be provided to the small-scale producers in the matters relating to payment of taxes
to ensure social welfare and overall economic growth. The small-scale producers have no
guarantee of income and if relief is provided to them in taxation, then the leftover money would
be invested in the economy giving it a boost. This would also promote better relations between
businessmen and the government.

 Introducing anti-profiteering measures:

Anti-profiteering measures may be introduced by the government of India to ensure that no one
can abuse the taxation system in order to seek unfair profit. This can be ensured by correct
implementation of the laws and ensuring that the taxation system of the country is working
efficiently to avoid any profiteering ventures by traders.14

12
Priya Nawani, 7 Possible Suggestions that Make GST More Compliant | SAG Infotech, SAG INFOTECH
OFFICIAL BLOG (2021), (last visited Mar 24, 2021), https://blog.saginfotech.com/possible-suggestions-gst-more-
compliant#:~:text=Renovating%20ITC%20System&text=The%20ITC%20that%20is%20acquired,a%20refund
%20to%20the%20taxpayers.
13
Dewan P.N. Chopra & Co., Suggestions for Improvement Under GST | Dewan P.N. Chopra & Co., BLOG -
DEWAN P.N CHOPRA & CO., CHARTERED ACCOUNTANTS (2021), (last visited Mar 24, 2021),
https://www.dpncindia.com/blog/suggestions-for-improvement-under-gst.
14
Dewan P.N. Chopra & Co., Supra.
 Conclusion –

To sum up everything that has been stated so far, the introduction of the new GST taxation
system has had positive as well as negative impacts on the economy. The GST model was
implemented in the year 2017 but the idea of its implementation has been around since the
1990s. Many other countries, along with India have implemented the GST system and it has
proven to be effective for their governments. The GST system is complex and relatively new,
which is why many people still have difficulties in understanding how this taxation system
works.

The government may take some steps to ensure the better implementation of the GST system
which include improve targeting for GST collection, removal of technical loopholes, providing
relief to the small-scale producers of India and to ensure that anti-profiteering measures are taken
so that no one can abuse the taxation system for earing unjust profit. These changes in the
existing system may have a positive impact on the society, economy and might increase the
revenue earned by the government through taxes.
 References –

1. https://cleartax.in/s/gst-law-goods-and-services-tax
2. https://taxguru.in/goods-and-service-tax/3-years-gst-recap-30-relevant-landmark-judgments-
part-i.html
3. https://www.financialexpress.com/what-is/goods-and-services-tax-gst-meaning/1620322/
4. http://www.gstcouncil.gov.in/brief-history-gst
5. https://cleartax.in/s/impact-of-gst-on-indian-economy#:~:text=The%20single%20biggest
%20indirect%20tax,market%20of%201.3%20billion%20citizens.
6. https://www.karvy.com/growth-hub/gst/impact-of-gst-on-indian-economy
7. https://www2.deloitte.com/in/en/pages/tax/articles/three-years-of-gst.html
8. https://blog.saginfotech.com/possible-suggestions-gst-more-compliant#:~:text=Renovating
%20ITC%20System&text=The%20ITC%20that%20is%20acquired,a%20refund%20to
%20the%20taxpayers.
9. https://www.dpncindia.com/blog/suggestions-for-improvement-under-gst/
10. https://cleartax.in/s/constitution-amendment-gst#:~:text=Constitution%20(101st
%20Amendment)%20Act%2C%202016,-In%20order%20to&text=The%20delineation
%20of%20powers%20to,duties%20of%20the%20GST%20Council